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EXAMINING LEGISLATIVE PROPOSALS 

TO PROVIDE TARGETED 

REGULATORY RELIEF TO 

COMMUNITY FINANCIAL INSTITUTIONS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

JULY 12, 2017 

Printed for the use of the Committee on Financial Services 

Serial No. 115–28 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

THOMAS MacARTHUR, New Jersey 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

CHARLIE CRIST, Florida 

RUBEN KIHUEN, Nevada 

KIRSTEN SUTTON MORK, Staff Director 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

BLAINE LUETKEMEYER, Missouri, Chairman 

KEITH J. ROTHFUS, Pennsylvania, Vice 

Chairman 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

BILL POSEY, Florida 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANDY BARR, Kentucky 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

MIA LOVE, Utah 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

WM. LACY CLAY, Missouri, Ranking 

Member 

CAROLYN B. MALONEY, New York 

GREGORY W. MEEKS, New York 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

AL GREEN, Texas 

KEITH ELLISON, Minnesota 

MICHAEL E. CAPUANO, Massachusetts 

DENNY HECK, Washington 

GWEN MOORE, Wisconsin 

CHARLIE CRIST, Florida 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

July 12, 2017 ..................................................................................................... 1 

Appendix: 

July 12, 2017 ..................................................................................................... 43 

WITNESSES 

WEDNESDAY, JULY 12, 2017 

Astrada, Scott B., Director of Federal Advocacy, Center for Responsible Lending .......................................................................................................................... 7

Fisher, Robert M., President & CEO, Tioga State Bank, on behalf of the 

Independent Community Bankers of America (ICBA) ...................................... 4 

Nichols, Rick, President & CEO, River Region Credit Union, on behalf of 

the Credit Union National Association (CUNA) ................................................ 5 

Verret, J.W., Senior Scholar, Mercatus Center, George Mason University ........ 9 

APPENDIX 

Prepared statements: 

Astrada, Scott B. ............................................................................................... 44 

Fisher, Robert M. .............................................................................................. 75 

Nichols, Rick ..................................................................................................... 87 

Verret, J.W. ....................................................................................................... 104 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Luetkemeyer, Hon. Blaine: 

Written statement of the Financial Services Roundtable ............................. 107 

Written statement of the American Financial Services Association ............ 110 

Written statement of the Consumer Bankers Association ............................ 112 

Hollingsworth, Hon. Trey: 

Letter from the Consumer Bankers Association ............................................ 116 

Royce, Hon. Edward: 

Written responses to questions for the record submitted to Rick Nichols ... 117 

Tipton, Hon. Scott 

Written statement of the Innovative Lending Platform Association ........... 121 

Letter from the American Bankers Association ............................................. 123 

Letter from the Consumer Bankers Association ............................................ 124 

Written statement of the Center for Financial Services Innovation ............ 126 

Letter from the Financial Services Roundtable ............................................. 128 

Velazquez, Hon. Nydia: 

Written statement of Americans for Financial Reform ................................. 129 

Written statement of Hope Federal Credit Union/Hope Enterprise Corporation .......................................................................................................... 133 

Written statement of the Conference of State Bank Supervisors ................ 136 

Written statement of the Leadership Conference on Civil and Human 

Rights ............................................................................................................. 138 

Written statement of U.S. PIRG ..................................................................... 141 

Written statement of the National Community Reinvestment Coalition .... 143 

(1) 

EXAMINING LEGISLATIVE PROPOSALS 

TO PROVIDE TARGETED 

REGULATORY RELIEF TO 

COMMUNITY FINANCIAL INSTITUTIONS 

Wednesday, July 12, 2017 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2 p.m., in room 

2128, Rayburn House Office Building, Hon. Blaine Luetkemeyer 

[chairman of the subcommittee] presiding. 

Members present: Representatives Luetkemeyer, Rothfus, Posey, 

Ross, Pittenger, Tipton, Love, Trott, Loudermilk, Kustoff, Tenney; 

Clay, Maloney, Meeks, Scott, Velazquez, Green, Heck, Moore, and 

Crist. 

Ex officio present: Representative Hensarling. 

Also present: Representatives Emmer and Hollingsworth. 

Chairman LUETKEMEYER. The Subcommittee on Financial Institutions and Consumer Credit will come to order. Without objection, 

the Chair is authorized to declare a recess of the subcommittee at 

any time. 

Today’s hearing is entitled, ‘‘Examining Legislative Proposals to 

Provide Targeted Regulatory Relief to Community Financial Institutions.’’ 

Before I begin today, I would like to thank the witnesses for appearing. I appreciate your participation and I look forward to a productive discussion. Also, I want to note that one of the reasons we 

have such a light crowd today is we are expecting votes any 

minute. So I apologize for that, but we are going to try to get as 

far as we can with your testimony, and when the votes occur, we 

will take a recess for probably 30 minutes to an hour. I appreciate 

your indulgence, and we will be back to continue the discussions. 

With that, I now recognize myself for 4 minutes for an opening 

statement. This subcommittee has spent a great deal of time exploring the many burdens facing financial institutions. I have 

heard from my friends on the other side of the aisle that there is 

a willingness to work across party lines to offer regulatory relief, 

particularly to community banks and credit unions. Today, we will 

have an opportunity to do just that. 

The work our subcommittee has done this year has led to the 

creation of many of the bills we will consider today. Our first hearVerDate Nov 24 2008 17:43 May 01, 2018 Jkt 028747 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\28747.TXT TERI
2 

ing served to examine the lack of de novo bank and credit union 

charters. As a result, the gentlelady from New York, Ms. Tenney, 

has drafted legislation to streamline the de novo process. 

We have also held hearings regarding the appropriate role of 

Federal financial regulators. Vice Chairman Rothfus has legislation 

to fundamentally change the appeals process, allowing financial institutions to have a fighting chance in what seems to be a process 

with predetermined outcomes that benefit financial regulators. 

Other Members have spent considerable time and energy developing legislation to balance the demand for access to credit with a 

more responsible regulatory regime. Of particular importance to me 

is one of my bills, H.R. 2133, the CLEARR Act. This legislation is 

a compilation of provisions to offer targeted regulatory relief for 

community banks and credit unions. The aim of my legislation is 

to make mortgages more affordable, demand more accountability 

from Washington regulators, and ease requirements on the Nation’s smallest institutions and businesses. 

Many of the members of this subcommittee have offered their assistance with provisions included in the CLEARR Act, and I am 

pleased they will have an opportunity to discuss them today. And 

while we will spend the bulk of the afternoon talking about specific 

measures to offer relief from regulation, what must not be missed 

is the impact this relief will have on our local economies and consumers. 

The greatest impact of the Dodd-Frank Act and other Obama-era 

rules has been on the consumers, the customers of our financial institutions. An example is Michelle from Fulton, Missouri. She told 

me that her daughter, despite having a full-time job, could not get 

a loan to buy her first car. Then there is Matt, a banker in southeast Missouri, who said the regulatory climate makes it harder to 

write a loan with terms that may be in a customer’s best interest. 

Despite what the Federal financial regulators would lead you to 

believe, Washington does not know best. The supervisory and regulatory structure experienced today leaves little to no room for flexibility or innovation, despite the fact that American consumers and 

small businesses continue to struggle to get the financial services 

they need to pursue growth and economic freedom. It is past time 

to demand a reasonable regulatory structure that fosters economic 

opportunity while allowing for robust consumer protection. 

The nine bills that we will discuss today seek to make modest 

changes in an effort to return to a more reasonable regulatory 

structure. We have a distinguished panel with us today, and we 

look forward to your testimony. 

The Chair now recognizes another gentleman from Missouri, Mr. 

Clay, the ranking member of the subcommittee, for 5 minutes for 

an opening statement. 

Mr. CLAY. Thank you. 

And let me first thank you, Mr. Chairman, for holding this hearing to review proposals to provide regulatory relief for smaller institutions. And thank you to the witnesses for your input on these 

important issues. I am certainly willing to consider and support 

tailored regulatory relief for smaller institutions, but before adopting legislative changes, we should be 100 percent confident that the 

proposal is actually designed to provide tailored regulatory relief to 

3 

community financial institutions and not the large banks, and that 

any special consideration for community banks and credit units 

will not expose consumers to abusive and predatory practices. 

As the subcommittee reviews these proposals, I hope my colleagues will not forget the lessons learned from the financial crisis. 

We must understand the true state of the financial services industry in this country today and reject the false claims that the DoddFrank Act has harmed banks and consumers. 

I believe that regulatory relief should always be done with careful consideration in order to protect the safety and soundness of 

our financial system, ensure the independence of our financial regulators, and combat shoddy practices by bad actors that harm consumers. 

Last, I want to call upon my colleagues to actually show their 

support for community financial institutions by working with me to 

ensure that Congress does not follow the Trump Administration’s 

proposal to slash funding for the CDFI fund in Fiscal Year 2018, 

which provides valuable funding to our community financial institutions and the communities they serve. 

I thank you again, each of today’s witnesses, and I yield back the 

balance of my time. 

Chairman LUETKEMEYER. The gentleman yields back. 

With that, we will begin the testimony. 

We want to welcome each of you: Mr. Robert Fisher, president 

and CEO of Tioga State Bank, on behalf of the Independent Community Bankers of America; Mr. Rick Nichols, president and CEO 

of River Region Credit Union, on behalf of the Credit Union National Association; Mr. J.W. Verret, associate professor, Antonin 

Scalia Law School, and senior scholar at the Mercatus Center, 

George Mason University, as well as an alumnus of this Financial 

Services Committee—welcome back; and Mr. Scott Astrada, director of Federal advocacy, Center for Responsible Lending. 

Also, I would like to take a moment of personal privilege to extend a special welcome to Rick Nichols, whose credit union serves 

members across my district, and every day Rick and his staff work 

to ensure that Missourians have the ability to pursue economic 

freedom and create better lives. 

Rick, thank you for making the trip from Jefferson City. We certainly appreciate your participation today. I know the ranking 

member would agree, as well, that it is nice to have another Missourian on the panel. 

Mr. CLAY. It certainly is. 

Chairman LUETKEMEYER. And Rick comes from a little town just 

like I do. So, welcome to the big city. 

With this, we will begin the testimony, and we will explain the 

light system quickly here. Green means go. With 1 minute left, you 

will see a yellow light come on, and that means you have 1 minute 

to wrap it up. And when the red light comes on, I have the gavel, 

which means I get the last word, and it may be ‘‘stop.’’ But we will 

work with everybody as best we can here to make sure you get 

your points made. 

With that, Mr. Fisher, you are recognized for 5 minutes. 

4 

STATEMENT OF ROBERT M. FISHER, PRESIDENT & CEO, TIOGA 

STATE BANK, ON BEHALF OF THE INDEPENDENT COMMUNITY BANKERS OF AMERICA (ICBA) 

Mr. FISHER. Chairman Luetkemeyer, Ranking Member Clay, and 

members of the subcommittee, I am Robert Fisher, president and 

CEO of Tioga State Bank, a $475 million community bank in Spencer, New York. 

I am pleased to be here on behalf of the nearly 5,000 community 

banks represented by the Independent Community Bankers of 

America. We hope today’s hearing sets the stage for legislation 

needed to strengthen local economic growth and job creation. 

Tioga State Bank was founded by my great-great-grandfather in 

1884 to provide needed banking services to local businesses and individuals. I am a fifth-generation community banker who is proud 

to carry out our commitment to the local prosperity. 

Today, we specialize in consumer mortgage and small business 

lending. Many of the rural communities we serve in upstate New 

York depend on us as the only financial institution with a local 

presence. These smaller communities are simply not on the radar 

of larger banks. 

I will focus my testimony on four bills before this subcommittee, 

all of which include provisions recommended in ICBA’s Plan for 

Prosperity. First, H.R. 2133, the CLEARR Act, is a package of provisions chosen to provide relief from some of the most egregious aspects of regulatory burden, government overreach, and legal risk 

facing community bankers today. ICBA is grateful to Chairman 

Luetkemeyer for introducing this important bill, so thank you. 

Approximately half of the bill’s provisions address different aspects of mortgage lending. No area of community banking has been 

heaped with more new regulations in recent years, to the detriment 

of borrowers everywhere. 

As a portfolio lender, I appreciate the needed flexibility provided 

by the CLEARR Act. Loans held in portfolio would automatically 

have qualified mortgage status. This is a simple, clean solution 

that would avoid the inflexible requirements and tortuous analysis 

mandated by the CFPB’s ability-to-repay rule. Loans held in portfolio by a bank with assets of less than $10 

billion would also be exempt from costly escrow requirements for 

tax and insurance payments. And loans of less than $250,000 

would be exempt from appraisal requirements. In our market, an 

appraiser shortage is escalating prices and lengthening turnaround 

times. 

ICBA thanks Representative Kustoff for introducing this provision of the CLEARR Act in a separate bill, the Access to Affordable 

Mortgages Act. Such flexibility is safe and reasonable because portfolio lenders bear the full risk of default and have every incentive 

to ensure the loans they hold are affordable for the borrower and 

are appropriately collateralized. 

Another provision of the CLEARR Act would be to raise the 

HMDA exemption thresholds so that community banks like mine 

would not be forced to complete 48 data fields for every mortgage 

application we receive. In rural communities that I serve where 

people are well known to each other, published HMDA data is a 

threat to consumer privacy. The current exemption thresholds are 

5 

much too low. Raising these loan thresholds will protect consumer 

privacy and provide regulatory relief for many more small lenders 

without a significant impact on the mortgage data available to the 

CFPB. 

In addition to the mortgage lending reforms, the CLEARR Act 

would fully repeal Dodd-Frank Section 1071, a small business loan 

data collection requirement, which has not yet been fully implemented. In my opinion as a commercial lender, this is one of the 

most important provisions of the CLEARR Act. 

Commercial lending is a complex business with customized 

terms, covenants, and rates based on numerous factors unique to 

each borrower. This type of lending cannot be commoditized in the 

way that consumer lending can, nor can it be subject to simplified, 

rigid analysis, which may generate baseless fair lending complaints. I believe that Section 1071 will have a chilling effect on 

lenders’ ability to price for risk. This, in addition to the expensive 

data collection and reporting, may drive community banks from the 

commercial lending market and curb access to small business credit. Other provisions of the CLEARR Act are discussed in my written statement. 

ICBA also supports H.R. 924, the Financial Institutions Due 

Process Act, introduced by Representative Rothfus, which would reform the appeals process for exam findings and bring a higher level 

of accountability to the regulators and their field examiners. 

And, finally, H.R. 2148, the Clarifying Commercial Real Estate 

Loans Act, introduced by Representatives Pittenger and Scott, 

would provide relief from punitive new Basel III capital charges for 

commercial projects that promote local economic development and 

job creation. 

Thank you, and I look forward to answering your questions. 

[The prepared statement of Mr. Fisher can be found on page 75 

of the appendix.] 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

Mr. Nichols, you are recognized for 5 minutes. 

STATEMENT OF RICK NICHOLS, PRESIDENT & CEO, RIVER REGION CREDIT UNION, ON BEHALF OF THE CREDIT UNION 

NATIONAL ASSOCIATION (CUNA) 

Mr. NICHOLS. Thank you. 

Good afternoon, Chairman Luetkemeyer, Ranking Member Clay, 

and members of the subcommittee. And a special thank you for the 

gentleman from Missouri. It’s good to see you. 

Thank you for the opportunity to appear before you today. As you 

noted in my introduction, I am the president and CEO of River Region Credit Union in Jefferson City, Missouri. By any stretch of the 

imagination, my credit union is a small institution. We are about 

$200 million in assets, and we serve about 22,000 members. 

As a result of the tidal wave of new regulations coming out of 

the financial crisis, credit unions like mine, as well as many small 

banks, are forced to operate in a regulatory environment that is 

rigged in favor of large institutions. 

When Washington produces one-size-fits-all regulations designed 

to rein in Wall Street banks, or abusers of consumers, my credit 

union feels the impact more than Bank of America and Wells 

6 

Fargo. They have an army of compliance attorneys and all the resources in the world. I don’t. The system is creating too-big-to-fail 

banks that put all American consumers at risk. 

I appreciate that the subcommittee is looking at legislative proposals to provide targeted relief to community financial institutions. We are being painted with the same brush as those who commit abuses. Overregulation is leading to a decreased number of 

smaller institutions that know their communities and work with 

the people they serve every day. Relief cannot come quickly 

enough. 

America’s credit unions and the 110 million members we serve, 

including 1.5 million members in the State of Missouri, support 

many of the bills that are under consideration. We support Chairman Luetkemeyer’s H.R. 2133, the CLEARR Act. This legislation 

includes several common-sense solutions that will help my credit 

union. Specifically, we support provisions that would adjust thresholds for mortgage servicing and escrow account administration, exempt certain higher-risk mortgages from appraisal requirements, 

repeal NCUA’s 2015 risk-based capital rule, modify the CFPB’s 

UDAAP authority, improve the CFPB’s final HMDA rules, repeal 

the CFPB’s authority to collect small business loan data, end Operation Choke Point, give consumers the right to waive waiting periods on mortgage closures, increase CFPB supervisory authority 

threshold to $50 billion in assets, treat mortgages held in portfolio 

as qualified mortgages, and transfer authority to define ability to 

repay to the FHFA. 

We also support H.R. 924, the Financial Institutions Due Process 

Act. This bill brings fairness to an examination process that is not 

always transparent and an appeals process that has never been 

balanced. It is important for Federal regulatory agencies to be able 

to cite the authority under which they are making material findings during the examination process. 

Further, it is critical that if there is a dispute between the financial institution and the examiner, that such dispute be heard in a 

venue independent of the examiner’s chain of command. H.R. 924 

achieves both of those objectives. 

We support H.R. 1457, the MOBILE Act. This legislation is an 

important step toward helping credit unions and other financial institutions remain competitive in a market increasingly disrupted by 

financial technology companies, who are often subject to fewer regulatory requirements. To the extent that this legislation makes it 

easier for consumers to join credit unions, we view this as a positive step. 

We also support H.R. 2396, which makes changes to the privacy 

notification requirements that will make compliance much easier. 

America’s credit unions greatly appreciate the subcommittee’s 

work on these targeted regulatory relief proposals. The complexity 

of the crisis facing community-based financial institutions means 

that one piece of financial legislation is unlikely to remove all of 

the obstacles facing these institutions in serving consumers. There 

is much, much more work to be done. 

In conclusion, we encourage the subcommittee to continue to pursue additional measures to provide meaningful relief to community 

7 

financial institutions like River Region Credit Union. It is important to keep in mind the people that these regulations affect. 

For example, this folder—I won’t make you read it—contains a 

30-year mortgage loan. This is all the documents that our members 

receive in a 30-year mortgage. Every time we pass something, it is 

just another piece of paper for them to see and less information 

that they actually understand. 

Thank you for the opportunity to testify today. I look forward to 

answering your questions. 

[The prepared statement of Mr. Nichols can be found on page 87 

of the appendix.] 

Chairman LUETKEMEYER. I thank the gentleman, and just a 

quick question, how many pieces of paper are in that folder, do you 

know offhand? 

Mr. NICHOLS. As I told them, we quit measuring by pages. We 

now measure by pounds. 

Chairman LUETKEMEYER. Okay. How many pounds do you have 

there? 

Mr. NICHOLS. I am guessing that one to be about 7 pounds. 

Chairman LUETKEMEYER. Seven pounds of paper. Okay. Great 

visual aid. Thank you very much. 

Mr. Astrada, you are recognized for 5 minutes. Thank you for 

being here. 

STATEMENT OF SCOTT B. ASTRADA, DIRECTOR OF FEDERAL 

ADVOCACY, CENTER FOR RESPONSIBLE LENDING 

Mr. ASTRADA. Thank you. Good afternoon, Chairman Luetkemeyer, Ranking Member Clay, and members of the Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit. 

As noted, I am the director of Federal advocacy at the Center for 

Responsible Lending (CRL), a nonprofit, nonpartisan research and 

policy organization dedicated to protecting homeownership and 

family wealth by working to eliminate predatory financial practices. 

On behalf of CRL, I would like to thank you for allowing me to 

testify today to discuss proposals regarding regulatory relief for 

community financial institutions. 

This important hearing addresses the health of our small banks 

and community lenders in the context of the regulatory structure 

created in the wake of the Great Recession, a regulatory framework 

that corrected systemic gaps and sought to prevent future market 

failures while providing essential protections to consumers in the 

overall economy. 

In setting and implementing these safeguards, regulators have 

utilized a two-tier approach with numerous measures intended to 

decrease compliance costs for smaller lenders and institutions. This 

approach should be continued and expanded. However, dismantling 

central reforms such as the mortgage ability-to-repay standard, or 

expanded QM exemptions, or reducing the effectiveness of the Consumer Financial Protection Bureau, would severely harm consumers, banks, and the overall economy. 

The 2008 Great Recession has showed us the consequences of a 

financial marketplace where there are no basic protections, acVerDate Nov 24 2008 17:43 May 01, 2018 Jkt 028747 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\28747.TXT TERI
8 

countabilities, or transparency. The result was 7.8 million Americans losing their homes to foreclosure, taxpayers on the hook for 

$7 trillion to bail out financial institutions, and an additional $22 

trillion through the Federal Government’s purchase of assets. 

According to the FDIC, more than 500 banks closed their doors, 

with most of these institutions being small community banks. 

These consequences remind us why the safeguards of the DoddFrank Wall Street Reform and Consumer Protection Act are needed 

to protect consumers in our Nation’s economy. All financial institutions, including community banks and credit unions, benefit from 

the underlying purpose of financial regulation: protecting consumers; ensuring the safety and soundness of institutions; and defending the Nation’s financial market from systemic risk. 

Today, financial institutions, including small banks, are recovering steadily. Contrary to theories that Dodd-Frank has stifled 

growth, the financial sector has seen record profits, community 

bank profitability has rebounded strongly, credit union membership 

is growing, and mortgage lending has also steadily recovered. 

Community banks and small lenders play an important and 

growing role in the mortgage market, and loans originated by 

smaller lenders with assets under $1 billion saw the biggest increase between 2012 and 2015, and credit unions alone originated 

$41.7 billion in first lien mortgage loans in the third quarter of 

2016, an increase of 22 percent over the same period of the previous year. 

CRL supports reasonable regulatory flexibility for small depositories. However, we strongly oppose any effort to use regulatory relief for small lenders as a free pass for nonbanks and larger financial institutions to avoid reasonable regulatory scrutiny. 

Just as important, Federal financial regulators like the CFPB 

must be allowed to both protect the American people and ensure 

a fair and sustainable marketplace. The CFPB independent structure and funding should remain as Congress intended so the Bureau may continue its work without gridlock or political interference. Rather than pushing proposals that drastically roll back 

important safeguards for consumers and community banks, we 

should be working on pragmatic, broadly supported proposals that 

provide regulatory relief. For example, further clarification of the 

False Claims Act liability for FHA loans is needed to reduce uncertainty and protect responsible lenders. Another reform is to raise 

the QM safe harbor from 150 basis points over APOR to 200 basis 

points. This would substantially reduce the number of mortgages 

that are classified as higher cost and excluded from safe harbor 

status. 

Finally, a major area of relief could be provided around the Bank 

Secrecy Act and Anti-Money Laundering rules compliance. BSA/ 

AML compliance is a huge regulatory burden and, according to the 

American Bankers Association, is especially burdensome for community banks and credit unions. These laws carry out the essential 

and critical need to prevent our financial institutions from being 

used by criminal enterprises to facilitate illegal activities. 

Currently, the onerous task of determining the true identity of 

owners of accounts falls on the financial institution itself. The 

ICBA and others have asked that Federal and State agencies verify 

9 

account ownership information at the time the entity is formed, 

and bipartisan bills that have supported this solution have been 

endorsed by the Clearing House Association. 

CRL is ready to work with the committee, community banks, 

credit unions and their associations, and regulators to ensure that 

all of these objectives are satisfied through laws and reasonable 

regulations. 

Thank you again for the opportunity to testify today, and I look 

forward to answering your questions. 

[The prepared statement of Mr. Astrada can be found on page 44 

of the appendix.] 

Chairman LUETKEMEYER. Thank you, Mr. Astrada. 

Professor Verret, we welcome you, and before you get started 

here, we have had votes called, and so what we will do, members 

of the panel, is we will have the testimony of the professor, and 

when he is finished, we will call a recess. We will go vote, and then 

we will come back. 

But I think we have about 12 minutes left before we have to 

vote. So, Professor, you are recognized for 5 minutes. 

STATEMENT OF J.W. VERRET, SENIOR SCHOLAR, MERCATUS 

CENTER, GEORGE MASON UNIVERSITY 

Mr. VERRET. Chairman Luetkemeyer, Ranking Member Clay, 

and Vice Chairman Rothfus, I appreciate the opportunity to testify 

today. My name is J.W. Verret. I am a professor of banking and 

securities law at Scalia Law School, and I work with the Mercatus 

Center. 

I want to begin by noting that the legislation under consideration 

today includes vital reforms to the bank exam process and to the 

CFPB and its rules. These changes will begin to alleviate barriers 

to entry, which have made it all but impossible to open new banking institutions in recent years. 

As the dual-banking system evolved over the 150-year period 

since the Bank Act of 1863 was first adopted, a number of States 

set up intentional barriers to entry to prevent out-of-State institutions from competing with home State banks, but Congress and 

Federal regulators eventually stepped in to promote interstate 

branching, first through holding companies and then through efficient preemption of anticompetitive State rules. 

We stand at another such juncture where bank regulatory reform 

is vital to the national interest, and so I commend this committee’s 

attention to that. The exam process for banks is unique in the 

American regulatory structure. In no other field of regulation is the 

relationship between regulator and regulated so close-knit: Examiners take up residence in institutions; communications to them get 

limited legal privilege, similar to one’s spouse or attorney. The 

exam process can work well. It can help remedy financial problems 

particular to an institution without harming the bank’s 

reputational capital, but it can turn ugly when it goes bad. 

Banks report examiners have sometimes issued retributive 

threats for opposing rules in a public notice and comment or have 

issued inappropriate demands that amount to shadow regulation. 

The legislation featured today will begin to ameliorate some of 

these problems. 

10 

Turning to the CFPB, which is one of the most powerful regulators in the financial services space, yet it is also the youngest. 

The Federal Reserves is 100 years old. The OCC dates back to the 

Civil War. These agencies benefit from regulatory culture and a 

wealth of legal precedent defining their operative statutes that 

have evolved collectively over hundreds of years. The CFPB, on the 

other hand, is 6 years old, and I don’t need to remind this committee of the growing pains it has already experienced. That is why 

the proposed change, the broad authority of the CFPB under 

UDAAP, is so essential. 

Words have power in the law because they can be defined over 

hundreds of fact patterns in which impartial judges give words 

meaning. The words ‘‘deceptive’’ and ‘‘unfair’’ have such a clear 

meaning developed over decades of implementation by the Federal 

Trade Commission. The word ‘‘abusive’’ does not. 

Now, I know it is easy to accuse someone making a legitimate 

argument about statutory meaning of being, ‘‘in favor of abusive 

products,’’ and it is an old Washington trick. I challenge any who 

oppose this change, however, to describe a set of facts that would 

be considered abusive but not count as deceptive or unfair under 

the statute. 

Another bill proposed today would establish an intent requirement for violations of ECOA. The CFPB describes itself as a law 

enforcement agency, and indeed, the penalties it collects are often 

large enough to blur the line between civil and criminal sanctions. 

Our criminal laws overwhelmingly recognize an intent or scienter 

requirement in offenses, recognizing that unintentional actions 

taken by people doing their best to follow the law are not morally 

blameworthy. 

Courts interpreting ECOA have also recognized this need for an 

intent requirement in order to award punitive damages under the 

ECOA statute. I would further argue that a clear reading of the 

ECOA statute in light of the holding inclusive communities indicates it does not permit actions based on a theory of disparate impact. 

I also commend the committee’s attention to the use of reputation risk in bank regulation and supervision. Citing to amorphous 

reputation risk has because a new fad among bank regulators in 

recent years, both in justifying rules and in a CAMELS rating process, and it is highly problematic. 

First, regulators have yet to demonstrate that reputation risk is 

a necessary component of the CAMELS rating and of examination 

since existing financial and management measures would capture 

the effect of any reputational problems among bank customers. Second, regulators refuse to use the empirical tools available to them 

to measure reputation risk, such as stock price, event studies, or 

hedonic consumer price studies. And the close association, frankly, 

between this regulatory tool and the Operation Choke Point scandal suggests that careful scrutiny is warranted. 

There are a lot of bills on the agenda today. I know I have only 

touched on a few issues in some of them, but I thank you for the 

opportunity to testify, and I look forward to answering your questions. And may I say, it is good to be back; it feels like home. 

11 

[The prepared statement of Mr. Verret can be found on page 104 

of the appendix.] 

Chairman LUETKEMEYER. Thank you, Professor. 

And I thank each of you for your testimony. We do apologize for 

this interruption, but we do have some things we need to be doing 

here. So we need to take care of some votes. I think we have three 

votes. So we should probably be back around the top of the hour, 

a little bit after. 

With that, I will call for a recess. 

[recess] 

Chairman LUETKEMEYER. Okay. The subcommittee will come to 

order. 

We have a couple of housekeeping things to take care of first. 

Again, thank you, witnesses, for your indulgence. 

Without objection, each of your written statements will be made 

a part of the record. 

And, without objection, the gentleman from Minnesota, Mr. 

Emmer, and the gentleman from Indiana, Mr. Hollingsworth, are 

permitted to participate in today’s subcommittee hearing. While 

not members of the subcommittee, Mr. Emmer and Mr. Hollingsworth are members of the full Financial Services Committee, and 

we appreciate their interest in participating today. So they will be 

able to ask questions and participate here shortly, as well. 

So, with that, I recognize myself for 5 minutes for questions. 

Again, thanks to each of you for being here. 

Mr. Nichols, you represent the credit unions, and a lot of the discussions you had earlier with regards to the CLEARR Act and 

some other bills—what would it mean from the standpoint of cost 

to your organization to have the bills passed that we are talking 

about today? What kind of costs? How would it affect your customers? 

Mr. NICHOLS. The cost is almost immeasurable. We were just 

talking about that, the amount of people that I have involved in 

compliance. Again, we are a very small institution, $200 million. I 

have two dedicated people in compliance, plus I have another six 

to eight people who spend a significant portion of their time in 

compliance. As we look, I will pat this mortgage packet once again. 

That is a post-TRID mortgage packet. TRID by most accounts doubled the amount of time that it took to complete a mortgage loan. 

So, if you really look at that, all my cost—obviously there would 

be a savings. The cost to the consumer, my owners, my members, 

every dollar that I save I pass on to my members. So it is immeasurable. 

Chairman LUETKEMEYER. Mr. Fisher, you made quite a bit of a 

discussion with regards to the portfolio, being able to hold some of 

the loans in portfolio. Would you explain that and explain how important it is to an institution of your size to be able to do something like that? 

Mr. FISHER. As a portfolio lender, we do sell some loans off to 

the Federal Home Loan Bank, but the majority, probably 65 to 70 

percent of every mortgage we write, we hold on our books. So we 

bear the full risk. If a loan goes bad, we take the loss, nobody else 

takes the loss. It is our bank that takes the loss. So to have QM 

12 

status on anything we hold in portfolio would be very valuable to 

us. And it is just— 

Chairman LUETKEMEYER. Does it deter you from making loans, 

to have this QM status—or not being able to hold all of them in 

portfolio? 

Mr. FISHER. We have always been kind of a nontraditional lender. We have always done a lot of nonconforming mortgage lending. 

So, when they came out with a qualified mortgage status, we made 

a decision that we were not going to stop doing non-QM loans. So 

we continue to make non-QM loans today, and we have decided to 

take that risk on, but I do know a lot of bankers who have exited 

the mortgage business or do not do any non-QM lending. 

Chairman LUETKEMEYER. It is interesting, Mr. Nichols, with 

your pile of papers next to you there, I was talking to a banker the 

other day, and he said, I can do a $50,000 brand new truck loan 

in about 60 to 90 minutes, and it takes me 60 to 90 days to do a 

$50,000 home loan. And then you have to spend $2,500 probably 

to put that packet of papers together for the individual, plus you 

look at the assets that you have as collateral: one is depreciable, 

and it is going to be movable, it can leave the country; and the 

other one is stationary and will probably appreciate. We have a 

huge disconnect here in my mind with regards to how we look at 

housing finance. I know, in the CLEARR Act, what it will do is 

take some of those HMDA things back down to the 2008 levels, so 

people can actually knock off some of the cost and some of the nonsense you are having to put up with here. 

And I am sure every single person who comes in your institution 

reads every one of those pieces of paper, too, right? 

Mr. NICHOLS. That is part of the issue, is the more paper we give 

them, the less they end up reading, by nature. 

Chairman LUETKEMEYER. It is interesting because my father 

passed away a few years ago and my mother passed a few years 

before that, and my brother and I sold their home. And it took me 

nine signatures and an initial to sell the property. That is not to 

go buy it. The buyers had to do that. I still had a packet of papers 

this thick. That is how out of whack this whole system is. Thank 

you very much. 

Professor Verret, you talked a little bit about the abusive practices and reputational risk. This is something that really irritates 

me with regards to regulators. They can’t define either one of these 

things, yet they throw them at bankers and the credit union folks 

as a way to intimidate them into doing things. Would you like to 

talk a little bit about how over the top this is and how irrational 

some of these discussions are? 

Mr. VERRET. Yes. I think a prime example has been the use of 

reputational risk in the physical commodities rulemaking that the 

Fed was considering for a time that I think they probably dropped 

with the change in Administration. I have sat down and asked 

these guys: How are you measuring reputational risk? 

And they will try to tell me: Well, you can’t measure it. 

Or they would say: Well, it seems like some banks have gotten 

out of this, and so it must have been risky. 

13 

And I ask them: Maybe they got out of it just because of the attention from HSGAC and because of your complaints. Maybe you 

are the reputational risk to the banking system. 

And then they would talk to me about the size of potential liability, and I would say: They pay billions of dollars a year in securities class actions. Are securities class actions—is being publicly 

traded a reputational risk to the banking system? 

And they would say: That does not compute; I don’t know how 

to answer that question. 

It is a nonsensical approach, I would say. 

Chairman LUETKEMEYER. Okay. Thank you very much, Professor, and I appreciate everybody’s comments. 

I am out of time. 

With that, we go to Mr. Scott from Georgia. He is recognized for 

5 minutes. 

Mr. SCOTT. All right. Thank you, Mr. Chairman. 

First of all, I want to thank Mr. Pittenger—I believe he is here— 

for working with me and my staff to put forward H.R. 2148. And 

because of this bipartisan work, we are able to introduce bipartisan 

legislation that will clarify pesky commercial real estate rules. 

Now, let me explain why we need this bill. First of all, the commercial real estate loan industry works in a somewhat complicated 

way, but starting in 2015, real estate loans that are classified as 

an HVCRE, which is high validity commercial real estate loan activity, and for those watching on C-SPAN, you see what I mean 

when oftentimes we make things a little more complicated. But because of that rule, overnight it became much more expensive because of the rules from the FDIC to the industry. 

Now, let me be clear that the financial crisis saw a lot of banks 

go under because of their heavy exposure and risky commercial 

real estate. I might add that my dear State of Georgia led the Nation in bank closures repeatedly during this period for a number 

of years. So, moving to add more capital cushion to the riskiest of 

loans does make a lot of sense. However, the FDIC wrote an overly 

broad and very vague rule that failed to grasp the real-world problems in this area. So all our legislation does is provide the clarity 

of which types of loans should and should not be classified as these 

HVCRE loans, high validity commercial real estate loans. 

Now, Mr. Pittenger’s and my legislation does not eliminate the 

FDIC’s ability to require banks to hold higher capital for these 

loans. Our language does nothing to the higher standard that was 

set in 2013. So that is our bill, but we have two distinguished 

CEOs of banks on the panel, Mr. Fisher and Mr. Nichols. I would 

like know what they have seen firsthand. 

You guys are out there in the field getting the crops in on all of 

this. We are just in here trying to give you a level playing field to 

be able to conduct your business. Tell us what is happening in the 

construction and financing side, the real estate side of your business since 2015 when these high validity commercial real estate 

(HVCRE) loans came out. 

Mr. FISHER. Well, Congressman, I appreciate the question and 

the bill. ICVA obviously is supportive of this bill. Where I am at 

in upstate New York we have not had a great deal of commercial 

activity as far as a lot of commercial real estate expansion. We do 

14 

a lot of commercial real estate financing, but we don’t have a whole 

lot of HVCRE in our market. So I don’t know if Mr. Nichols has 

experienced anything different, but we would support a simplification and clarification of the current rule that is out there, so we 

appreciate that. 

Mr. SCOTT. Yes. 

Mr. Nichols? 

Mr. NICHOLS. Congressman, as I understand it, that bill is FDIC 

specifically, and the credit unions don’t have a position on that. 

Mr. SCOTT. Okay. Very good. Let me go to another bill that we 

have sort of working with Mr. Tipton, and ask you again, Mr. Fisher, or anybody, about House Resolution 1457. And there is no doubt 

that customers are relying less and less on walking into a branch 

for their banking needs instead of turning to their phones. But another trend is happening simultaneously, which is an uptick in 

bank mergers. This is particularly impactive for rural communities 

in my district who usually only have one bank within miles from 

where families live, and this means that Americans’ taste for walking into branches is declining. 

So Mr. Tipton’s bill, which I am also sponsoring, the MOBILE 

Act, caught my attention because it addresses these headwinds facing community banks by creating a uniform nationwide standard 

where banks can easily scan a driver’s license, or a State ID using 

a mobile device. My time is up. Maybe I will have a chance to come 

back and ask you more about that. Thank you Mr. Chairman. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

The gentleman from Pennsylvania, the vice chairman of the subcommittee, Mr. Rothfus, is recognized for 5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Mr. Fisher, I often hear from small business owners who complain they have difficulty getting bank loans after an off year despite having ample collateral or a strong track record. When I discuss this issue with community bankers, they usually tell me that 

they are wary of making loans to customers with suspect cashflow 

because they are concerned about receiving criticism from regulators. In other words, bankers who know that a potential borrower 

has sufficient collateral and a strong track record are being discouraged by regulators from exercising their discretion and providing capital to small businesses. Is this a problem that community banks like yours often face? 

Mr. FISHER. We often are criticized on certain loans that we 

make even to longer-term customers. We have had loans on the 

books where maybe a customer, as you mentioned, has one bad 

year out of three, and the loan gets classified or written up as 

being a substandard loan. One bad year does not necessarily mean 

it is a bad loan. The loan is still paying as agreed, so I would— 

it obviously has a negative impact on us making future loans. 

Mr. ROTHFUS. Do you believe that the regulators are arbitrarily 

discouraging banks from providing loans to small businesses that 

banks have confidence in? 

Mr. FISHER. I am not sure if it is arbitrary. I believe that sometimes it is a focused effort to discourage us from making certain 

types of loans at times. 

15 

Mr. ROTHFUS. Do you view the current examination process as 

a hindrance to small business access to capital? 

Mr. FISHER. I can tell you that the current examination process 

is a hindrance to making loans and doing business. From the time 

I get my first day letter to the time I close out an exam period with 

an onsite examination, our focus is not on serving our customers. 

Our focus is on serving our regulators or examiners who are onsite, 

and if I look back at probably a 10-year earning history, quarterly 

earning history, I think I could pinpoint exactly each quarter that 

I have had an examination by looking at our earnings for that 

quarter. 

Mr. ROTHFUS. Can you suggest some ways Congress can address 

this? 

Mr. FISHER. I think by just having a more focused examination 

approach and maybe even reducing the number of examiners who 

come onsite, not having—I am a $475 million bank. For a safety 

and soundness exam, I think we had 10 or 12 examiners onsite for 

a safety and soundness examination, which seems like a little bit 

of overkill. 

Mr. ROTHFUS. Mr. Nichols, I want to ask you a question. I had 

a conversation with a small business banker. It could have been in 

any other circumstance, a credit union, who recently told me a 

troubling story about a disagreement he had with his onsite examiners. When the examiners told the regional office of the disagreement and conveyed the banker’s desire to appeal the examination 

conclusion, the regional officer for the regulator arranged a call 

with the bank and its legal counsel. 

The regional officer for the regulator conceded during this call 

that the bank had the right to appeal the matter, but strongly advised against doing so. He then informed the bank that he had already spoken to the so-called independent regulatory reviewers and 

that the bank would lose its appeal. Based on my experience, these 

stories are not uncommon. They serve to underscore the importance of the Financial Institutions Due Process Act, which creates 

a fair or more independent and more transparent process. 

Do you see the need for an impartial system of checks and balances to ensure that disagreements with regulators are handled 

fairly and on a timely basis? 

Mr. NICHOLS. Absolutely. From a clarity standpoint, I can’t agree 

more with what Mr. Fisher said. From a clarity standpoint, if the 

laws are written in black and white, and we can see what the law 

is, and there aren’t ambiguous rules that we are supposed to be 

paying attention to, it makes it a lot more clearer to us. If we disagree with those examination findings, there should be an independent process that we can follow outside of that chain of command. 

Mr. ROTHFUS. I was struck looking at and listening to some of 

Mr. Astrada’s testimony and his written testimony, that financial 

regulations are not slowing economic growth or preventing lending. 

I read a piece recently by an economist, Steve Strongin, who talked 

about the two-speed economy. The big firms are doing fine. They 

are lending. It is rosy, almost as rosy as the picture painted in Mr. 

Astrada’s testimony. But then there is the slow lane, and there are 

a lot of folks struggling out there. And Mr. Strong estimates that 

16 

as a result, directly because of the financial regulation that we 

have seen over the last 8 years, there are 650,000 fewer small businesses and 6.5 million fewer jobs. I wonder if you had any reaction 

when you were listening to Mr. Astrada’s testimony? 

Mr. Fisher? 

Mr. FISHER. Obviously, I didn’t agree with most of his testimony 

that he gave. I do feel that a lot of the regulation, especially if you 

look at my market in upstate New York, we are really struggling. 

We have never really fully recovered from the economic crisis. So, 

while I do believe that there has been some positive impact in 

other areas of the country where the recovery is stronger, it is still 

a struggle in my market. And regulatory efforts make that difficult. 

Mr. ROTHFUS. I yield back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

Mr. Meeks of New York is recognized for 5 minutes. 

Mr. MEEKS. Thank you, Mr. Chairman, and thank you to our 

witnesses at this important hearing. And although there are some 

proposals on the table that raise some serious concerns for me, 

there are others that I believe have the potential for strong bipartisan support, and in my view, if we work together, we can improve 

some. 

I, for one, have always been a supporter of encouraging banks 

and credit unions, which are highly regulated institutions, to reenter and/or enter the small dollar lending space. I think Mr. Hollingsworth has made a sincere attempt to tackle this issue, but I 

believe the bill can be substantially improved by: one, increasing 

access to capital; and two, maintaining reasonably strong consumer 

protections. I think we still have to do those two things, but I look 

forward to working with Mr. Hollingsworth and his staff to address 

some of my concerns with this bill and to potentially reach bipartisan agreement on how we can encourage banks to re-enter the 

small dollar lending space as an alternative to less safe and costly 

alternatives out there because I know, from my life experience, 

that folks are going to try to find a way where they need a small 

dollar loan, they need to get one, and I want to make sure they 

have the protection, et cetera. 

So let me start with Mr. Nichols. In your testimony, you mentioned that nearly 93 percent of credit unions offer or are considering offering small dollar loan products to their members. Now, 

many disagree on what the appropriate underwriting status should 

be for small dollar loans given their size. Some argue that there 

should be no underwriting requirements at all. Others argue a different way. So my question to you is, from your experience dealing 

with the risks associated with these products, what is the most appropriate level of underwriting that should be required of a loan of 

less than $1,000? 

Mr. Nichols? 

Mr. NICHOLS. Let me start by saying I am a member-owned organization. Every person who comes in to do business is an owner of 

mine. So when we talk about what dollar amount I should consider, 

it is what dollar amount makes sense for that member. So if a person comes in and they have a small dollar need, whether it be for 

a new appliance, or whether it be for something to get them 

through to the next payday, we hear those stories, we deal with 

17 

those people every day of the week. Every circumstance is different. 

Every time is something unique. We use that for financial counseling. We work with them and say, let’s develop a plan for you in 

the future. I don’t know that all credit unions nationwide are designed that way. Again, we are owned and operated by the people 

we serve. So that is what we are about. 

Mr. MEEKS. That is extremely important, but let me go then to 

Mr. Astrada because my concern is that there are individuals who 

are not members of credit unions who need these small loans, and 

they have no place else to go. And I know from my old neighborhood, if they had to and there is no one else that was going to give 

them a loan, they would go to a loan shark. But since the OCC and 

the FDIC has issued depository advance product guidance, nearly 

all banks that offered these products have discontinued their programs. There are no banks in this small—most of them are all 

done. And although the OCC’s and the FDIC’s guidance includes 

principles that I am supportive of, I am still concerned that there 

are virtually no more banks that offer this product today. 

So, Mr. Astrada, do you have any alternative proposals policymakers can consider to incentivize banks and credit unions—we 

hear what the credit unions have to say—to re-enter the small dollar lending space, yet maintain reasonably strong consumer protections? 

Mr. ASTRADA. Thank you for that question, and thank you for 

your work on this. I would just preface that with the importance 

of that guidance and how the banks have withdrawn from that 

space as indication of how damaging that can be on communities. 

Once those bank loans look like payday loans, they have the same 

effects of payday loans. And CRL actually just issued a brief today 

on the negative impacts of what we are calling bank payday loans, 

and we feel that before any innovation or before any proposal can 

have legs, we need to ensure that that guidance and those regulations and those protections for consumers who are seeking small 

dollar loans are not repealed or rolled back by current proposals. 

So I do look forward to working with your staff and continuing 

to find actual suggestions, but until we ensure that the regulatory 

environment now doesn’t repeal that guidance and keeps the bad 

actors from being predatory lenders, in essence, I think that should 

be the first step toward this discussion. 

Mr. MEEKS. I am out of time. I yield back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

With that, we go to the gentleman from North Carolina, Mr. 

Pittenger, for 5 minutes. 

Mr. PITTENGER. Thank you, Mr. Chairman. I appreciate you calling this hearing, and I thank each of you for coming, for taking 

your valuable time to be with us on such critical issues. I would 

like to talk about H.R. 2148, Mr. Fisher, that you brought up 

today, the HVCRE legislation. I would like just to get some personal thoughts on how this rule affected your commercial real estate lending activity? 

Mr. FISHER. I think commercial real estate or commercial real estate lending in upstate New York is—it is the majority of the commercial lending that I do. We do a lot of C&I and commercial real 

estate, but we don’t have a huge amount of commercial real estate 

18 

lending growth in rural upstate New York where I am located, so 

it is— 

Mr. PITTENGER. What is your understanding relative to the financial institutions, the banks, and the impediments this rule has 

had for them in making commercial real estate loans? 

Mr. FISHER. I believe that we are in agreement with the legislation that you proposed, and we would definitely support this bill 

going forward, and I think it would be a positive impact on community banks’ ability and clarify some of the guidance as far as their 

lending so— 

Mr. PITTENGER. Do you have some thoughts in terms of the economic consequences of not clarifying the HVCRE bill? 

Mr. FISHER. I think not clarifying it will continue to restrict commercial lending as far as definitely commercial real estate, HVCRE 

lending. 

Mr. PITTENGER. From your experience, do you believe that the 

regulatory agencies will resolve this issue, or do you believe that 

this legislation is warranted and necessary? 

Mr. FISHER. I think this legislation is definitely warranted and 

necessary because, if left up to the agencies, I am not sure we will 

get the clarification that you are providing. 

Mr. PITTENGER. If any of you want to pitch in on these issues, 

you are welcome to. I don’t know particularly your backgrounds in 

it, but I would like to know your concerns about the economic consequences of what we refer to as the wall of maturities, which is 

approximately a billion dollars a day of commercial real estate loan 

maturities. 

Mr. FISHER. I’m sorry. I didn’t understand the question. 

Mr. PITTENGER. It is called the wall of maturities. What is your 

understanding of that and the billion dollars a day of loan maturities that we have, the economic consequences of those. 

Mr. FISHER. I am not sure I— 

Mr. PITTENGER. Are you familiar with that? Okay. Well, are you 

concerned about the cumulative impact of various Dodd-Frank and 

Basel III measures, then, on commercial real estate credit capacity 

and liquidity? 

Mr. FISHER. Some of the Basel III will definitely restrict commercial lending as we go forward. 

Mr. PITTENGER. Yes, sir. Any comments down the line? 

Okay. Are you starting to see a slowdown in the bank lending 

for commercial real estate as a result of—is this your experience, 

your background, your awareness from your other— 

Mr. FISHER. We have seen a slowdown since 2008, 2009, sir, and 

it has just kind of really been fairly stagnant in rural upstate New 

York. 

Mr. PITTENGER. What do you believe are the other factors that 

would contribute toward reestablishing the positive real estate environment? What would the overall market conditions relative to 

tax reform, regulatory reform on banks, what are your major impediments that you see that are keeping back your economy in 

northern State New York? 

Mr. FISHER. I think there is a vast array of issues that are causing some of the issues in New York. We are seeing a migration of 

people out of our area. We are not retaining some of our youth. I 

19 

think it is taxes. It is energy prices. There is a multitude of issues 

that is causing some of the issues, but obviously we try to be the 

economic engine in our communities, and anything that can clarify 

and help us make more loans into our community would be beneficial. 

Mr. PITTENGER. So you say that, if we would be able to bring 

some clarity to this HVCRE rule and other impediments in terms 

of the regulatory environment, that that would be an enhancement 

to our broader economy, and you feel the burden could be lifted on 

the financial institutions? 

Mr. FISHER. Most definitely, sir. 

Mr. PITTENGER. Okay. Any other comments from any of the rest 

of you? 

Thank you, and I yield back. 

Chairman LUETKEMEYER. The gentleman yields back. 

With that, we go to the gentlelady from New York, Mrs. Maloney, for 5 minutes. 

Mrs. MALONEY. Thank you very much, Mr. Chairman. 

And while I have some strong concerns with a few of these bills, 

other bills strike me as a good bipartisan effort to address very serious issues such as Mrs. Love’s and Mr. Ellison’s H.R. 864, Mr. 

Trott’s bill with Ranking Member Clay on privacy notices, and Mr. 

Tipton’s bill on mobile banking. 

I would like to ask you, Mr. Astrada: I am intrigued by Congressman Tipton’s MOBILE Act, which is trying to address a legitimate 

problem, how to make it easier for people who live in rural areas 

without physical bank branches to open bank accounts. What are 

your thoughts on this bill? Are there any potential unintended consequences from allowing financial institutions to use an image of 

a State-issued ID for purposes of verifying a customer’s identity? 

Mr. ASTRADA. Thank you for that question, and as is our practice, CRL is always open and encouraging access to financial products and wealth building. I think, for this particular bill, just the 

concerns that we would raise is that the potential of State preemption issues of the States that don’t allow such practices and the 

consumer protections that don’t kind of go along with— 

Mrs. MALONEY. But this would be a Federal bill. 

Mr. ASTRADA. Right. So the States that don’t allow the electronic 

storage or transmission would not have maybe the accompanying 

consumer protection laws for customer privacy or data loss. So that 

would be our concern, not so much in terms of expanding the access, especially to rural areas. It would be more the concern of, 

once State laws are preempted that don’t permit such electronic 

storage, what are the consumer protections that are present, especially when every month or every couple of weeks, we are getting 

news of an information hack or breach from some of the richest and 

most well-designed infrastructures in the country, never mind regional banks. So from CRL’s perspective, that would be the area 

where we would have some concern. 

Mrs. MALONEY. Would anybody else like to comment on the bill? 

Mr. NICHOLS. If you don’t mind, from a different, very human 

perspective, I have three daughters, and if I sit down and watch 

my daughters, they live on their cell phones. That is their operVerDate Nov 24 2008 17:43 May 01, 2018 Jkt 028747 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\28747.TXT TERI
20 

ational life. I am sure each one of you can sit around your family 

or in a restaurant and do the same thing. 

We have to adjust, in our environment, to be able to serve people 

the way they want to be served, through the channels they want 

to be served. It is very important that we keep all that data safe, 

that data along with other data. But I really appreciate the effort 

of moving forward with something like this that helps us adapt and 

try to do it in a very safe manner. 

Mrs. MALONEY. Okay. 

Would anybody else care to comment? 

I think it is a real concern in these rural areas. Upstate New 

York has huge swaths of land that don’t really have banks there. 

Mr. NICHOLS. If you don’t mind, I come from a town of about 300 

people. So—along with Congressman Luetkemeyer—and there 

are—there are 20 miles between the towns in many cases. So I 

really do appreciate your response there. 

Mr. VERRET. I would also support this idea as essential to bringing a new generation of millennials into banking products, and I 

think it is also going to be essential in the fintech space. We are 

going to have to think in a big way about preemption in the fintech 

space for it to work, not just with respect to licenses but with respect to a wide variety of issues. 

Mrs. MALONEY. Thank you. I am rather intrigued by it. 

And I would also like to ask you, Mr. Astrada, about the CFPB’s 

authority to penalize abusive conduct. One of the bills, H.R. 2133, 

would repeal the CFPB’s authority to penalize abusive practices 

and conduct—the UDAAPs. And even though the CFPB has used 

this authority many, many times, most recently when Wells Fargo 

had the fake account scandals, the CHOICE Act contained a similar provision. I offered an amendment to reinstate this authority 

over abusive practices. 

And one of the arguments that we heard from the other side of 

the aisle was that the CFPB did not need separate authority over 

abusive practices because any practice that would be considered 

abusive would also be illegal under other laws. 

Can you address this argument? Why is it important for the 

CFPB to have the authority to penalize abusive acts and practices 

separately? 

Mr. ASTRADA. I will answer that quickly, because I know we are 

running out of time. I would just express a strong concern about 

melding those two terms together, and that both of those terms, especially ‘‘abusive,’’ has specific definitions in Dodd-Frank and has 

specific definitions that apply to different practices. So to say that 

one would be the other is a fallacy. 

Mrs. MALONEY. Thank you. My time has expired. 

Chairman LUETKEMEYER. The gentlelady’s time has expired. 

The gentleman from Tennessee, Mr. Kustoff, is recognized for 5 

minutes. 

Mr. KUSTOFF. Thank you, Mr. Chairman. 

And I do want to thank the witnesses for appearing here today 

and indulging us when we had to take our recess earlier. 

Mr. Fisher, I do appreciate your comments that you made about 

the bill that I will be introducing, the Securing Access to the Affordable Mortgage Act. And I would like to ask you and Mr. NichVerDate Nov 24 2008 17:43 May 01, 2018 Jkt 028747 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\28747.TXT TERI
21 

ols both, as it relates to that, I think we can all agree that the 

American Dream includes being able to purchase a home. Now, for 

many first-time home buyers, that ability has become just that, a 

dream, and it has become one that is increasingly becoming out of 

reach for a number of them. 

Part of the problem is, in my opinion, in rural communities—and 

I represent west Tennessee, which is the Memphis area, but I also 

have a lot of the rural part of west Tennessee—we lack an adequate number of qualified appraisers. And under the current standards, as I think you all know and you have talked about, the costs 

associated with an appraisal on a real estate loan are high compared with the property’s purchase price. 

If I could, Mr. Fisher, from your standpoint, from a real-world 

perspective, can you explain to us how the current home appraisal 

process has impacted mortgage loans on community banks like 

yours? 

Mr. FISHER. Sure. We are in a very small town, part of rural upstate New York. Spencer is a village of about 860 people. It was 

that in the year 2000, and it was also that in the year 1900, so it 

has been pretty—I think there are different people. But the appraisal process becomes difficult. 

We have definitely seen a reduction in the number of appraisers, 

certified appraisers, who are available to do appraisals for us in 

some of our rural markets, which has increased the price and also 

delayed the turnaround time in getting an appraisal done. So it has 

lengthened the process. It has increased the cost to the borrower. 

And I would say it has had a very negative impact on borrowers. 

Mr. KUSTOFF. Thank you. 

And, Mr. Nichols, can you talk about that from a credit union 

perspective? 

Mr. NICHOLS. I can. So my question would be, have you ever 

heard of St. Elizabeth, Missouri? Jamestown, Missouri? 

Centertown, Missouri? Appraisers haven’t either. You cannot get 

comps. That is a severe issue. So, when you go to those more rural 

areas, to meet the secondary market guidelines that were established post-crisis, you cannot get reasonable comps. So it is a tremendous, tremendous issue. 

We both share the same issues trying to get a reasonable appraisal. A lot of the rules that came into the appraisal process were 

needed, and I think we have much better appraisal rules. However, 

the recognition that the cost of appraisals has gone up and the ability to get appraisers is really tough. 

Mr. KUSTOFF. Thank you. 

And, Mr. Fisher, going back to you for a moment. If you could 

wave a magic wand and create a standard for appraisals for properties, how would you craft it? What dollar limit would you look at? 

What would be the criteria that you would look at to make it fair? 

Mr. FISHER. I think your proposal to have a $250,000 limit on 

the loan is very reasonable to be able to do an in-house evaluation 

or some type of independent review of that property value. I think 

that would definitely make the process less expensive, quicker, and 

still most of those loans were portfolioing anyway, so the risk falls 

on us to do a proper evaluation, so— 

22 

Mr. KUSTOFF. You may have said, but what is the population of 

your community? 

Mr. FISHER. The county that I live in, Tioga County, has about 

50,000 people. The population of the town of Owega is probably 

about 10,000, so— 

Mr. KUSTOFF. Thank you. 

Mr. Nichols, I will ask you the same question. If you could craft 

a law, create a standard, what would it look like? 

Mr. NICHOLS. Again, I do agree with $250,000 for in-house loans. 

And again, that local expertise that we can rely on is very valid, 

and we understand the risks involved there and understand the 

properties. 

Mr. KUSTOFF. Thank you very much. 

I yield back the balance of my time. 

Mr. NICHOLS. Thank you. 

Chairman LUETKEMEYER. The gentleman yields back. 

And, with that, we go to the gentleman from Washington, Mr. 

Heck, for 5 minutes. 

Mr. HECK. Thank you, Mr. Chairman. 

I think it was just last week we had a pretty interesting hearing, 

and part of the conversation got toward the regulatory burdens associated with compliance with the Bank Secrecy Act. I looked at 

the notice for this week, and I kind of got excited. I am one who 

believes there should be some regulatory modernization. 

But I said last week, and I will say again, I went on an extensive 

tour literally over a year’s period of time in my district visiting 

with small and large and medium-sized banks and credit unions, 

and I had a sole objective: Show me your compliance burden. Walk 

me through your compliance burden. And the number one grievance I received was the Bank Secrecy Act. 

There are some good ideas in some of these bills today. Some of 

these bills are good. Some I think go, frankly, way too far, but I 

don’t see any discussion of the Bank Secrecy Act. We could go 

small CTRs, set in 1972 at $10,000. If I did my back-of-the-envelope calculation accurately and we held it harmless for inflation, we 

would be talking $60,000 today. And I heard that everywhere I 

went. When they would stack the papers in front of me saying, 

‘‘This is what we have to do,’’ an awful lot of it dealt with the Bank 

Secrecy Act. 

Look, we all want effective counterterrorism and anti-moneylaundering and anti-organized-crime safeguards in place, but the 

grievance I got was that the benefit is way out of proportion to the 

effort required. And, frankly, the benefit was not transparent in 

many insistences. 

So I know you are here today to talk about these other bills, but 

I guess I am curious as to whether every financial institution in my 

Congressional district is abnormal in this regard, or if you could 

say a sentence or two, Mr. Fisher and Mr. Nichols, about Bank Secrecy Act compliance effects on your institution. 

Mr. Fisher? 

Mr. FISHER. I appreciate the ability to make some comments. 

The Bank Secrecy Act is by far—it is a huge burden on community 

banks, and we would greatly appreciate the $60,000 CTR limit 

would be huge. 

23 

Mr. HECK. Let the record show I didn’t actually specifically propose $60,000, just an appropriate adjustment as collaboratively arrived at. 

Mr. FISHER. We are a bank. We have 97 full-time-equivalent employees. I have one employee who is completely dedicated 100 percent to BSA. Plus, as a banker, we have to—we purchase software 

that we pay annual maintenance on because no physical person can 

do all the BSA monitoring that is required by us to do. 

One of the things I do think would be great is if we got a tax 

credit for the money that we do spend on BSA, since it is really 

a government—it is helping the government out, not really helping 

my bank out so— 

Mr. HECK. Mr. Nichols? 

Mr. NICHOLS. BSA, obviously, is an incredible burden. You can 

leverage the cost-benefits. It is such an expansive piece of legislation, it would really be hard to cover that. 

Mr. HECK. Do you agree that it is not apparent to those of you 

upon whom the compliance burden falls what the benefit is in proportion to the effort required? Or are you fully embracing the Bank 

Secrecy Act as written with every crossed ‘‘T’’ and dotted ‘‘I’’ existent in the statute? If so, Mr. Fisher would like to talk with you 

after the hearing. 

Mr. NICHOLS. No, I think that is a loaded question. 

Mr. HECK. Oh, really? How perceptive of you. 

Mr. NICHOLS. No, the BSA, obviously, is quite burdensome, as is 

anything CFPB-related. 

Mr. HECK. It predated CFPB. Let’s be clear about that. 

Mr. Astrada, I have one last question for you. I note with interest in your conclusion that CLR understands and supports the need 

for appropriate regulatory flexibility for small depositories. 

Okay. Name two. 

Mr. ASTRADA. Name two? 

Mr. HECK. Increased regulatory flexibilities that you think would 

be appropriate. Because I think regulatory modernization is an 

idea whose time has come. My big issue on this committee is that 

we overreach and then get nothing. You have said, having put together some really well-written objections to what we would agree 

is regulatory overreach, that you think appropriate regulatory flexibility is—there is a need for it. So be specific. Help us out here, 

Mr. Astrada. We are trying to make some progress. 

Mr. ASTRADA. And I did make a fine point in some of my oral 

testimony, especially considering BSA reform. We think there is a 

lot of promise and the ICBA supported having the identity—the account owner information verified at the time the entity is formed 

by Federal or State agencies, to take the onus away from the Federal institution. 

If you want to go into a mortgage, we said that we think that 

is a fair and effective increase of the QM standard of 200 basis 

points over APOR, as opposed to 150, which would greatly extend 

the amount of mortgages that are currently excluded from safe harbor. 

So there are a few, and I would be more than happy to send to 

your staff— 

24 

Mr. HECK. We would appreciate—I am way over my time here. 

And you are incredibly indulgent. 

Thank you, Mr. Chairman. 

And thank you, Mr. Astrada. Please do send them. 

Mr. ASTRADA. Thank you. 

Chairman LUETKEMEYER. I thank the gentleman from Washington. His time has expired. 

Just a heads-up in response to your questions, gentlemen. That 

is the reason that we had an entire hearing 2 weeks ago on BSA. 

It is an important issue, extremely important, and it is something 

that the financial institutions have brought to our attention, and 

that is why we dedicated one entire hearing to that. 

But I appreciate you bringing it up again because it is very important that we continue to hear from the folks who are in the 

field, who have to deal with this issue, because it is very, very important. 

The gentleman from Georgia, Mr. Loudermilk, is recognized for 

5 minutes. 

Mr. LOUDERMILK. Thank you, Mr. Chairman. 

As has been mentioned many times in these hearings, Georgia 

was specifically hit hard during the financial crisis, and lost more 

banks than any other State. And as Professor Verret, I think, adequately stated, it was regulatory barriers, I think, is what is suppressing the creation of new banks, which has left a void. In Georgia, we have 52 counties that have no community bank in them. 

We have three counties that have no bank whatsoever, no bank 

branch at all. And so I am really pleased about the hearing and 

the bills we have here. But one of the bills that I am cosponsor of, 

the MOBILE Act, will actually bring I think some commonsense reforms to remove some barriers that would allow a lot of our underbanked or unbanked communities, such as these rural areas that 

have no bank branch whatsoever, to use technology. 

The irony is, Georgia is also leading in the fintech market in certain areas. So, Mr. Nichols, I was wondering, could you just mention how some of these common-sense reforms would actually help 

in removing some of these barriers to implement technology? 

Mr. NICHOLS. Well, talk about the MOBILE Act in particular. I 

think, again, as we recognize the different channels that are becoming available, service channels that I won’t even say younger 

people; it is all age groups who can use those channels to the rural 

areas. I think we forget about those sometimes as being underserved. And it is geographically underserved. They don’t have the 

ability to get to our offices or the time zones don’t match or whatever the case may be. So I think moving those channels—again, in 

my position of being a member of a credit union, it is me listening 

to my members and saying: We are trying to provide things that 

can help you be a better owner and better participant of credit 

unions. So I do applaud that effort. 

Mr. LOUDERMILK. And I know it doesn’t only affect Georgia. It is 

in maybe some other States, but I think Georgia is a good illustration. If you are in one of those counties that is unbanked, you may 

have to go two or three counties over to get to a bank branch to 

make a deposit or what we take advantage of being able to do day 

to day financial operations. So I appreciate your support for that. 

25 

Another bill that I cosponsored here is the CLEARR Act. And, 

again, when you look at the regulatory barriers that are really suppressing the creation of new banks that would fill some of these 

voids, especially with the small banks—I had a president of a small 

bank in my office the other day and he was talking about the regulatory burden that was placed on his bank where he could not 

make a simple $3,500 loan to a gentleman that he knows, and he 

knows would be good for it. He has a family. He wanted to buy a 

car, and his numbers just weren’t there. And it was the consumer 

who was hurt by that. 

And I know that the CLEARR Act actually works on removing 

some of these regulatory barriers affecting small banks. 

Mr. Fisher, could you maybe address a couple of these of why it 

would be so important for a bill like the CLEARR Act? 

Mr. FISHER. The CLEARR Act just, a lot of the mortgage relief, 

half of it is geared toward mortgage relief. It would definitely improve clarification. It would reduce some of the regulatory burden. 

When I came into the bank 25 years ago, we had—compliance was 

a part-time position for somebody in the bank. Today, I have basically 21⁄2 FTEs completely dedicated to compliance functions. 

Mr. LOUDERMILK. And yours is a small bank. 

Mr. FISHER. We only have 97 employees total. And the only person who doesn’t have any compliance responsibilities in my bank 

is my courier who takes work between the offices. Everybody else 

in the bank has compliance functions that they are responsible for. 

So just a clear relief act or the CLEARR Act would definitely 

help reduce that burden and help just narrow the focus down so 

we are more clear. 

Mr. LOUDERMILK. Do you think that the CLEARR Act and maybe 

a combination of the bills would clear the way for the creation of 

new financial institutions that may be suppressed because of heavy 

burden? 

Mr. FISHER. I would greatly hope so, since there have only been 

three new banking charters since the financial crisis. On average, 

prior to the crisis, we had about 100 new charters per year. So it 

would be nice to see some new charters coming back on line for 

community banks. 

Mr. LOUDERMILK. Mr. Chairman, the way I see this, it is the consumer who is ultimately hurt by this. It is not the banker. It is not 

the institution. It is the consumer. 

And, Mr. Chairman, I also have some legislation, the Fair Credit 

Reporting Act Liability Harmonization Act, which I know you are 

supportive of, that I think would bring some common-sense reforms, and I look forward to working with you on that. 

Chairman LUETKEMEYER. I thank the gentleman. I look forward 

to working with you on that. And we are probably going to schedule another hearing in September or October, for another group of 

bills like this. So we want to include yours in that and have a full 

discussion at that time. So thank you for that hard work. 

The gentlelady from New York, Ms. Velazquez, is recognized for 

5 minutes. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Mr. Astrada, one of the bills that we are reviewing today would 

allow the OCC to approve the granting of deposit insurance for a 

26 

new operating national bank or Federal savings association. It is 

important to note that the OCC used to have this authority, but 

because of clear abuses, Congress abolished that authority in 1991. 

Do you think returning to this discredited policy puts the Deposit 

Insurance Fund at risk and threatens the safety and soundness of 

the banking industry or the banking system? 

Mr. ASTRADA. Thank you for that question. And in touching base 

with our research team in researching this bill, it is lost upon us 

how this provision has targeted regulatory relief for small institutions. We think the FDIC is well-positioned with a great history of 

managing financial downturns, the shuttering of banks, and to 

shift that responsibility or to expand that responsibility to the 

OCC, it raises more questions than answers, especially given the 

history of the program that you have outlined. 

Ms. VELAZQUEZ. Thank you. 

Mr. Astrada, more and more Americans are moving to fintech 

business to meet their financial needs. Are you concerned that if 

this bill were passed and the OCC had sole authority to both grant 

charters and deposit insurance, they would largely be able to dictate the terms of the fintech charters without the input of other 

regulators? 

Mr. ASTRADA. Again, thank you for that question. And I think it 

is along the similar lines of my first answer, that we recognize innovation; we recognize technological changes. CRL is a policy affiliate of a CDFI based in North Carolina and is very much informed 

by the industry. Of great example of the concern we have is OCC 

charter preempting State consumer law protections on payday 

loans where we have very old school predatory lenders calling 

themselves innovative technology companies to be able to avoid 

State rate caps based on a potential Federal charter. So I think the 

OCC, while it is leading the pack on this—I think there is a lot of 

discussion to be had in terms of what national charters will have 

on State consumer protection issues, especially when it comes to 

preemption and, like I said, old school predatory lenders calling 

themselves innovative fintech lenders. 

Ms. VELAZQUEZ. Thank you. 

Mr. Chairman, I have a letter from the Conference of State Bank 

Supervisors that I would like to enter into the record. 

Chairman LUETKEMEYER. Without objection, it is so ordered. 

Ms. VELAZQUEZ. And I also have a letter from over 40 civil rights 

and community groups, including the NAACP and the American 

Civil Liberties Union, that I would like to enter into the record, 

and these are letters that are raising a number of concerns about 

the proposals that we are discussing today. 

Chairman LUETKEMEYER. Without objection, it is so ordered. 

Ms. VELAZQUEZ. Mr. Astrada, as you may know, I am the ranking member of the Small Business Committee. In that role, I have 

continually pushed for the expansion of credit opportunities for 

women- and minority-owned small businesses. Unfortunately, there 

remains an information gap regarding the demographics of small 

business borrowers. Section 1071 of Dodd-Frank was designed to 

fill this gap and identify potential shortcomings in lending markets. 

27 

Now, the CLEARR Act is seeking to repeal Section 1071. Can 

you explain the importance of collecting this data? 

Mr. ASTRADA. Thank you for that question. And, yes, we are very 

much aligned with that in terms of the only way to combat structural and historic discrimination and exclusion is through robust 

datasets. And any effort to roll back the collection of data, especially among discriminatory behavior, whether it is disparate impact or intentional is something that we are very concerned about. 

And, again, I would just stress that it is not so much we are ignoring the cost implications of collecting this data; it is just that 

what is in the bill and simply blowing up thresholds and expanding 

exemptions beyond what seems to be reasonable is very concerning 

for us, especially as it applies also to the HMDA and the 1071 data. 

We share your concern. 

Ms. VELAZQUEZ. Thank you. 

I yield back, Mr. Chairman. 

Chairman LUETKEMEYER. The gentlelady yields back. 

With that, we go to the gentleman from Colorado, Mr. Tipton, for 

5 minutes. 

Mr. TIPTON. Thank you, Mr. Chairman. 

I would like to ask unanimous consent to enter into the record 

letters of support for H.R. 1457, the MOBILE Act, from the American Bankers Association, the Consumer Bankers Association, the 

Center for Financial Services Innovation, the Financial Services 

Roundtable, and the Innovative Lending Platform Association. 

Chairman LUETKEMEYER. Without objection, it is so ordered. 

Mr. TIPTON. Thank you, Mr. Chairman. 

And I thank the panel for taking the time to be here. 

Mr. Nichols, I would like to start with you. According to a 2015 

FDIC survey of the unbanked and underbanked, there are approximately 50.6 million adults considered entirely unbanked and another 51.1 million adults who are considered underbanked. Is it 

concerning to you as someone who is president and CEO of a credit 

union that there are at least 67 million people who do not have 

adequate access to the financial system, cannot conveniently withdraw their money, control their finances, and may lack protections 

to be able to prevent theft of their funds? 

Mr. NICHOLS. Yes. Actually, I thank you for the question. I think 

it is a tremendous opportunity for us in industry and, frankly, as 

citizens of the country to bring those people into the regulated and 

very growing service industry. It is much better for them to come 

out of ‘‘the darkness’’ and operating behind the scenes and be able 

to offer services, such as mobile and technological services, that 

could provide much better service for them. 

Mr. TIPTON. Thank you, Mr. Nichols. 

And, Professor Verret, I am very pleased to have the broad bipartisan support for this legislation as you can see on this committee. 

Without access to the traditional financial system and regulated 

financial institutions, what will happen to the unbanked and the 

underbanked without access? 

Mr. VERRET. Yes, I think this bill is a terrific approach to promoting access for particularly low- and middle-income people who 

are having trouble accessing traditional services. I think it would 

28 

be helpful to the traditional banking industry, as well as to the 

new fintech space and alternative financial services industry. 

Mr. TIPTON. And I appreciate that answer. Do you feel when we 

are talking about the underbanked that unregulated lenders actually pose more of a threat rather than having something like the 

MOBILE Act that is going to be going through traditional instruments, like our credit unions, our banks, to be able to provide those 

services, making those in different circumstances maybe a little 

more vulnerable? 

Mr. VERRET. Well, it depends what you mean by unregulated 

lenders. If you mean nontraditional lenders regulated at the State 

level, I wouldn’t say that is necessarily more risky than the traditional banking system. But if you mean sort of loan sharks and 

folks making illicit loans, I would certainly want to discourage that 

and provide people other opportunities. 

Mr. TIPTON. The FDIC also found that the unbanked and underbanked rates were higher among the following groups: lower-income households; less educated households; younger households; 

Black and Hispanic households; and working-age disabled households. 

As we discuss these legislative policies and encourage financial 

inclusion, do the FDIC survey results corroborate with what you 

see currently, Professor? 

Mr. VERRET. There was some good news in 2015 but not nearly 

in terms of the FDIC survey of the unbanked and underbanked. 

We could do a lot better. And so I certainly salute this committee’s 

effort to do so, particularly with this legislation. 

Mr. TIPTON. Thank you. And just one more question for you, Professor. According to the same survey, roughly 4 in 10 unbanked 

households and 3 in 4 underbanked households have access to a 

smartphone. 

The FDIC concluded that the use of smartphones to engage in 

banking presents promising opportunities to use that mobile platform to increase economic inclusion. Would you agree with that 

statement? 

Mr. VERRET. I do. And, unfortunately, I think the FDIC hasn’t 

stayed true to that observation. We have already seen some hostility to fintech among, at least the existing FDIC management, 

certainly with respect to how they regulate bank services providers. 

I think they are fairly hostile to the future of fintech. And so I 

would prefer they stay more true to that observation. I think they 

are right about that. 

Mr. TIPTON. Thank you, sir. 

Mr. Nichols, my legislation, the MOBILE Act, would create regulatory certainty by explicitly allowing financial institutions to be 

able to verify customer identity by copying a State-issued driver’s 

license or personal identification card through the mobile app. As 

CEO of a financial institution, do you see the merit of engaging future consumers through a mobile banking platform? 

Mr. NICHOLS. Absolutely. So let me back up and describe just a 

little bit about my credit union. So we are located in Jefferson City. 

We serve healthcare people. We serve Missouri National Guard 

people. We serve people who work for the Missouri Farmers Association. All of those people are spread throughout the State of MisVerDate Nov 24 2008 17:43 May 01, 2018 Jkt 028747 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 K:\DOCS\28747.TXT TERI
29 

souri and, in many cases, in other countries. So the ability for us 

to actually grab that data without physically being in touch with 

them is a tremendous benefit for them and for my credit union. 

Mr. TIPTON. Thanks so much, Mr. Chairman. 

I yield back the balance of my time. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

We now go to another gentleman from Missouri, Mr. Clay. The 

ranking member is recognized for 5 minutes. 

Mr. CLAY. Thank you, Mr. Chairman. 

And this is a question for Mr. Astrada, Mr. Fisher, and Mr. Nichols. 

Mr. Fisher, the organization you represent, ICBA, along with 

other bank associations, wrote to Congress saying: ‘‘We are greatly 

concerned that the Administration’s forthcoming Fiscal Year 2018 

budget may propose cuts to the CDFI fund. We strongly urge you 

to maintain strong funding levels.’’ 

The letter goes on to say: ‘‘During the 2016 Presidential campaign, the need to create jobs and revitalize the economies of 

disenfranchised rural communities and neglected inner cities was 

a key theme. CDFI banks work in the exact communities that were 

the focus of this conversation. Community-based financial institutions are uniquely positioned to understand local credit needs, 

which is why there is historic bipartisan support for the CDFI 

fund.’’ 

And, yet, the President’s budget as well as the appropriations bill 

the House Republicans are advancing would severely cut the program by nearly $60 million or 23 percent. 

Mr. Fisher, should Congress follow President Trump’s lead and 

impose severe cuts on the CDFI fund? And if so, if they do that, 

who will lose? 

Mr. FISHER. I am not educated enough to tell you who is going 

to lose, but I do know that ICBA does support funding the CDFIs, 

so I would say that we would back the idea of continuing to fund 

the CDFIs where they have been funded. 

Mr. CLAY. All right. 

Mr. Nichols, what are your views on the CDFIs? Should Congress 

maintain strong funding for this program? 

Mr. NICHOLS. I will back up and say we are a CDFI. We are 

CDFI-certified, so I absolutely. Those dollars that go to the institutions help in programs and reinvest in those communities and my 

members, in this particular case. So, absolutely, we would really 

appreciate the funding in that program. 

Mr. CLAY. Thank you for that response. 

And, Mr. Astrada, I understand Self-Help, a credit union that 

CRL is associated with, is a CDFI. How problematic are these 

steep proposed cuts to that fund? 

Mr. ASTRADA. Thank you for that question. Yes, and that is correct. We are the policy affiliate of Self-Help, and we have firsthand 

knowledge of the importance of CDFIs throughout the country for 

very much the same reasons that you pointed out: accessibility, 

serving communities that would certainly be disenfranchised from 

mainstream banks, whether they are underbanked. We strongly 

support robust funding for CDFI and would be at the forefront of 

30 

those fighting against any cuts and the effects that that would 

have. 

Mr. CLAY. Thank you for that. 

And, Mr. Astrada, we received a letter signed by over 40 civil 

rights and consumer groups opposing H.R. 2133, or the CLEARR 

Act. These groups said that H.R. 2133 includes a number of provisions that would, under the innocent-sounding guise of regulatory 

relief, drastically undermine our Nation’s most important civil 

rights and consumer protection laws. They also highlighted how 

the bill changes fair lending laws, changes data collection standards for mortgages and small businesses, and weakens the CFPB. 

Do you share these concerns, or could you discuss who would be 

harmed by these changes? 

Mr. ASTRADA. Thank you. Yes. And we are very much in support 

of that letter and realize that, as I said to a previous question, a 

lot of the discriminatory lending, a lot of the adverse effects of implicit bias require robust data collection to really track and find— 

find where this behavior is going. And rolling back the collection 

of data under a guise of cost is not lost upon us, but there is a 

tradeoff. And a lot of, I think, what we are disagreeing on is really 

methodology as opposed to result. I don’t think anybody is for discrimination, just how we are going to root out the problem. 

And CRL, from a lot of civil rights advocates that signed on to 

that letter said that this data is not only crucial but necessary to 

get the market analysis of where discrimination is happening, both 

historic and, like I said, on the individual level. 

Mr. CLAY. And I appreciate your response to that. 

Mr. Chairman, I yield back. 

Chairman LUETKEMEYER. The gentleman yields back. 

The gentleman from Michigan, Mr. Trott, is recognized for 5 minutes. 

Mr. TROTT. Thank you, Mr. Chairman. 

I want to also thank the panel for their time this afternoon. 

Professor, I want to start with you. Do you think the UDAAP authority that is given to the CFPB is necessary to keep these rogue 

financial institutions accountable, or do you think, on balance, it, 

in general, compromises financial institutions because it creates 

confusion and uncertainty regarding their business plans? 

Mr. VERRET. I believe that the authority that pre-dated DoddFrank under UDAAP, the unfair and deceptive practices prohibition, provides more than enough leverage for CFPB to go after bad 

actors. I think it most certainly would have covered—without the 

abusive sort of unclear section, it would have most certainly covered all the activity of Wells Fargo. That clearly falls squarely 

within deceptive practices. Anybody who knows that story knows 

that. 

And the abusive definition, just going through how the CFPB has 

utilized its sole abusive authority, when it has brought solely abusive actions, it is often—you see some settlements there that 

stretch the rule of law, to me at least, including one in which they 

went after abusive practices saying: ‘‘Well, this provision was just 

too far down in the contract, too deep in the contract for anyone 

to read, so it must have been abusive because it was on page 100 

31 

rather than on page.’’ That strikes me as highly problematic in the 

rule of law culture. 

Mr. TROTT. Do you think some of the changes in the chairman’s 

bill we are considering with respect to the CFPB will, on balance, 

help consumers more than hurt them? 

Mr. VERRET. I do, absolutely. Yes. And with respect to data collection, I think we have to do a balancing test, a cost-benefit analysis on data collection. Look, the IRS would love to get unfettered 

access to all of our bank accounts. I have no doubt it would help 

the IRS catch tax cheats. But I don’t want the IRS digging through 

my data. It is too cumbersome, and I have financial privacy. I think 

we can think about that in the context of HDMA and other collection, especially when the SBA is already collecting a lot of this data 

anyway. 

Mr. TROTT. I want to switch topics. Thank you, Professor. 

Mr. Fisher, so, last Congress, we worked to streamline some of 

the privacy notification requirements relating to community banks. 

Has that affected your operations at all? 

Mr. FISHER. The privacy notices, not having to send out a privacy 

notice annually if you haven’t changed it has been a very positive 

impact for my bank. 

Mr. TROTT. Has it had a good impact on your customer service? 

Mr. FISHER. Privacy hasn’t really affected— 

Mr. TROTT. People probably aren’t calling saying, what is this? 

Mr. FISHER. No, people are definitely not calling asking, why am 

I getting this notice again? 

Mr. TROTT. Although they probably miss that stack of paper next 

to Mr. Nichols. I know it is for mortgage origination, but it is good 

coloring paper for their kids, I would suspect. 

Have you saved some money because of it? 

Mr. FISHER. We definitely saved some money. I am not sure I can 

quantify, but I know it is obviously less postage, less paper. 

Mr. TROTT. What did you do with the money? 

Mr. FISHER. What did I do— 

Mr. TROTT. Maybe lend it to some businesses or— 

Mr. FISHER. Definitely, it has been put back into use in the community as far as more loans and trying to— 

Mr. TROTT. Sure. If a customer calls asking for the notification, 

do you send it to them? 

Mr. FISHER. Sure. Of course. 

Mr. TROTT. Do you charge them for it? 

Mr. FISHER. No. 

Mr. TROTT. Okay. So Mr. Clay and I cosponsored a bill, the Privacy Notification Technical Correction Act, one of our tougher acronyms here in town, and it largely expands the scope of these disclosures, and I think it will be beneficial. 

Mr. Nichols, I want to talk but your credit union for a minute. 

How many years have you been in business? 

Mr. NICHOLS. How many years have we been in business? 

Mr. TROTT. Yes. 

Mr. NICHOLS. We opened in 1954, September to be exact. 

Mr. TROTT. And you said earlier you have about $200 million in 

assets. 

Mr. NICHOLS. Yes. 

32 

Mr. TROTT. How many employees, again, are dedicated to compliance. 

Mr. NICHOLS. To compliance, we have about two full-time employees. 

Mr. TROTT. So do you get sued very often by your members? 

Mr. NICHOLS. No. Our members own us, so it seems it would be 

like suing yourself for the most part. 

Mr. TROTT. So do you think Dodd-Frank had anything to do with 

it, or you always ran a good operation and you really didn’t need 

the benefit of all the regulations. 

Mr. NICHOLS. I will go back and say the definition of credit 

unions— 

Mr. TROTT. Okay. We will switch that. Assuming your members 

don’t want to sue themselves. 

Mr. Fisher, how about community banks? 

Mr. FISHER. We have not been sued by our customers. To my 

knowledge, in our 150-year-plus history, we have never been sued. 

Mr. TROTT. Right. 

I thank you. 

I yield back, Mr. Chairman. 

Chairman LUETKEMEYER. The gentleman yields back. 

And the gentleman from Texas, Mr. Green, is recognized for 5 

minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

And I thank the ranking member as well. 

I am a son of the South. What the Constitution accorded me, my 

friends and neighbors took away from me. I lived through invidious 

discrimination. I know what it looks like. The KKK burned a cross 

in my yard. I know what it smells like. I had to go through filthy 

waiting rooms and colored restrooms. I know what it sounds like. 

I have had ugly things said to me. So I know what invidious discrimination is like. I know the harm that discrimination can cause. 

And I am very much concerned about Section 7, which reads—it 

amends the Equal Credit Opportunity Act and the Fair Housing 

Act to require intent to discriminate. 

I am very much concerned about this, because whether by accident or design, discrimination still hurts. The pain is not eased 

simply because it was done without intentionality. And I am talking about H.R. 2133, Section 7. 

So I would like to visit with Mr. Astrada for just a moment. 

Mr. Astrada, does making the requirement one of intentionality 

to have a cause of action, does that in some way decrease the harm 

that is caused when one is discriminated against? 

Mr. ASTRADA. That particular question, absolutely not. It doesn’t 

decrease the harm it causes because it was intentional or in effect 

rather than intent. 

Mr. GREEN. And does it benefit the people who are discriminated 

against to require intentionality? 

Mr. ASTRADA. No. In fact, I would say it puts a barrier toward 

equity. 

Mr. GREEN. Do you find that discrimination exists in banking? 

Mr. ASTRADA. Yes. There is a long history of not only discrimination in the marketplace but through Federal Government programs, with FHFA and redlining, and so I think there is more than 

33 

enough evidence on both the industry and government side to show 

that. 

Mr. GREEN. When you balance the benefits with the liabilities associated with this, do the liabilities of doing this outweigh the benefits such that it is just not a good thing to do for people who are 

being harmed? 

Mr. ASTRADA. I would agree with that, but I would reframe that. 

I think that it is a privilege to look at racism in a cost-benefit analysis. I think if you are the victim of racism and discrimination, you 

don’t have the privilege of saying, what are my feelings compared 

to your data collection efforts? So I would think that, especially 

around the issue of disparate impact, which has been upheld in the 

housing discrimination cases with the Supreme Court, employment 

cases all the way back to 1970, that racism is not a cost-benefit 

question. So, while we want to be supportive of industry and be 

mindful of the costs that it would take to collect data to root out 

systemic discrimination, I think that having the privilege to say, 

‘‘What is the cost-benefit of racism versus how much do I have to 

pay to collect that data,’’ is a very dangerous way to approach the 

problem. 

Mr. GREEN. Thank you for your very thoughtful response. 

I would just end with this: If you haven’t known the pain of discrimination, it can be difficult for you to appreciate my commentary. But when your neighbors deny you what the Constitution 

accords you, it can be very painful. And there are a good many people in this society who will never suffer any pain if we make this 

change, but there are a good many other people who will be subject 

to harm if we do so. And we ought to want all people to have the 

same opportunities in this society. This is a bad piece of legislation. 

I absolutely oppose it, and I want the record to reflect that I would 

never support something that is going to harm people in this fashion. 

I yield back the balance of my time. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

With that, we go to the gentlelady from New York, Ms. Tenney. 

She is recognized for 5 minutes. 

Ms. TENNEY. Thank you, Mr. Chairman. 

And thank you, panel. You are finally at the end, I think. 

I just want to, first, before I get started, say thank you. And it 

is an honor to have Mr. Fisher here, someone who hails from my 

region, and we talked a little bit about it earlier with Chair Yellen 

how rural our area is and how difficult it is for our community 

banks to survive. 

And I appreciate your testimony dealing with a number of issues. 

As a former bank attorney, I represented a number of community 

banks. You discussed really great issues, and now we think we 

have some solutions on the mortgage end. And I just wanted to just 

welcome you and say thank you for being here and helping advocate for our region and for what the real problems are in communities like ours that are struggling with, as you say, high regulatory burdens, taxes, out-migration of people, and all those things. 

And I just want to say thank you. I don’t have any questions. I 

think you have been asked an awful lot of questions today because 

34 

you really define what is going on in our region, which I call the 

Rust Belt of New York. 

I wanted to focus, just switching gears a little bit, to Professor 

Verret about just some of the issues surrounding the concern about 

the lack of de novo charters being started in the Nation and credit 

unions, for that matter, since the passage of Dodd-Frank in 2010. 

It is my opinion that the lack of new banks has been an issue. 

We talked earlier with—speaking with Janet Yellen about the 

number of community banks that are just buildings on corners or 

overgrown with grass, and we have lost many of them, or they 

have been merged into larger entities, and it has hurt our small 

business community and our ability to lend to smaller institutions. 

Thankfully, we have banks like Tioga Bank still forging ahead in 

a small community and providing those vital services to our rural 

residents. But between 2000 and 2008, we had almost 1,400 new 

institutions. Since 2010 and the passage of Dodd-Frank, we have 

had 5 new bank charters, and 16 new credit unions chartered in 

the United States. And so I guess I would like to ask you what 

your opinion would be on how we can increase the number of de 

novo charters, streamline the process, and make it easier to bring 

them onboard? If you could comment on that, please. 

Mr. VERRET. Sure. Thank you for that question. An analysis by 

the Federal Reserve Bank of Richmond points to the problem. It diagnoses the problem of the lack of de novo charters squarely in the 

regulatory field. Overregulation is the problem, particularly with 

the chartering process. 

The intent was never for—I think the intent behind the design 

of Federal banking law, which has primary Federal regulators and 

secondary regulators, was to make sure that regulatory turf wars, 

bureaucratic turf wars, didn’t prevent new chartering and didn’t 

prevent lending and growth. 

Ms. TENNEY. Are you referring to the—excuse me, the dual approval process? Is that what you are referencing? 

Mr. VERRET. Sure. That is part of it. That is the important part 

of it. And I think this is a great idea, and I would look to a number 

of other ideas that have been raised, like providing more corporate 

governance flexibility for new banking institutions as well. But 

that is absolutely the key to the problem, so I commend that. 

Ms. TENNEY. So, streamlining it. Would you go to a—obviously, 

it would require insurance. We wouldn’t want to have any of this 

leak into areas outside of the chartered banks, banks and union— 

or banks issue. 

Can you just make—tell me what you feel about the—how we 

would manage that, say, if we were to draft legislation on dealing 

with the dual aspect of the appropriate—or the process with FDIC 

versus OCC. How would you reconcile that? 

Mr. VERRET. I think, both with respect to chartering and also 

with respect to the exam process, an institution’s primary Federal 

regulator ought to be given some deference. This is a problem in 

examination as well, where we have examiners examining the 

same thing within a few weeks of each other and not even connecting in any way on specialized exams. So I think the OCC’s determinations of chartering and its own reputational risk as an 

agency are going to keep it from doing anything inappropriate. And 

35 

I also think, with respect to the fintech space, though, most fintech 

firms are not going to need deposit insurance or take deposits, 

some of them might, and so I think this would be important in that 

arena as well. 

Ms. TENNEY. Thank you very much. 

I thank the panel and, again, Mr. Fisher from my region. I really 

appreciate it. 

And I yield my time back, Mr. Chairman. Thank you. 

Chairman LUETKEMEYER. The gentlelady yields back. 

Mr. Emmer from Minnesota is recognized for 5 minutes. Welcome. 

Mr. EMMER. Thank you. Thanks to the Chair for holding this 

hearing and for allowing me to participate. 

And thank you to the panel. I appreciate you being here today 

and taking all this time. In particular, I just wanted to recognize 

Mr. Fisher and Mr. Nichols. Community banks and credit unions 

are incredibly important to my State, as I expect they are all across 

this country. 

In 2008, at the time of the financial crisis, we had about 8,000 

of each across the country. A year later, a year after the crash, we 

still had about 8,000 community banks and 8,000 credit unions 

across this country. Now, it has been almost 7 years since DoddFrank was passed, and we are left with somewhere around 6,000 

of each. 

I believe we need everyone in the financial services food chain. 

We need the biggest banks. We need the regional banks, community banks, credit unions—everyone. It just so happens, though, 

that community banks and credit unions support all of our small 

communities, because I can guarantee you, if you live in Moore, 

Minnesota, you are not going to Goldman Sachs for a loan. If you 

live in Hallock, Minnesota, you are not going to go to a Citibank. 

And if you live in Tower, Minnesota, which some of you might have 

heard of—sometimes it is called one of the coldest spots in the 

country; you might remember those battery commercials they used 

to do in Tower, Minnesota—you are not going to go to JPMorgan 

Chase. You are going to go to your local, probably family-owned 

community bank or credit union. 

It is imperative that we enact policy that would allow these financial institutions to survive and thrive again, which is why today’s hearing is so important and timely. And there are several excellent proposals from this committee, and in Chair Luetkemeyer’s 

Community Lending Enhancement Relief and Regulatory Relief 

Act, there are two, though, that interest me today. 

One of the Chair’s proposals would amend the FDIC’s definition 

of a deposit broker that will allow for reciprocal deposits so community banks can keep money in the local community that usually is 

used by community banks, minority-owned banks, community development banks, that sort of thing. 

And the other one would amend the Home Mortgage Disclosure 

Act of 1975 to exempt small banks and credit unions from Regulation C if they have originated 1,000 or fewer closed-end mortgages 

in each of the preceding 2 years or if they have originated 2,000 

or fewer open end lines of credit in each of the preceding 2 years. 

36 

I guess I will start with Mr. Fisher. Can you tell the committee 

why the reciprocal deposits are so important, especially right now? 

Mr. FISHER. Well, reciprocal deposits are—it is a great source of 

funds. If I look at my bank, personally, about 30 percent of our 

total deposits are municipal deposits. And municipal deposits, anything that exceeds FDIC insurance, we have to have a bond 

pledged against that deposit. So, whether it is reciprocal deposits, 

we can get full FDIC coverage using reciprocal deposits. However, 

there is still kind of a negative perception about reciprocal deposits 

because they are considered brokered funds. 

So we would greatly appreciate this amendment so that they 

would not be considered brokered funds. 

Mr. EMMER. What is the alternative if you don’t fix this? What 

is the alternative? The money leaves your community, doesn’t it? 

Mr. FISHER. Correct. The money—obviously, as rates are increasing, lending is increasing, deposits are our raw material. That is 

what we lend out. 

Mr. EMMER. And we want to put it to work in our communities, 

our small communities? 

Mr. FISHER. We really don’t want to see municipal deposits go 

out of our local communities, because that is helping to fund 

growth in our communities. 

Mr. EMMER. Right. 

Why don’t I expand it to Mr. Nichols, there has been some talk 

here, and in the little time left, there has been some talk about the 

48 points, all this information. I think the Chair started the second 

part of the hearing talking about a closing where he was trying to 

sell property, and there is this big packet. 

Why do we need all of this information that the CFPB has put 

in this rule? Why? 

Mr. NICHOLS. We don’t, and the consumers don’t want it as well. 

Again, I will go like this, but there is—the more paper that we give 

to the consumer, the less they read, the less informed they are. It 

is a more expensive process, which, ultimately, guess who pays for 

that process. 

Mr. EMMER. Well, and very quickly, community banks, credit 

unions, people on the lower end of the financial system, they are 

getting out of the business. 

Mr. NICHOLS. Right. 

Mr. EMMER. So it is not even that we don’t read it; it is that we 

may not get the choice. 

Mr. NICHOLS. That is actually a great point. It is good to have 

multiple options. I will go back to another Congressman’s point in 

that the more options you have, the less systemic risk you have by 

having the too-big-to-fails out there and the more choice you give 

to the consumer. 

Mr. EMMER. Right. 

Thank you, again, Mr. Chairman. Thanks for your patience. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

The gentlelady from Utah, Mrs. Love, is recognized for 5 minutes. 

Mrs. LOVE. Thank you. Thank you all for being here today. 

37 

I would like to broaden our focus now to a consumer issue, that 

of debt collection, which is the topic of H.R. 864, the Stop Debt Collection Abuse Act of 2017. 

Every year, millions of Americans are touched by debt collection, 

many of them low- to middle-income families. In fact, the CFPB’s 

most recent monthly consumer complaint report in June 2017 

showed that the most complaints about financial product or services were debt collection, including in my home State of Utah. 

Within the broader topic of debt collection, I would like to focus 

on the Federal Government’s use of private debt collection agencies 

to assist in its debt collecting uses and efforts. 

Under the Debt Collection Improvement Act of 1996, many Federal agencies can, after a prescribed amount of time, refer delinquent Federal nontax debt to the Department of Treasury for collection activity by an approved private debt collection agency. 

In addition, some Federal agencies, such as the Department of 

Education, managed their own use of private debt collectors. Most 

notably, the IRS was recently mandated under the Fixing America’s Surface Transportation Act (FAST Act) to revise its use of private debt collectors to collect delinquent individual income taxes 

and started doing so in April of this year. Yet questions have been 

raised about the Federal Government’s use of debt collectors or private debt collectors. 

In recent years, the Department of Education announced that it 

was ending contracts with five private debt collectors that have 

been providing inaccurate information to borrowers about loan rehabilitation programs. In addition, there are significant concerns 

about the IRS’ renew of private debt collectors, particularly with 

regard to private and consumer protection, including fears that 

scammers would pose as IRS debt collectors to commit fraud 

against vulnerable individuals. So, in a nutshell, this is about making sure that the Federal Government complies with the same activities as the private sector when it comes to collecting debt. 

So I would like to start by asking whether anyone on this panel 

has been tracking the most recent round of debt collectors being 

hired on behalf of the IRS? I know it is very recent, but do we have 

any feedback on that program yet? 

Mr. Astrada, do you know anything about that? 

Mr. ASTRADA. Well, at CRL, we do support the provisions of debt 

collected by third-party collectors for the Federal Government. In 

terms of the Hanson case, we are still assessing the impact of the 

decision and how it relates to that. So I would love to stay in touch 

with your staff as we work through it ourselves and keep you updated on what we plan on putting out. 

Mrs. LOVE. Okay. So, just to give everyone an idea, H.R. 864, the 

Stop Debt Collection Abuse Act, is a bipartisan effort on behalf of 

myself, Representative Ellison, Representative Cleaver, and Representative Hill, to make sure that the Federal Government uses 

the same practices that the private sector uses. 

Also, just as a follow-up, have you tracked any other issues with 

private debt collectors hired by the Federal Government? Has anyone tracked any of those activities or have any thoughst that 

maybe they can share? 

38 

Mr. VERRET. I haven’t tracked that, Congresswoman Love, but it 

strikes me that the proposal that you are talking about, that particular section of the bill, is consistent with the taxpayer bill of 

rights that I think would be relevant, and so it sounds like a pretty 

good approach to me. 

Mrs. LOVE. Okay. Anyone else have anything to offer? No? No? 

Nothing? Okay. 

I would also like to talk more generally about the role of debt collection in consumer credit lifecycles. So the Federal Reserve Bank 

of New York recently published a report confirming the important 

role of debt collecting in the credit-based economy. The analysis 

found that restricting collection activity leads to a decrease in access to credit across the full spectrum of borrowers and to the deterioration of indicators of financial health. So it is very important, 

as always, that we find the right balance between protecting consumers and making sure we don’t inadvertently restrict credit 

availability. 

So, just really quickly, Mr. Fisher, as one of the two bankers on 

the panel, can you tell us about the significance of debt collecting 

and the availability of consumer credit? 

Mr. FISHER. We handle our own debt collection. We don’t 

outsource it at all. So if a loan goes bad, we handle it ourselves. 

Obviously, if a bank takes a loss and they are not able to collect 

on their debts, it is going to make them less likely to lend money 

out again. 

Mrs. LOVE. Okay. Thank you. 

Chairman LUETKEMEYER. The gentlelady’s time has expired. 

With that, we go to the gentleman from Indiana, Mr. Hollingsworth. Welcome. And you are recognized for 5 minutes. 

Mr. HOLLINGSWORTH. Mr. Chairman, thank you so much for the 

time. And knowing that I am not on the subcommittee, thank you 

for allowing me to crash the party here. 

One thing that I am absolutely passionate about is making sure 

that consumers have more and more choices in the products that 

they want to use, because, ultimately, as I think Sam Walton said, 

consumers tend to choose with their feet, with their wallet, the 

products that win and lose. I know what I hear every single day 

in my district is that they are tired of bureaucrats in Washington 

telling them what products they should be able to choose, what 

products they shouldn’t be able to choose, what those products 

should look like. They want to get a multitude, a cornucopia of offerings and then be able to decide for themselves what they want. 

And I know what I hear from not just banks, not just credit unions, 

not just lenders, but from every company as well that I have run 

into, is that they are tired of servicing a bureaucracy in Washington, a regulatory state in Washington, instead of servicing their 

customers, instead of working for their shareholders, instead of 

working for their mutual owners. They are tired of servicing this 

bureaucracy that puts more and more demands on their business, 

on their time and not allowing them to—standing between them 

and their customers. 

And where this really comes to the forefront for me is with deposit advance product. Now, this is a product pre-2013, short-term, 

small dollar, line of credit product that people loved, that they were 

39 

utilizing day in and day out to be able to help their families make 

ends meet with cashflow needs, that over and over again, at each 

of the institutions that were offering this product, it got rave reviews and was used very, very frequently to help families prepare 

for their future, prepare for a short-term problem, and ultimately 

be able to help rebuild their credit, because they were reporting to 

credit agencies. But then 2013 happened. The OCC and the FDIC 

issued guidance and said to all of these lenders that, even though 

this is a short-term, small dollar product that was really a line of 

credit, it should be treated like a loan, and they had to underwrite 

each one of these like a loan. Whether they were loaning $100,000, 

it had to be treated just like that if they were loaning $100 through 

this product. And it is a real travesty because, all of a sudden, 

those lenders stopped being able to do this because the cost was too 

high. The regulatory burden in making, in presenting these products to the market was too high. And so, instead of consumers getting the opportunity to choose, the bureaucrats got to choose. And 

the bureaucrats got to say they didn’t want this product even 

though consumers said over and over again that this was a product 

that fit their families’ needs. 

So I am proud, with my colleague across the aisle, because this 

is a bipartisan issue, to sponsor and have written the Ensuring 

Quality Unbiased Access to Loans Act, or the EQUAL Act, where 

we go back and rescind that guidance and enable consumers to 

choose exactly the type of products that they want and allow these 

lenders to be able to make those type of decisions themselves, rather than the FDIC and the OCC making these decisions for them. 

And I really wanted to, first, talk about that and thank Mr. 

Meeks across the aisle for working with me on that. 

And then, Mr. Chairman, I wanted to ask unanimous consent 

that I am able to enter this letter of support into the record. 

Chairman LUETKEMEYER. Without objection, it is so ordered. 

Mr. HOLLINGSWORTH. Thank you. 

And then I wanted to direct my first question to Professor Verret 

and really talk a little bit about your view on the product, and on 

the opportunity that we have to roll back a regulatory intervention 

to prevent consumers from being able to make decisions that are 

best for their families, best for their futures, and best for their financial needs. 

Mr. VERRET. Sure. Well, the Federal Reserve indicates that over 

half of all families couldn’t cover an emergency expense of $400 

without selling something or taking out a loan. So this literally 

keeps their lights on for some people. Deposit—I think small dollar 

lending in general is helpful to the economy in a variety of different forms. One form is deposit advance products, which use a 

history of direct deposits to make some gauge of the riskiness of 

a borrower, which is one of those technological innovations that we 

didn’t have in the 1990s. 

Mr. HOLLINGSWORTH. Right. 

Mr. VERRET. So I think it is helpful. 

I think that—Mr. Meeks requested suggestions for, I guess, compromise approaches. One of the approaches, I think, is most egregious is the—at least in the CFPB’s piece of small dollar—is the 

portfolio default-based regulations, which I think set an institution 

40 

up for huge reimbursements for the macroeconomic things way outside of their control. 

And the final point I would say that makes your legislation very 

reasonable is that it just asks for notice and comment, which, let’s 

not forget that the Administrative Procedures Act was led by a 

very liberal, progressive Senator some 60 years ago. So I think it 

is a very reasonable suggestion. 

Mr. HOLLINGSWORTH. Well, I appreciate that so much. And just 

as a closing remark, I wanted to talk about the wide spectrum of 

individuals this has the opportunity to touch. It has been estimated 

that over 50 percent of the customers who use this have incomes 

of greater than $50,000; 25 percent of customers have incomes of 

greater than $75,000. This isn’t just to help low-income and moderate-income families, but to help everybody get through a tough 

period. 

And I think one of the great misfortunes or malintentions from 

overregulation is that it is helping that marginal customer. And 

what we under—getting back to smarter regulation enables us to 

bring them back into the banking system, bring them back to participating in our financial system to help their future. 

So I thank the panelists for their time, and I appreciate the 

chairman letting me have some time here today. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

And, with that, the questioning is at an end. You guys have survived. Congratulations. 

Thank you very much for your patience to wait out our votes and 

for your willingness to be here today and for your expertise. 

I know we talked about a lot of bills today, and some of the bills 

have a number of parts and some of the things we probably didn’t 

get to, but your comments are very important. It will give us some 

insights, both pro and con, on some good things and some of the 

not-so-good things, so we know where to go and what pieces we 

need to work on and move and make better. 

But I think it is our sincere effort to try and give some relief to 

some small and financial institutions, to be able to help them, not 

just to survive, because the pressure of the continued increase in 

cost of doing business, but to also better serve their communities 

and to be able to help those communities grow and prosper, because at the end of the day, that is what this is all about. These 

businesses that you guys represent today do not survive unless you 

have communities that are growing and thriving. You live off the 

customers that you have that you can help to make their lives better. It is a symbiotic relationship that you have to have with your 

customers, with your community. If you grow, they grow. If you 

don’t, they don’t. And coming from a small town, I can tell you that 

is the way it works. 

So it is very important that you are here. We sincerely thank you 

for your time and for your efforts. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without obVerDate Nov 24 2008 17:43 May 01, 2018 Jkt 028747 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 K:\DOCS\28747.TXT TERI
41 

jection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

And, with that, this hearing is adjourned. 

[Whereupon, at 4:47 p.m., the hearing was adjourned.] 

(43) 

A P P E N D I X 

July 12, 2017 

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Testimony of Mr. Scott B. Astrada 

Director of Federal Advocacy, 

Center for Responsible Lending 

Before the U.S. House Committee on Financial Services' 

Subcommittee on Financial Institutions and Consumer Credit 

Examining Legislative Proposals to Provide Targeted 

Regulatory Reliefto Community Financial Institutions. 

July J21

h. 2017 
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Good afternoon Chairman Luetkemeyer, Ranking Member Clay, and Members of the 

House Committee on Financial Services' Subcommittee on Financial Institutions and Consumer 

Credit, Thank you for allowing me to testify today about legislative proposals regarding 

regulatory relief for community financial institutions, and the need to ensure that all financial 

institutions are subjected to responsible, reasonable regulatory oversight that maintains sensible 

consumer protections. 

I am the Director of Federal Advocacy at the Center for Responsible Lending (CRL), a 

nonprofit, non-partisan research and policy organization dedicated to protecting homeownership 

and family wealth by working to eliminate abusive financial practices. CRL is an affiliate of 

Self-Help, a nonprofit community development financial institution. For thirty years, Self-Help 

has focused on creating asset building opportunities for low-income, rural, women-headed, and 

minority families. In total, Self-Help has provided over $6 billion in financing to 70,000 

homebuyers, small businesses, and nonprofits and currently serves more than 80,000 mostly low 

and moderate income families through 30 retail credit union branches in North Carolina, 

California. and Illinois. 

This important hearing addresses the health of our banks in the context of the regulatory 

structure created in the wake of the Great Recession. A regulatory framework that corrected 

systemic gaps and sought to prevent future market failures, while providing essential protections 

to consumers and the overall economy. Fortunately, today consumer lending is strong, and bank 

profitability is at record levels. We are still emerging from the catastrophic effects of the Great 

Recession of2008, and have implemented essential protections that ensure such a financial crisis 

does not happen again, and that consumer financial markets arc strong, stable and competitive. 

In setting and implementing these protections, regulators have utilized a two-tier approach, with 

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numerous measures intended to decrease compliance costs for smaller financial institutions. 

This approach should be continued and expanded. In addition, there are reforms that have broad 

support and that would benefit all banks, without harming consumers. However, dismantling 

essential reforms, such as the mortgage ability to repay standard, or reducing the effectiveness of 

the Consumer Financial Protection Bureau (CFPB) would harm consumers, banks and the 

overall economy. 

Unfortunately, many of the legislative proposals before the committee today do not build 

on the success of recent reforms and would, in the name of helping small banks, harm consumers 

while helping very large financial institutions. In particular, the CLEARR Act is far too extreme 

and is not the way to provide the kind of targeted regulatory relief that community banks are 

asking for. The CLEARR Act: 

Weakens regulators' ability to prevent discriminatory lending; 

• Hamstrings regulators' ability to protect consumers; 

• Does not help small banks, as most exemptions would apply to very large banks, 

including bad actors; and 

• Makes the mortgage market more susceptible to abuses. 

I. History shows that responsible regulations arc necessary for a healthy national 

market and economv. 

The Great Recession of2008 has already shown us the consequences of the absence of 

basic protections and oversight in the financial market. In the years leading up to the financial 

crisis, mortgage lenders were driven by profits and collecting fees to offer mortgages with the 

lowest monthly payment and the least amount of underwriting. Lenders frrst started offering 

mortgages that bad lower payments that never reduced the principal balance of the loan. These 

loans were followed by loans that had "teaser rates" where the monthly payments were even 

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lower for the first several years, but then increased dramatically. Finally, lenders pushed loans 

that had startling low payments, a few thousand dollars a month for a half million-dollar loan, 

but the loan balance actually increased by more than five percent every year. In addition to these 

mortgage practices, lenders competed with each other by reducing underwriting requirements. 

streamlining the underwriting, and pushing no documentation or "no-doc" loans without any 

verification of income in order to collect exorbitant profits. It was very difficult for responsible 

lenders to compete in this environment, and in order to maintain their businesses and some 

market share, they were forced to join this race to the bottom. 

The result is all too well known. In the wake of the financial crisis, 7.8 million American 

consumers lost their homes through foreclosure. 1 The failure to have a responsible and effective 

regulatory environment also resulted in taxpayers paying $7 trillion to bail out financial 

institutions through loans and according to some reports, an additional $22 trillion through the 

federal government's purchase ofassets. 2 According to the Federal Deposit Insurance 

Corporation (FDIC), more than 500 banks shuttered their doors and most of those institutions 

were community banks. 3 In addition, the national economy was undermined and plunged into a 

severe recession. People lost their jobs. small businesses went under, and many Americansfrom small entrepreneurs to families-struggled to make ends meet while being unable to obtain 

the credit and capital they needed from financial institutions to sustain their position or expand 

their asset base. 

1 CORELOGJC, CORE LOGIC REPORTS, UoHTED STATES RESIDENTHL l'ORECLOSURB CRISIS, TEN YEARS LATER 3, 

allailable at http:/ /\V"\\''"W .corelogic.com/ research/ foreclosure--report/ national-foreclosure-report -10-year.pd[ 

2 John Carney, The Size of the Bank Bailout; $29 Trillion, CNBC, (December 14, 2011), aMi/able at 

http:/ /W'.Vw.cnbc.com/id/45674390#. 

-'FEDERAL DEPOSIT INSURANCE CORPORATlO~, FA1LED BA!'-:K LIST, available a! 

https:/ /v.·,vw .fdic.gov /bank/individual/ failed/ banklist.htmL 

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These dynamics and consequences are why the protections of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Dodd-Frank)4 are needed to protect consumers, small 

businesses, taxpayers, and the nation's economy. All financial institutions, including community 

banks and credit unions, benefit from the underlying purposes of financial regulation: protecting 

consumers, ensuring the safety and soundness of institutions, protecting community financial 

institutions from unfair competition, and defending the nation's financial market from systemic 

risk. 

II. Financial regulations are not slowing economic growth or preventing lending. 

Financial institutions, including small banks, are continuing to recover from the worst 

financial downturn since the Great Depression. Mortgage lending in particular continues to 

steadily improve. Small banks are playing an important and growing role in the recovery. 

Contrary to theories that the Dodd-Frank Act has stifled growth, the financial sector has had 

record profits. In 2016 U.S. financial institutions had total annual profits of $171.3 billion, the 

highest level since 2013. 5 While this profit level is slightly lower than the profit level in the peak 

of the false housing boom in the years immediately prior to the financial crisis (2004-2006), it 

remains higher than inflation-adjusted financial sector profits for any other time period since 

World War TI. 

Community bank profitability has also rebounded strongly and meets pre-recession 

levels. In 2010, Jess than 78 percent of community banks were profitable. By the end of2015, 

over 95 percent of community banks were profitable. 6 A FDIC report from the 2016 third 

1 Public Law 111-203 (2010). 5 Wall Street Journal, U.S. Banking Industry .-\nnual Profit Hit Record in 2016 (Feb 28, 2017), mJailab!e at 

11ttps://www.wsj.com/ articles/ u-s-banking-industry· annual-profit -hit- rccord-in-2016-1488295836. 

6 FEDERAL DEPOSIT INSUJL\NCE CORPORXriON, CORE PROF!'L\Bl!JTY OF COli!MliNITY BANKS 1985-2015 1 (2016), 

apai/able a/ https:/ /www.fdic.gov /bank/ analytical/ quarterly /2016_ voll 0_ 4/ articlel.pdf 

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quarter notes that the percentage of unprofitable community banks sunk to 4.6 percent, which is 

the ''lowest percentage since the third quarter of 1997."7 Full year earnings were up 9.7 percent 

in 2015, which is a higher figure than the overall increase of7.5 percent for all banks. 8 

77.8 

70.3 

2009 2010 

Community Banks 

Percentage of profitable institutions 

88.9 91.6 93.6 

83.7 

2011 2012 2013 2014 

95.0 95.7 

2015 2016 

Federal Deposit Insurance Corporation. Quarterly Banking Profile, Community Bank Performance Section, Table 1 ~B 

{2015, 2016), retrieved from: https:llwww.fdic.gov/banklanalytical/qbp/qbpmenu.html, March 23, 2017. 

Credit unions have also continued to grow while recovering from the financial crisis. 

Credit union membership has been steadily growing in recent years. In 2016, credit unions added 

4.7 million new members, which amounted to ''the biggest annual increase in credit union history 

and four times the pace set a decade earlier."9 Operating costs for credit unions have also fallen 

7 FEDEKA.L DEPOSIT INSUR_\NCE CORPORATiON, QUARTERLYBA,'i'.JKJ:\JG PROFILE: TlURD QllARTER2016 I, arai/ab/1' at 

htrps://,·ww.fdic.gov /hank/anaktical/ quarterly /2016_ vollO_ 4/ fdic_ v 1 On4_3q16_quarterly.pdf. 

'I d. 

° CUNA I\1UTUAL GROtlP, CREDIT UNION TREI':D::; REPORT (2017), aJJrdlabie at https:/ /w\vw.cunamutual.com/rcsourcclibrary I publications/ credit -union-trends-report. 

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in the period since Dodd-Frank was passed and were down to 3.1 percent in 2016 from a high of 

3.59 percent in 2008. 10 

While the number of small lenders, including community banks and credit unions has 

decreased over the years, this cannot be reasonably attributed to Dodd-Frank or CFPB 

regulations. The number of community banks has declined every single year since 1984. 11 FDIC 

research concludes that community bank profitability since 2008 has overwhelmingly been 

driven by macroeconomic conditions, not regulations. 12 The FDIC study first takes a wide look 

at regulations that include Dodd-Frank, but also Basel III capital standards. The study states that 

"regulation is just one among many noneconomic factors that may contribute to structural 

change in community bank profitability," but conclude that 80 percent of variation in 

profitability is due to macroeconomic factors, and the other 20 percent includes not just changing 

regulations, but also ''the rise of nonbank lending, competition from larger banks, and changes in 

loan portfolios and other business practices." 13 

Smaller lenders play an important role in extending access to credit, and it is noteworthy 

that lending has also rebounded from the depths of the crisis. After falling from June 2008 to 

November 2010, outstanding consumer loans have steadily increased at $3.7 trillion in December 

2016, which well exceeds pre-crisis leveJsi 4 Small banks have posted increases in commercial 

lending in all but one quarter compared to levels at the time of passage of Dodd-Frank in 20 I 0. 15 

10 NATIONAL CREDIT UNION ,,Di\l!NISTRAJ"ION, NCUA 0-IARTPACK (2016), tmailab!e at 

https:/ /www .ncua.gov I analysis/Pages/industry/ fact -sheets.aspx. 

11 FEDERAL DEPOSIT INSCRANCE CORPOR.'.TION, CO,!MCNin' BANKING STUDY 1 (20\2), avai/a/Jle at 

h rtps:/ /vcvcw.fdic.gov / regularions I resources/ cbi/ report/ cbi-full. pdf. 

12 FDIC, Core Profitability of Community Banks supra note 6. 

13 Id at 4~. 

J-.1 FEDER. -\L RESERVE, TOTAL CONSUMER CREDIT O~'NED .AND SECURITIZED, Ol!TSTAKDING m;ailable a! 

https:/ / fred.stlouisfed.org/ scrics/TOT,\LSL 15 FEDERAL RESERYE, TOTAL Y:\LUR Of LOANS FOR ALL COI\L\.IERClAL A.ND INDlJSTRY LOANS, SMALL DOMESTIC 

BA0lKS available a! https:/ /fred.stlouisfed.org. 

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Furthermore, the FDIC's quarterly community bank performance data for the fourth quarter of 

20 I 6 shows that community banks hold 43 percent of all small loans to businesses and that they 

increased lending by $6.4 Billion (2.2 percent) compared to 2015, twice the rate of other 

banks. 16 

Finally, mortgage lending has also steadily recovered since the crisis. Community banks 

and small lenders play an important and growing role in the mortgage market in particular. In 

2015, mortgage lenders originated 850,085 more loans 17 than they did in 2012, a 37 percent 

increase. Loans originated by smaller lenders with assets under $1 billion saw the biggest 

increase during this period (48 percent) while the largest institutions with assets over $10 billion 

saw a I percent decline. Credit unions alone originated $4 I. 7 billion in first-lien mortgage loans 

in the third quarter of 2016, an increase of 22 percent over the same period in the previous year. 18 

3500000 

3000000 

2500000 

2000000 

1500000 

1000000 

500000 

0 

Loan Originations 

Home purchase, Owner Occupied, 1-4 family units, 1st 

lien 

2012 

~Assets >0, 

2013 2014 2015 

> lB, <=1GB Assets >lOB 

CRL Analysis of HMDA data 2012-2015 

16 FEDERAL DEPOSD' lNSURAKCE CORPORATION, QUARTERLY BAKKfNG PROFILE, CO~!MUN!TY BANK PERFORMANCE, 

FOURTH QUARTER (2016), m·ailab!e at https:/ /www.fdic.gov /bank/analytical/gbp/2016dec/qbpcb.html. 17 Sarah \\lolff, CRL Analysis of I--I?\.10.·\ Data 2012<.~0 15. Loan analysis limited to: home purchase, owner-occupied, 1-4 

family units, 1st lien loans, twailable at http:/ /wv.rw.rcsponsiblelcnding.org/mcJia/new·hmda· data·shows ·mortgage· 

market continucs-cxdude-consumers-color··and ·low-•vealth · families. 

IS CCN ,\ ~!UTUAL GROCP, CREDIT UN! OJ"\ TRENDS REPORT (2016), available at 

https: // v.-v..w .cunamutual.com I resource ·library I publications I c(cdit-union-trends-report. 

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Small lenders also saw their market share in mortgage lending increase over this time period. 

The market share of the smallest lenders with assets under $1 billion increased from 54 percent 

in 2012 to 58 percent in 2015. In contrast, the market share of the largest lenders with assets over 

$10 billion, decreased from 31 percent in 2012 to 22 percent in 201519 

Increase in pecentage of loan 

Lender Asset Size 

Home purchase, owner-occupied, 1-4 family units, 1st Lien 

2013 2014 

>0. >lB. 

CRL Analysis of HMDA data 2012-2015 

III. The CLEARR Act is far too expansive in weakening consumer protections and 

helping large banks. 

In this context of recovering and growing profitability and strength of smaller lenders, we 

must ensure that legisalitve reform seeking regulatory releif is targeted to smaller lenders, and is 

based on a sound and accurate asscsment of the impact of regulations on cconimc growth. CRL 

is opposed to any legislative reform that exposes consumers and the economy to the increased 

risk of pre-recession behaviors, or disproportionately benefits the largest financial instutions at 

the expense of other lenders. Responsible and sensible lending has promoted growth, ensured 

1° CRL Analysis slfpm note 17. 

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stability, and protected consumers and the market from the reckless beahvior of pre-recession 

practices. 

H.R. 2133, the "Community Lending Enhancement and Regulatory Relief Act of2017" 

(CLEARR Act) introduced by Representative Luetkemeyer does not provide targeted regulatory 

relief for consumers and small banks and simultaneously puts consumers at risk. The CLEARR 

Act is far too expansive in weakening consumer protections in the name of helping community 

banks and would ultimately benefit large banks while weakening important protections for 

consumers and the economy. The provisions of the CLEARR Act would grant exemptions and 

tree passes for almost all financial institutions, including large banks. The bill exempts large 

lenders from escrow requirements mandated by the Truth in Lending Act (TlLA), amplifying the 

risk of these loans. The CLEARR Act also expands the Qualified Mortgage safe harbor for loans 

held in portfolio by any institutions including some of the biggest banks in the world. The bill 

also targets the CFPB, and attempts to weaken its power and authority to fight for the American 

consumer. By raising the threshold for the agency's supervisory authority over depository 

institutions from $10 billion to $50 billion, the CFPB ability to police the financial marketplace 

is scaled back. Additionally, the bill strips the CFPB of its UDAAP authority to pursue 

institutions that engage in ''abusive" practices, the very same authority the CFPB used to take 

action against Wells Fargo in its recent account scandaL The bill would also roll back significant 

data reporting requirements that provide a key tool to fight discrimination in the financial 

marketplace, by repealing section 1071 of the Dodd-Frank Act, which mandates collection of 

small business and minority-owned business loan data under the Equal Credit Opportunity Act 

I. The CLEARR Act weakens regulators ability to prevent discriminatory lending 

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Some of the most concerning provisions in the CLEARR Act arc those which would 

weaken the ability of regulators to address lending discrimination. Provisions 7, 8 and 9 all 

specifically limit the effectiveness of financial regulators to understand and address troubling 

ongoing discrimination. 

Section 7: Amend the Equal Credit Opportunity Act and the Fair Housing Act to requirefederal 

agencies to determine whether afinancial institution intentionally discriminated as grounds for 

fair lending enforcement. 

This section amends ECOA and the Fair Housing Act by prohibiting creditors from 

intentionally discriminating against any applicant for credit based on certain characteristics as 

defined by statute. This would abolish disparate impact discrimination claims based on 

violations ofECOA and the Fair Housing Act, and would instead limit claims to the different 

standard of disparate treatment. In order to be liable under the disparate treatment standard intent 

needs to be proven, while under disparate impact claims of discrimination the harm can be 

unintentionaL but liability can be established by showing an ostensibly neutral policy 

disproportionally affects members of the protected class. Disparate impact has been a central part 

of combating racial discrimination for decades, and to summarily disregard disparate impact is 

indicative of the extreme nature of this bill. 

Section 8: Amend the Home Mortgage Disclosure Act of 1975 to from maintenance of mortgage 

loan records and disclosure requirements depository institutions that have originated-~in each 

ofthe two preceding calendar years--fewer than 1,000 closed end mortgage loans and fewer 

than 2,000 open-end mortgage loans. 

This section of the CLEARR Act proposes to vastly increase the number of banks and 

nonbanks that would be exempted from having to report new data on their mortgage lending 

under the Home Mortgage Disclosure Act (HMDA). Current CFPB rules require banks and 

nonbanks that originate at least25 closed-end loans or I 00 open-end lines of credit in each of the 

two preceding calendar years to provide data. These thresholds were carefully put in place by the 

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CFPB to balance the value of reporting and of having uniform standards against the burden 

reporting places on reporting institutions. This section proposed to raise that threshold 

significantly: to I ,000 closed-end mortgage loans or 2,000 open-end lines of credit. Such an 

increase is both harmful and unnecessary. 

IIMDA data have been used for years to understand the mortgage market and to hold 

lenders accountable for fair lending. The expanded HMDA data fields help shed important light 

on aspects of the underwriting process that the public previously has not been able to measure, 

such as how loan denials vary by race and credit characteristics. These new data could help 

explain persistent differences in measures like denial rates by race and ethnicity. This provision 

undermines this important public resource by exempting all but the largest lenders from 

reporting. The CFPB has estimated that nearly all depository (85%) and nearly half of all 

nondepository (48%) mortgage lenders would be exempt under a loan threshold half the size 

proposed by this provision.20 If this provision were made law, regulators and the public would 

have far less information about the mortgage market. 

This provision, however, also fails to materially reduce the burden on HMDA reports. 

Lenders already collect most of the data they would need to report under the expanded HMDA 

rulc21 Lenders collect data for underwriting, as required on closing documents. the Uniform 

Residential Loan application, and as required by the GSEs or FHA. Providing this information 

through HMDA reporting does not require lenders to collect vast amounts of new infonnation, it 

:::u Based on 2013 data, the CFPB estimates that updated reporting would be lost for 10 percent of loan records under a 

500 closed-end loan volume threshold, and over 5,300 census tracts would lose 20 percent of the updated data about 

mortgage lending in their communities. 21 See A, dam Levitin, Credit Slips Blog, "New HMD_\ Regs Require Banks to Collect Lots of Data .. .That They .Already 

Have". 

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simply requires them to report important information that they already collect. The bulk of 

reporting burden is in collecting, maintaining and managing data systems, not in reporting. 22 

Section 9: Amend the Equal Credit Opportunity Act to repeal requirements that financial 

institutions collect in.formation.from small businesses regarding their ownership. 

Small business lending provides critical capital to new and growing businesses that create 

jobs and help people build wealth. Smaller banks play a critical role in expanding access to 

credit for small businesses and we support efforts to encourage small business lending. 

However. eliminating new small business data collection efforts will hamper small business 

lending and we oppose the elimination of the data collection required by Section I 071 of the 

Dodd-Frank Act. Data collection has not even begun so eliminating the disclosure of small 

business lending activity, like the long-standing practice of mortgage lending data collection, is 

premature. 

Section 704B of the Equal Credit Opportunity Act amended by Section 1071 of the 

Dodd-Frank Act requires creditors to disclose business loan applications, type and purpose of 

financing, loan amount, approval status. location and size of the business and other information 

necessary to lending products and practices. These data will help prevent discriminatory lending 

practices and encourage financial institutions of all sizes to serve the small business needs of 

underserved communities, emerging entrepreneurs and growing businesses that create much 

needed employment opportunitics.2l 

As discussed above, data collected through HMDA has made home mortgage lending 

data widely available for decades and has improved how lenders and policymakcrs understand 

CFPB, H?I!D"-\ Final Rule, Federal Register, Vol. 80, No. 208, p. 66282. 

2315 U.S. Code§ 1691c-2 

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the mortgage market-bringing much needed transparency to the market and taking an important 

step toward understanding lending trends and identifying discriminatory lending practices. 24 The 

requirements ofl!MDA apply market-wide, to depositories and non-depositories and large and 

smaller lenders alike and result in an unprecedented view of how and where lenders make 

mortgage credit availab I e. 

Currently, there is only limited information available about small business lending 

activity and only from a subset of lenders. 25 However, these data suggest that low-wealth 

communities and communities of color lack the access to credit necessary to create and sustain 

new small businesses. 

A report by Woodstock Institute found that, nationally, businesses in low-income census 

tracts comprised an average of9.3 percent of all businesses for the period 2012-2014, but they 

received only 4.7 percent of reported bank loans under $100,000 and only 4.9 percent of the total 

dollar amount of those loans. If those businesses had received loans in proportion to their share 

of businesses overall, they would have received over 687,600 more loans totaling over $8.8 

billion more than they actually received between 2012 and 2014. 26 A recent report by the 

Kauffman Foundation found that African American business owners were nearly twice as likely 

as white business owners to rely on their credit card to build their business and 59% of African 

American entrepreneurs did not seek financing because they thought they would be turned down 

2 t See "The Nation's Housing Finance System Remains Closed to _-\frican-Amcrican, Hispanic, And Low-Income 

Consumers Despite Stronger National Economic Recovery In 2015." Durham, NC: Center for Responsible Lending, 

September :2:016. http:/ /wVvw.responsiblelending.org/ sites/ default/ files/ nodes/ files/ researchpublication/20 15 _hmda_policy _ bricf_2.pdf. 

.2; Under rhe Community Reinvestment Act, some financial institutions disclose small business loans made to businesses 

with annual revenue of $1 million or less. 

2c, «Patterns of Disparity: Small Business Lending in the Buffalo and ='Jew Brunswick Regions.'' Chicago, IL: \\?oodstock 

Institute, ,\pril 2017. 

http: I/ www .woods tockinst .org/ sites/ default/ files/ attachments /Buffalo%2:0and%20N ew%20Bmnswick%20Rcporr 

/(~20Re-..ised< \pr0/o20 19%20Finai_D R.pdf. 

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by a lender.27 That same report found that minority entrepreneurs were far more likely to report 

that their profits were negatively impacted by a lack of access to and cost of capital than white 

entrepreneurs. 

Section 9 ofHR 2304 would preserve the status quo and roll back years of work to 

improve access to small business lending. Rather than providing relief for small banks, this 

proposal takes an extreme approach and eliminates the small business data collection 

requirement for all lenders, including large banks and non-depository lenders. Data collection is 

yet to begin, and the CFPB has just started collecting information from all stakeholders involved 

in the process. In May 2017. the CFPB released a white paper on small business credit and 

requested comments on what defines a small business, what institutions lend to small businesses 

and what products are offered. The request also sought information on existing credit options 

available to small businesses and the privacy implications of the collection and release of small 

business data. 

We believe that these are right questions to ask. We urge the consideration of targeted 

efforts to expand small business lending that support the significant role of small banks in this 

market rather than eliminating efforts to prevent discriminatory lending practices and exempting 

all lenders, including large banks and non-depositories from this critical disclosure requirement. 

2. The CLEARR Act hamstrings regulators ability to protect consumers 

In addition to weakening the ability of regulators to address lending discrimination, 

provisions of the CLEARR Act weaken protections for all consumers. Section 6 removes the 

27 "Zero Barriers: Titree Mega Trends Shaping the Future of Entrepreneurship." Kauffman Foundation, 2017. 

http://www.kauffman.org/~/media!kauffinan _ org/resources/20 17/state _of_ entrepreneurship_ address _report_ 2017. 

pdf. 

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CFPB's UDAAP authority, and sections 10 and II limit the power of financial regulators to 

protect consumers. 

Section 6: Amend the Consumer Financial Protection Act of 2010 to repeal the authority(){ the 

Consumer Financial Protection Bureau (CFPB) to take action to prevent a covered person or 

service providerfrom committing or engaging in an abusive act or practice underfederallaw in 

connection with any transaction with a consumer.for a consumer financial product or service. or 

the offering of one. The bill also prohibits the CFPBfrom taking any action against a covered 

person or service provider without .first consulting with such person's primary .financial 

regulatory agency. The CFPB must comp~v with the same rules as govern the Federal Trade 

Commission (FTC) regarding unfair or deceptive acts or practices in or affecting commerce: 

This section strips the CFPB of its enforcement and rulemaking UDAAP authority. This 

section also prohibits the CFPB from pursuing any enforcement action without first conferring 

with the "covered person or service provider's primary financial regulatory agency." The section 

mandates that the CFPB is subject to the same requirements that the Federal Trade Commission 

(''FTC") is subject to when the CFPB conducts any rulemaking. This would ultimately hamstring 

the CFPB's ability to promulgate broad and effective rules. 

Section 10: prohibit a federal banking agency.from formal~v or informally suggesting. 

requesting, or ordering a depository institution to terminate either a specific customer account, 

or group(){ customer accounts, or otherwise restrict or discourage it.fi·om entering into or 

maintaining a banking relationship with a specific customer or group of customers, unless: (1) 

the agency has a material reason to do so, and (2) the reason is not based solely on reputation 

risk; 

and 

Section 11: Amendments to Civil Penalties under FIRREA: Section 11 would substantially 

narrow the scope of activity that Department of Justice (DO.!} can issue administrative 

subpoenas and initiate civil actions againstfinancial institutions under FIRREA. It would also 

undermine the DOJ's ability to conduct investigations by requiring that administrative 

subpoenas either be issued pursuant to a court order or personally through the Attorney General 

or Deputy Attorney General. 

Sections 10 and 11 of the CLEARR Act would hamper the government's ability to ensure 

that some banks are not willfully enabling scammers to defraud the customers. Financial fraud is 

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a large-scale problem that affects millions of Americans. The FBI estimates that mass marketing 

fraud schemes strip tens of billions of dollars each year from millions of individuals and 

businesses around the world. MetLife estimates annual losses by elder Americans alone at 

nearly $3 billion. Banks are well positioned to assist in identifying scammers because they serve 

as a gateway to payment networks, including ACH and debit card networks. Monitoring the rates 

of returned transactions through these networks is an effective risk control that banks are wellsuited to do. A high rate of returned transactions for a given bank customer, which may be a 

payment processor with many clients, is a common warning signal of fraudulent activity. 

The CLEARR Act takes aim at the DOl's Operation Chokepoint initiative, the goal of 

which has been to stop fraudulent schemes perpetrated through the banking system, particularly 

where they involve third party payment processors. The three cases the DOJ has brought under 

Operation Chokepoint were not close calls. Four Oaks Bank, Commerce West Bank, and Plaza 

Bank all ignored glaring indications that their payment processor customers were scammers, 

enabling them to illegally remove funds from the accounts of customers at other banks. While 

average return rates for unauthorized ACH payments are about 0.03%, these banks ignored 

return rates as high as 50%, 60%, 70%. They willingly enabled fraudulent activity that caused 

real people real financial hann. Section 10 of the CLEARR Act would make it more 

burdensome for financial regulators to discourage banks from doing business with customers 

where there is indication the customers are engaging in fraud. But supervision of a bank's due 

diligence in detecting fraud is an important role of the banking regulator. Hampering the 

regulator's ability to perfonn that role will help scammers and their enabling banks, while 

harming responsible banks. 

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Further, Section ll would significantly narrow the scope of the DOJ's investigative 

authority to illegal conduct "against" a financial institution or "by" the institution, rather than 

activity that ·'affecting" the institution. This would likely eliminate the DOJ's authority to 

conduct the sort of investigations it has brought under Operation Chokepoint because the bank 

enabling the scam was not, itself, the scammcr or the one scammed. The bill would also impose 

additional hurdles for the DOJ to be able to issue subpoenas in connection with its investigations 

of financial fraud. A subpoena is an important fact-finding tool, critical to the DOJ's ability to 

obtain the information it needs to stop banks from willfully enabling scammers. Again, making it 

more difficult to obtain information will help scammers and their enabling banks at the expenses 

of responsible banks and their customers. 

3. The CLEARR Act doesn't help small banks, it mostly exempts large banks some of which 

are bad actors 

Section 2: Amend the Truth in Lending Act (11LA) to direct the Board of Governors of the 

Federal Reserve to exempt from certain escrow or impound requirements a loan secured by a 

first lien on a consumer~s principal dwelling if the loan is held by a creditor with assets o.f$50 

billion or less. The Consumer Financial Protection Bureau must also provide either exemptions 

to or adjustments.fi·om the mortgage loan servicing and escrow account administration 

requirements of the Real Estate Settlement Procedures Act(>( l974for servicers o.f30,000 or 

fewer mortgage loans. 

This section increases thresholds of two exemptions provided by the CFPB for small 

banks concerning escrow accounts for higher-priced mortgage loans and servicing requirements 

for small mortgage servicers. Under this section, for institutions with less than $50 billion in 

assets, escrow accounts would no longer mandated for riskier, high-priced loans. Additionally, 

the exemption from increased notification requirements to borrowers would be increased from 

5,000 loans to 50,000 loans. This expansion is a prime example of how the increase of thresholds 

would significantly benefit larger institutions, and significantly misses the mark in targeting 

17 
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relief for smaller institutions. By removing the escrow requirement for larger financial 

institutions, the provision increases riskiness in of the loans and the balance sheets that hold 

them. 

Section 3: Amend TILA to exempt from properly appraisal requirements a higher-risk mortgage 

loan oj$250,000 or less if it appears on the loan creditor's balance sheet for at least three years. 

This section exempts mortgages in the amount of $250,000 or less from the definition of 

''higher-risk mortgage," and therefore from the appraisal requirements required for such 

mortgages under TILA, so long as the creditor holds the loan on its balance sheet for at least 3 

years. The lack of adequate regulation in the appraisal market was a significant factor causing the 

housing market crash. 28 In fact, between 2000-2007 a coalition of appraisal organizations 

produced a petition. signed by II ,000 appraisers that stated lenders were pressuring them to 

artificially inflate home prices, and would only give business to appraisers that complied. 29 This 

section also removes penalties under TILA regarding professional misconduct, unethical 

behavior, or violation of law in mortgage dealings. This roll back of penalties and the increase of 

thresholds again raises questions as to how this provision would provide relief for smaller 

lending institutions. 

Section 13: Amend the Consumer Financial Protection Act of2010 to raise the examination 

threshold that brings an insured depository institution or insured credit union within its 

supervisory purview from assets of$10 billion or more to assets of$50 billion or more. The bill 

also increasesfrom assets of$1 0 billion or less to assets of$50 billion or less the size of an 

insured depository institution or insured credit union that is subject to the Act's reporting 

requirements. 

Financial Crisis Inquiry Report, Final Report of the National Commission on the Causes of the Financial and 

Econoffilc Crisis in the United States. Submitted by The Financial Crisls Inquiry' Commission Pursuant to Public Law 

lli-21,January 2011, 17-19 ("Financial Crisis Report") 29 1d. at 18 

18 
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Provisions that weaken or scale back the authority and power of the CFPB must 

ultimately answer the question: who benefits from a weakened CFPB? The CFPB, the only 

agency whose mission is to protect the American consumer, has been effective in policing the 

financial market place and fighting to protect and expand consumer rights. The data is 

unambiguous, the CFPB is works. 

The CFPB has recovered nearly $12 billion for 29 million consumers who have been 

harmed by illegal practices of credit card companies, banks, debt collectors, mortgage 

companies, and others. This relief includes monetary compensation to harmed consumers, 

principal reductions, canceled debts, and other remedies to address these practices. The CFPB 

has worked hard to end predatory practices by institutions like ITT Tech (a for-profit college that 

misled borrowers into high-cost private student loans), Wells Fargo. and car-title and payday 

lenders. 

Under the leadership of Director Cordray, the CFPB has issued and proposed rules that 

make the market safer for consumers and the general economy. In addition to the mortgage rule 

and standards addressed above, the CFPB has issued a rule to make prepaid cards safer and fairer 

for consumers who rely on them. The CFPB has also undertaken enforcement actions that benefit 

consumers by either shielding them from harm or compensating them for wrong done by illegal 

financial practices. The CFPB has simplified bank disclosures borrowers receive when taking 

out a loan, protected military families against illegal foreclosures and abusive student and payday 

loans, and has guarded seniors from predatory scams. Further, the CFPB has obtained more than 

a billion dollars in compensation to consumers harmed by misleading credit card add-on 

products from big banks, and to consumers harmed by the recently uncovered egregious 

fraudulent acts of Wells Fargo in opening checking accounts without customers' approval. The 

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CFPB has also provided $160 million in settlements to consumers harmed by discriminatory auto 

interest rate mark ups where borrowers ended up with higher-cost auto loans when they qualified 

for more affordable loans. The Consumer Bureau hears directly from Americans harmed by 

illegal financial practices through its searchable public complaints database, which has helped 

people resolve disputes and allowed the Bureau to identify patterns in predatory industry 

practices. The system has recorded more than one million consumer complaints. 30 

Even though the economy is on a stable path to recovery and much has been done with 

the robust work of the Consumer Bureau, there remain areas of critical concern that must be 

addressed. The CFPB must be allowed to continue to do its work on behalf of consumers and by 

substantially exempting virtually all financial institutions, it will not be able to. 

4. The CLEARR Act makes the mortgage market more susceptible to abuses 

Section 15: Amend TILA to create a safe harbor from lawsuit for a depository institution that 

fails to comply with ability-to-repay requirements with respect to a residential mortgage loan 

made and held on its balance sheet; and 

Section 16: Amend T!LA to direct the Federal Housing Finance Agency (FHFA) to promulgate 

regulations defining qualified mortgage and the types of loans that are qualified mortgages. The 

FHFA is required to conduct a yearly review of its promulgated standards, and must publish and 

proposed changes in the Federal Register 

The consequences have shown the results of lax regualtion of the mortgage market--

fraud and abuse that deplete the savings of American consumers and destabilize the economy. 

According to the Financial Crisis Inquiry Commision Report, "collapsing mortgage-lending 

standards and the mortgage securitization pipeline lit and spread the flame of contagion and 

crisis."31 Mortgage regulations were put in place to prevent these practices and abuses. The 

30 Consumer Financial Protection Bureau, CFPB Complaint Snapshot Spotlights Money Transfer Complaints: Bureau 

i\larks Over One ~·lillian Consumer Complaints Handled (2016), al'llilab/e at https:/ /www.consumerfinance.gov I aboutus/ newsroom/ c fpb -complaint snaps hot·-spotlights -money-trans fer-complaints I. 31 Financial Crisis Report, supra n. :25, at xxiii 

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expansion of exemptions to larger financial institutions casts doubt upon the notion that these 

provisions are targeted for smaller financial institutions. 

The CFPB's Qualified Mortgage (QM) rule and the Ability-to-Repay standard set out 

common sense standards to protect the market and consumers from high-risk, unsustainable 

loans by ensuring borrowers have an ability to repay the loans they receive. Irresponsible 

mortgage lending that ignored borrowers' ability to repay their loans resulted in a foreclosure 

tsunami that disproportionately impacted communities of color--eviscerating a generation of 

wealth building. Further, Wall Street's appetite for risky mortgages encouraged this lax 

underwriting, and regulatory inaction failed to address the problem. As a result, unaffordable 

loans toppled the entire market and nearly destroyed the economy. 32 

The reforms of Dodd-Frank, including QM and Ability-to-Repay, have not hurt mortgage 

lending or access to credit. Instead, these reforms support sustainable homeowners hip and wealth 

building opportunities for lower-wealth households. Large lender portfolio exemptions to the 

QM rule are unnecessary, do not help small lenders, and are dangerous for the economy. Some 

have suggested that expanding QM to include all loans held in portfolio by lenders of any size, 

would increase lending. However, this would be dangerous for consumers and the market, and 

unlikely to meaningfully expand lending. As demonstrated in the housing crisis, holding loans in 

portfolio alone will not protect borrowers, taxpayers, and the market from the mistakes of the 

past. In the lead up to the financial crisis, many of the toxic loans, such as negative amortization 

loans, and "ARMs" underwritten to initial '·teaser" rates were held in bank portfolios. Lenders 

underwrote these loans based upon only this initial, artificially low payment, even though 

32 Testimony of Eric Stein, Center for Responsible I .ending, before the US Senate Committee on Banking, Housing, and 

Urban _,\ffairs, "Turmoil in the US Credit Markets: The Genesis of the Current Economic Crisis," (October 16, 2008) 

mwilable a/ http:/ /www.banking.senate.gov /public/ _cache/ files/03d72248-b676-4983-bd3eOffcc93Gh509 / 33A699FF53 5D59925B69836, \6 E068FDO.steintestimony l 01 GOSfinal.pd f. 

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dramatically higher payments commenced after a few years. Many lenders did not document the 

income of the borrowers, instead making "no-doc" loans. Hundreds of billions of dollars of these 

loans were made, and many were kept on bank portfolios. These portfolio loans soon crashed, 

helping to trigger the financial crisis, and devastating banks such as Washington Mutual and 

Wachovia.33 

Portfolio loans can still be risky for consumers and taxpayers, and automatic QM status 

for loans held in portfolio should not be extended to larger institutions. Many homeowners have 

very substantial equity in their homes and a significant number ofthose have no current home 

debt. Current information shows that the average loan-to-value for GSE loans is roughly 74 

percent with many loans having much lower levels. 34 With these loans, the borrower's equity 

absorbs the risk of loss rather than the lender. Therefore, the lender is protected even from very 

risky loan terms. Furthermore, lenders are also already making and holding loans in portfolio. 

Portfolio loans accounted for 30.9 percent of all originations in 2016, approximating the precrisis share of originations for portfolio loans. 35 Expanding QM to all portfolio loans is unlikely 

to lead to an increase in volume. 

This would be a particularly dangerous time to reduce the Ability-to-Repay/QM 

mortgage protections. As the economy moves through the business cycle and the recovery 

improves, the important protections recently put in place will provide new value. Real and 

nominal house prices now exceed pre-crisis trends and at the same time interest rates are 

expected to rise. As shown in the chart below, the home market is cyclical with home values 

33 Ben White and Eric Dash, Wachovia, Looking for Help, Turns to Citigroup, New York Times (September 26, 2008), 

aPailaNe a/ http://www.nytimes.com/2008/09/27/business/27bankhtmP __ r~O. 

~ F:\NNIE J\(AE 2016 CREDIT SUPPLEMENT 6 (2017), available at 

http://www-fannicmae.com/rcsourccs/file/is/pdf/quarterly-annual-results/2016/q42016_crcdit_summary.pdf. 

35 L.\UlUE GOODMAN ET AL. HOUSING F!Nc\NCE AT A GlJ\NCE: A MONTI-ILY CHARTBOOK, l\L\RCH 2017 (2017), 

at:ailab/e at http:// 'W'WW .urban.org/ research/ pu blicat.ion/housing finance-glance-monthly -charthook -march2017 /view /full_report. 

22 
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rising and falling when measured in real inflation adjusted dollars. There were in fact several 

substantial price run ups in home values and declines prior to the Great Recession. The 

difference was that in these prior run ups. the bubble was limited because mortgage payments 

were not artificially reduced by poor mortgage products without borrower ability to repay. This 

enabled the market to rebalance without a crash. In contrast in the early 2000's housing prices 

rose rather than being rebalanced. These unsustainable mortgages further artificially inflated 

home prices and created a housing bubble of unprecedented height and fall. 

United States House Prices 

Year 

In the coming years, the market will create pressures for the reintroduction of these 

unaffordable mortgages. As the following chart shows, we are coming to the end of a decadeslong period of declining interest rates, culminating in the current market where there is a 

23 
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negative real interest rate and historically low mortgage rates. A consensus of experts agree that 

mortgage, and other interest rates will increase in coming years. This will create pressure for 

lenders to bring back the exotic unaffordable mortgages of the recent past to again artificially 

reduce monthly mortgage payments. Undercutting regulation that sets the basic expectation that 

borrowers should have the ability to repay loans, especially loans made by federally insured 

institutions, would invite a repeat of the recent financial crisis at the cost to the American 

taxpayer. 

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Provisions that grant out right legal immunity are extreme and put consumers at great risk. 

Granting QM status to portfolio loans held by larger financial actors will allow some to use 

relaxed standards to harm consumers and strip consumer equity, all while being insulated by 

QM's legal protections. 

The QM rule is designed to facilitate the flow of mortgage credit, as lenders will have the 

confidence in knowing the suitability of loans for borrowers at the time of origination. The same 

standards in turn reduce the overall likelihood of borrower default. This certainty has benefitted 

consumers, lenders, and investors alike, leading to a more sustained housing recovery. 

Three years have passed since the QM rule was implemented. Reports, including the 

Home Mortgage Disclosure Act (HMDA) report, show that QM has not negatively impacted 

mortgage lending or access to credit. In fact, (post QM) HMDA data is very much consistent 

with market trends immediately preceding the implementation of the QM rule and Ability-toRepay standard. The Federal Reserve's seasonally adjusted origination numbers, in the chart 

below, show a slow overall increase in monthly originations from 2011 through 2015 with no 

discernable decrease when the rules were fully implemented in January 2014. 36 

"'FEDERAL RESER\'E BULLETIN, THE 20!4l!OME MORTGAGE DISCLOSL'RE Acr DXI'A (2015), available at 

https:/ /w\Vw.federalreserve.gov /pnbs/bulletin/2015/ pdf/2014_Hl\ID.\.pdf. 

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Tn addition, HMDA data from 2014-15 shows a modest but steady increase in mortgage lending 

to low and moderate-income borrowers and African-American and Latino borrowers.J7 

Researchers have looked carefully at mortgage lending after the implementation ofQM 

and found no link to a reduction in credit. For example, researchers at the Urban Institute looked 

at loans that might reasonably have been affected by the QM standards (interest only or 

prepayment penalty loans, loans with debt-to-income "DTI" over 43 percent, or adjustable rate 

mortgages or "ARM'' loans) and found no decline in these categories associated with QM. 3

s 

Researchers at the Federal Reserve similarly concluded "The HMDA data provide little 

indication that the new A TR and QM rules significantly curtailed mortgage credit availability."39 

Researchers at the Federal Reserve also looked at both the origination and securitization of 

.l7 FEDE!L\L RESERVE BlJJ.LETIN, THE 2015 HOME MORTGAGE DISCLOSURE Acr DATA (2016), atwil"b!e at 

https:/ /w\\w.fcdcralrcscrvc.gov/pubs/buUctin/2016/pdf/2015_HMDA.pdf, see also note 21. 

"Bing Bai, Laurie Goodman, and EUcn Seidman, Has the Q~l Rule ~lade It Harder to Get a C.!ortgage? (2016), available 

at http:// V.lWW .urbao.org/ research/ publication/ has~gm- rule-made-it-harder-get -mortgage. 

"' FEDER. \L RESERVE BCLLETIN, THE 2014 HcnrE I\lORTGAGE DISCLOSURE ACT DATA, available at 

https:/ /www.federalrcscrvc.gov/pubs/bullctin/2015/pdf/20l4_lll\!D.\.pdf. 

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mortgages post-crisis and find that lender asset size has become a less important factor in 

explaining this lending activity and conclude '·smaller banks have not been, on net, deterred from 

engaging in the sales and securitizations of mortgages, have become a more important part of the 

market and have profited from their activitics." 40 

The Urban Institute likewise found that QM rules had not adversely affected access to 

credit. While mortgage originations can and should expand, the Urban Institute attributes 

continued access problems to overcorrect ions in the post-crises market that has resulted in 

constrained lending. This environment is most harmful to lower-wealth households with lower 

FICO scores and fewer resources for a down payment41 

Also Provision 8, discussed above, which exempts all but the largest mortgage lenders 

from expanded HMDA reporting threatens to undermine an important dataset that regulators and 

the public can use to understand the mortgage market. The expanded data would provide 

information that would have been helpful in the run up to the crisis, such as the debt-to-income 

ratio on newly originated mortgages. Such information is helpful to understanding and managing 

the market. 

IV. Other Legislative Proposals 

Many of the bills before the committee today take extreme positions and propose 

legislation that either is tangential to small banking regulatory relief, or benefits larger banks and 

non-depository institutions. In particular, H.R. __ ,(Rep. Hollingsworth), the "Ensuring 

Quality Unbiased Access to Loans Act of201 T' To be introduced by Representative 

Ill William F. Ba"ct and John C. Driscoll, Post Crisis Residential :\!ortgage Lending by Community Banks (2015). 

af!ai!ab/e at https: // v.rww .communitybanktng.org/ documents /Scssion3 _Papcr4_Bassctt.pdf. 

"Jim Parrot and Mark Zandi, Opening up the Credit Box 5 (2013), available at 

http:/ /www.urban.org/UploadedPDF /412910-0pening-the-Crcdit-Box.pdf., sec also LAURIE GOODMAN ET AL, 

TIGHT CREDTTST.\NDARDS PREVENTED 5.2 MILLION MORfG,\GES BET\l'iEEN 2009 AND 2014, available at 

http:/ I \V"\VW .urban.orgl urban· wire I tight· credit-standards-prevented-52-million-mortgages-bctwecn-2009~and-2014. 

27 
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Hollingsworth. This bill would repeal the Office of the Comptroller of the Currency (OCC) 

"Guidance on Supervisory Concerns and Expectations Regarding Deposit Advance Products'' 

(78 Fed. Reg. 70624; November 26, 2013), and the Federal Deposit Insurance Corporation 

(FDIC) "Guidance on Supervisory Concerns and Expectations Regarding Deposit Advance 

Products" (78 Fed. Reg. 70552; November 26, 2013). This guidance addressed egregious highcost payday loans made by banks and put in place important protections; repealing it would reintroduce abuses into the marketplace and cost account holders billions. The damage by the debt 

traps of payday loans has been well documented. Recognizing the harm to consumers, regulators 

took action protecting bank customers. In 2013, the Office ofthe Comptroller ofthe Currency 

(OCC), the prudential regulator for several of the banks making payday loans, and the Federal 

Deposit Insurance Corporation (FDIC) issued guidance advising that, before making one of these 

loans. banks should determine a customer's ability to repay it based on the customer's income 

and expenses over a six-month period. By repealing these actions, the provision opens the door 

for high-cost bank installment loans to once again trap customers in unending debt traps. 

Many of the other proposal under discussion suffer from similar problems of lacking a 

real focus on regulatory relief for small financial institutions. Regulations should take into 

account the different business models of community banks and credit unions and their cost 

structure. Much has already been done in this regard and further steps can be taken. In addition, 

there are other broader reforms that can reduce ohstacles and uncertainly without jeopardizing 

consumers or overall markets. 

There are several substantial regulatory provisions that acknowledge and accommodate 

the special role and circumstances of community banks and credit unions. These include: 

• Banks under $10 billion in assets that are exempted from the examination 

authority of the Consumer Financial Protection Bureau; 

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Banks under $10 billion in assets that are exempted from the interchange 

provisions of the Durbin amendment; 

Banks under $10 billion in assets that are exempted from all of the enhanced bank 

prudential standards in Title I of Dodd-Frank; 

• Regulators that have reduced liquidity and capital requirements based on bank 

size, with community banks exempted form new liquidity requirements and 

subject to more flexible capital requirements; and 

• The CFPB's more flexible standards for small creditors and small rural lenders for 

numerous mortgage requirements including: QM status for small rural lender 

portfolio loans; higher interest rate thresholds for small lender QM safe harbor 

loans; exemptions from escrow and other servicing requirements; and generous 

standards for small rural bank balloon loans. This approach works and should be 

continued. 

Other broader proposals that likewise enjoy broad support would provide further relief to 

all lenders. Further clarification of False Claims Act liability for Federal Housing 

Administration (FHA) loans is needed to reduce unnecessary uncertainty and protect responsible 

lenders. Another reform is that the interest rate level for QM safe harbor loans could be 

increased from I 50 basis points over average prime offer rate (APOR) to 200 basis points. This 

would substantially reduce the number of mortgages that are classified as higher cost mortgages 

and that are excluded from safe harbor status. Finally, a major area of relief could be provided 

around the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) rules compliance. 

BSA/AML compliance is a huge regulatory burden, especially for community banks and credit 

unions. These laws carry out the critical need to prevent our financial institutions from being 

used by terrorists, drug dealers, and other criminals to facilitate illegal activities. Today, the 

onerous task of determining the true identity of owners of accounts falls on the financial 

institution. The American Bankers Association found that this compliance is "the most costly 

regulatory burden."42 It further found that this burden was especially costly for smaller banks. 

The Independent Community Bankers of America (ICBA) and others have asked that 

,\mcrican Banker, Bank Think, (2015) available at https:/ /\•:rww.americanbanker.com/opinion/how-to-lightcncommunity-banks-aml-compliancc-load. 

29 
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.. ownership information should be collected and verified at the time a legal entity is formed by 

either the Internal Revenue Service or other appropriate federal or state agency, rather than by 

financial institutions. This would provide uniformity and consistency across the United Statcs."43 

Bipartisan bills have supported this solution, and have been endorsed by the Clearing House 

Association. This important reform should be enacted. 

V. Conclusion. 

Financial institutions, especially community banks and credit unions, play an important 

and essential role in this nation's financial market. CRL understands and supports the need for 

appropriate regulatory flexibility for small depositories. We oppose, however, any effort to use 

regulatory relief for community banks and credit unions as a vehicle for non-deposit-taking 

lenders and larger financial institutions to avoid having the regulatory scrutiny and oversight that 

proved lacking in the build up to the financial crisis. The need for regulatory flexibility must be 

balanced against the importance of consumer safeguards. the safety and soundness of financial 

institutions, and the security of America's financial system as a whole. Federal financial 

regulators like the CFPB must be allowed to both protect the American people and ensure access 

to a broad, sustainable financial market. 

We simply cannot afford another financial crisis. Congress should not roll back the CFPB 

and consumer protections under Dodd-Frank that have and continue to help millions of people 

across the country. I look forward to continuing to work with this Committee, community banks 

and credit unions, their associations, and regulators to ensure that all of these objectives are 

satisfied through laws and responsible regulations. Thank you for the opportunity to testify 

today, and I look forward to answering your questions. 

13 Independent Community Bankers. \ssociation, "2017 Plan for Prosperity," ICBA (201?), m•ailable at 

http:// wv.:rw .icba.org/ docs/ de fault -source /icha/ advocacy -documents/ priorities /icbaplanforprosperity. 

30 
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~;5NDENT COMMUNITY 

BANKERS of AMERICA 

Testimony of 

Robert M. Fisher 

President and CEO 

of 

Tioga State Bank 

Spencer, NY 

On behalf of the 

Independent Community Bankers of America 

Before the 

United States House of Representatives 

Committee on Financial Services 

Subcommittee on Financial Institutions and Consumer Credit 

Hearing on 

"Examining Legislative Proposals to Provide Targeted 

Regulatory Relief to Community Financial Institutions" 

July 12, 2017 

Washington, D.C. 
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28747.033

2 

Opening 

Chairman Luetkemeyer, Ranking Member Clay, and members of the Subcommittee, I am 

Robert Fisher, President and Chief Executive Officer of Tioga State Bank, a $475 million 

community bank in Spencer, New York. I am pleased to be here today on behalf of the 

Independent Community Bankers of America and the nearly 5,000 community banks we 

represent. Thank you for convening this hearing titled: "Examining Legislative Proposals 

to Provide Targeted Regulatory Relieffor Community Financial Institutions." We hope 

that this hearing sets the stage for legislation needed to strengthen local economic growth 

and job creation. 

Tioga State Bank has deep roots in the communities of Tioga County and surrounding 

counties in upstate New York. Founded by my great-great grandfather in 1884 to provide 

badly-needed banking services to local businesses and individuals, Tioga State Bank has 

weathered the Great Depression and numerous recessions since that time. I am a fifthgeneration community banker, proud to carry on our commitment to local prosperity. 

Today we have 11 offices and approximately $475million in assets. We specialize in 

consumer mortgage and small business lending. Our footprint is largely rural, but we also 

have offices in the urban and suburban communities of Binghamton. Many of the 

communities we serve depend on us as the only financial institution with a local 

presence. These smaller communities are simply not on the radar of the megabanks. 

Like thousands of other community banks across the country, Tioga State Bank provides 

services than carmot be duplicated by banks that operate from outside the community. 

The credit and other financial services community banks provide help advance and 

sustain the economic recovery, which has been painfully slow and uneven, failing to 

reach many individuals and communities. Community banks are responsible for more 

than 50 percent of all small business loans nationwide under $1 million. In New York 

state, community banks hold just 22 percent of total banking assets but make 55 percent 

of small business loans and 90 percent of small farm loans. Community banks "punch 

above their weight," well above, in these critical forms of lending. As the economic 

recovery strengthens, small businesses will lead the way in job creation with the help of 

community bank credit. 

The role of community banks in advancing and sustaining the recovery is jeopardized by 

the increasing expense and distraction of regulation drastically out of proportion to any 

risk we pose. Community banks didn't cause the financial crisis, and we should not bear 

the weight of overreaching regulation intended to address it. I would like to thank this 

committee for passing a number of important regulatory relief bills this Congress, notably 

the Financial CHOICE Act (H.R. 1 0), which contains numerous community bank 

regulatory relief provisions, many of which reflect ICBA's Plan for Prosperity. We 

strongly encourage this committee to build on your strong record of regulatory reliefby 

advancing legislation I will discuss today. 
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3 

Proposed Legislation 

I will focus my testimony on four bills before this committee that are of particular interest 

to community bankers: the "CLEARR Act" (H.R. 2133); the "Financial Institutions Due 

Process Act" (H.R. 924); the Clarifying Commercial Real Estate Loans Act" (H.R. 2148); 

and the Access to Affordable Mortgages Act." 

The common theme of these bills is government overreach whether it's in the form of 

prescriptive regulation that unnecessarily escalates the cost of credit, arbitrary capital 

requirements, or examination practices designed to deter or discourage banking services 

to legal and legitimate customers. ICBA supports each of these bills for reasons I will 

discuss below. 

The Community Lending Enhancement and Regulatory Relief Act of 

2017 (CLEARR Act, H.R. 2133) 

The CLEARR Act, introduced by Chairn1an Luetkemeyer, is a package of 15 provisions 

designed to provide relief from some of the most egregious aspects of regulatory burden, 

intrusive govermnent overreach, and legal risk facing community bankers today. Passage 

of the CLEARR Act, many provisions of which were recommended in ICBA's Plan for 

Prosperity, will increase community lending and job creation. 

Strengthening Community Bank Mortgage Lending 

Eight of the CLEARR Act's 15 provisions address different aspects of mmigage lending. 

No area of community banking has been heaped with more new regulation in recent years 

than mortgage lending-- to the detriment of borrowers everywhere. 

Mortgage lending by community banks represents approximately 20 percent of the 

national mortgage market. 1 However, in many small towns and rural communities the 

local community bank is the main source of mortgage credit. These markets are often 

neglected by larger national mortgage lenders that are driven by volume and margins 

because the markets may not generate enough real estate lending activity. Mortgage 

lending has always been an important part of Tioga State Bank's businesses model, 

which as recently as 20 years ago represented some 90 percent of our lending. Today, 

mortgage lending represents about 45 percent of our lending and commercial lending the 

other 55 percent. 

1 The Federal Reserve's analysis of Home Mortgage Disclosure Act (HMDA) data indicates that banks 

with assets under $10 billion account for 18 percent ofhorne loan originations. See "Community Banks and 

Mortgage Lending," Remarks by Federal Reserve Governor Elizabeth Duke, November 9, 2012. However, 

HMDA data does not capture institutions that operate exclusively outside of metropolitan areas. Therefore, 

we estimate that the community bank mortgage market share is slightly larger than 18 percent. 
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4 

Flexibility for Portfolio Lenders 

Provisions of the CLEARR Act create new flexibility for banks that hold mortgage loans 

in portfolio. Many residential properties in the small and rural communities served by 

community banks don't qualify for sale in the secondary market. They may sit on a large 

plot of land, be mixed-use in nature, or irregular in other ways. They frequently lie 

outside of city limits. These are not suburban properties and for this reason they often 

lack adequate comparable sales and don't fit the inflexible requirements of the secondary 

market. In addition, the borrowers may be farmers or small business owners whose debtto-income ratios fall outside of secondary market parameters, despite their personal net 

worth and means to repay the loan. Community banks specialize in serving such 

borrowers, often with non-conforming loans held in portfolio. At Tioga State Bank, we 

hold 60 to 65 percent of the mortgages we originate in portfolio. Most of these loans 

would not qualify for sale into the secondary market. 

Portfolio lenders need a more flexible approach to regulatory compliance because they 

hold 100 percent of the risk of default and have every incentive to ensure they understand 

the borrower's financial condition and to work with the borrower to structure the loan 

properly and make sure it is affordable. The same incentives lead portfolio lenders to 

ensure that collateral properties are accurately appraised and that taxes and insurance 

premiums are paid on a timely basis. 

Automatic QM for Mortgages Held in Portfolio 

The "qualified mortgage" (QM)/ability-to-repay rule is overly complex and prescriptive 

and excludes otherwise creditworthy mortgages. As many community banks are 

unwilling to assume the legal risk of underwriting non-QM mortgages, the QM rule has 

the effect of reducing credit availability and even pushing some banks to exit the 

mortgage market. QM refonn is needed to keep community banks in the mortgage market 

and expand mortgage credit. 

CLEARR Act Solution 

The CLEARR Act would provide that mortgages held in portfolio by have automatic 

"qualified mortgage" (QM) status under the CFPB's ability-to-repay rule. This is a 

simple, clean solution that would avoid the tortuous analysis required under the CFPB's 

ability-to-repay rule. 

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, urmecessary compliance costs for community bank 

lenders. Appraisal requirements have become more costly in recent years, and rural 

American is experiencing a shortage of licensed appraisers. This is certainly true in our 

market, where an appraiser shotiage is escalating prices and increasing appraisal 

turnaround times. Escrow and appraisal requirements deter community bank mortgage 
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5 

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. 

CLEARR Act Solution 

Under the CLEARR Act, a mortgage held in portfolio by a bank with assets of$50 

billion or less would be exempt from escrow requirements. Further, mortgage loans of 

less than $250,000 held in portfolio would be exempt from appraisal requirements that 

otherwise apply to "higher-risk" mortgages, as defined by regulation. Community banks 

are better able to appraise local property values in-house. 

I would like to thank Rep. Kustoff for introducing the CLEARR Act appraisal provision 

described above in a free-standing bill, the Access to Affordable Mortgages Act of 

2017. 

Home Mortgage Disclosure Act Reporting and Recordkccping 

Community bank mortgage lenders are subject to burdensome reporting and 

recordkeeping requirements under the Home Mortgage Disclosure Act (HMDA). The 

HMDA burden was sharply increased by a recent CFPB rule that more than doubled the 

number of data fields- from 23 to 48 -lenders must report for every loan application, 

forcing community banks to overhaul their systems and retrain staff at significant cost. At 

Tioga State Bank, we have had an internal task force working on the new data fields for 

the last six months. Our core processor is still working on the issue as well. 

Collection of the new data points begins on January I, 2018, and reporting of that data 

begins in 2019. Yet this new data, collected at significant expense, will likely provide 

little incremental benefit or insight over what is currently reported. 

While HMDA does exempt certain lenders, tbe current exemption thresholds are far too 

low. Institutions with assets ofless than $44 million (adjusted ammally) and institutions 

with no offices in metropolitan statistical areas are exempt from reporting under HMDA. 

The new rule creates an additional exemption for small volume mortgage lenders that 

originate fewer than 25 closed-end mortgages and fewer than I 00 open-end lines of credit 

in each of the two preceding years. 

This threshold exempts a maximum of34,000 loans nationwide, according to a CFPB 

estimate, a miniscule fraction of the nearly 10 million annual mortgage applications 

reported through HMDA last year. 
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CLEARR Act Solution 

The CLEARR Act would repeal the Dodd-Frank authority for expanded HMDA 

rep01iing which provides little additional information of use at significant expense to 

community bank mortgage lenders. 

6 

In addition, the CLEARR Act would increase the loan-volume threshold for HMDA 

repo1iing to 1,000 closed-end mortgages and 2,000 open-end lines of credit. These higher 

thresholds would provide relieffor many more small lenders without significantly 

impacting the mortgage data available to the CFPB or impairing the purpose of the 

HMDA statute. 

As a community bank mortgage lender, I can affirm that HMDA reform is a high priority 

and would free up significant staff time and resources to better focus on serving 

customers. 

Preserve Community Bank Servicing 

ICBA believes it is critical to retain and promote the role of community banks in 

mo1igage servicing and adopt policies that will deter further consolidation of the 

mortgage servicing industry. At Tioga State Bank, servicing is a critical component of 

our mortgage lending model. We service the loans held in our portfolio and retain 

servicing on the loans we sell into the secondary market as well. We believe local 

servicing is one of the major reasons customers come to us for mortgage credit. Servicing 

helps us to cement long-term customer relationships. 

Community banks, which thrive on their reputation for customer focus and local 

commitment, promote a competitive mortgage servicing industry that is less susceptible 

to abuses and avoidable foreclosures such as those that have impeded the housing 

recovery and led to the national mortgage settlement. 

Community bank servicers know their communities and intervene early to keep 

mortgages out of default. Smaller portfolios and better control of mortgage documents 

also provide an advantage over the large servicers. For these reasons, community banks 

have generally been able to identify repayment problems at the first signs of distress and 

work with borrowers one-on-one to keep them in their homes. 

Requiring community banks to comply with the same resource-intensive mortgage 

servicing requirements as the largest national servicers is driving community banks out of 

the marketplace. New servicing standards are overly prescriptive regarding the method 

and frequency of delinquent borrower contacts. They have reduced community bank 

flexibility to use methods that have proved successful in holding down delinquency rates. 

What's more, new regulation has approximately doubled the cost of servicing with a 

direct impact on the consumer cost of mortgage credit. 
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Compounding the impact of these costly and prescriptive new standards, Basel III 

punishes community bank mortgage servicers by severely lowering the threshold 

deduction for holding mortgage servicing assets (MSAs) as well as almost tripling the 

risk weight assigned to MSAs when they are not deducted. 

CLEARR Act Solution 

7 

The CLEARR Act would increase the small servicer exemption limit from 5,000 loans to 

30,000 loans serviced. Community banks above the 5,000-loan limit have a proven 

record of strong, personalized servicing and no record of abusive practices. This 

exemption limit would separate community bank servicers from regional and megabank 

servicers as well as non-bank servicers with large portfolios. To put the 30,000-loan limit 

in perspective, consider that the five largest servicers service an average portfolio of 6.8 

million loans each and employ as many as 10,000 people each in their servicing 

departments. The top 5 mortgage servicers each have more than $300 billion in unpaid 

principal balance on mortgages serviced. 

The full benefit of increasing the small servicer exemption limit carmot be realized 

without corresponding relief from the punitive capital treatment of MSAs under Base! III. 

The CLEARR would require the federal banking agencies to repeal all regulations that 

implement Basel III with respect to MSAs and propose a new rule that takes into account 

(i) the history of the market for MSA, particularly during the financial crisis; (ii) the 

impact on consumer access to mortgage lending and mortgage servicing; and (iii) 

competition in the mortgage servicing market, including the role of community and midsized financial institutions. 

Inflexible TRID Waiting Period a Nuisance to Borrowers 

The TILA RESPA Integrated Disclosure (TRID) rule, which governs the mortgage 

application and closing process, is unique in scope and complexity. Unfortunately, the 

new rule has unclear liabilities and significant new compliance expenditures which have 

caused some community banks to exit the mortgage market. 

The rule's inflexibility is a burden to both lenders and borrowers. For example, the rule 

requires a waiting period of three business days after the consumer receives the final 

disclosure documents and before closing on the loan. Loan closures can be difficult to 

coordinate between the seller, the buyer, and the lender. No borrower should be rushed 

into a loan. At the same time, ICBA believes that the borrower should have the flexibility 

to waive the mandatory waiting period, which in certain cases is not only a nuisance but a 

hardship. 

For example, when a homeowner needs to refinance in order to avoid foreclosure, the 

waiting period may cause the homeowner to miss a foreclosure deadline. We recently had 

such a case at Tioga State Bank. In another case, after receiving the pre-closing 

disclosures, a customer changed his mind about allowing us to create an escrow account. 

This late decision affected the loan's APR and triggered a restart of the three-business-
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day waiting period. Lastly, we get complaints from refinance borrowers because the 

waiting period is added to the three-day rescission period, which means that it takes at 

least six business days to close a refinance. More flexibility with regard to the waiting 

period would facilitate transactions and be greatly appreciated by borrowers. 

CLEARR Act Solution 

8 

The CLEARR Act requires the CFPB to issue regulations establishing a process to waive 

the TRID waiting period. Consumers can best determine the appropriate timing a 

potentially-delicate loan closure and should have the option of waiving the three-business 

day waiting period. 

Non-Mortgage Regulatory Relief 

Small Business Loan Data Collection 

Dodd-Frank Section 1071 requires the CFPB to implement rules for the collection and 

reporting of data on financial institutions' small business lending under the Equal Credit 

Opportunity Act. When written, the rules will require the collection and reporting 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. Twelve pieces of data 

will be required, including the race, sex, and ethnicity of the principal owners of the 

business. Section 1071 also gives the CFPB discretion to require the reporting of any 

additional information that would assist the Bureau in fulfilling the purposes of the 

statute. The Bureau's HMDA rule (see above), which included numerous data fields not 

required by statute, suggests that it would take a similarly expansive view of its authority 

under Section 1071. 

Small business data collection and reporting will impose significant new burdens on 

community banks at a time when they are absorbing numerous other regulatory 

requirements. In the small communities served by community banks, this data collection 

and publication raises serous privacy concerns. Moreover, commercial lending is 

complex business that cannot be "commoditized" in the way that consumer lending can. 

Each individual commercial loan has customized terms based on an analysis of numerous 

factors. 

Complex lending should not be subject to simplified, rigid analysis, which might give 

rise to unfounded fair lending complaints. For this reason, the rules under Section 1071 

will have a chilling effect on lenders' ability to price for risk. This, in addition to the 

expense of data collection and reporting, may drive community banks from the 

commercial lending market and curb access to small business credit. 

CLEARR Act Solution 

The CLEARR Act would fully repeal of Dodd-Frank Section I 071. 
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Federal Reserve Small Bank Holding Company Policy Statement 

The Federal Reserve's Small Banking Holding Company Policy Statement (Policy 

Statement) is a set of capital guidelines that allows bank and thrift holding companies 

with assets of less than $1 billion to raise and carry more debt than larger holding 

companies. Debt carried at the holding company level may be "down streamed," or 

invested, in subsidiary banks where it counts as equity. 

The Policy Statement plays an important role in capital formation for smaller bank and 

thrift holding companies that have limited access to equity markets. A higher threshold 

would help more community banks meet their higher capital requirements under Basel 

III. 

The Policy Statement contains safeguards to ensure that it will not unduly increase 

institutional risk. These include limits on outstanding debt and on off-balance sheet 

activities (including securitization), a ban on non banking activities that involve 

significant leverage, limitations on dividends, and a requirement that each depository 

institution subsidiary of a small bank holding company remain well capitalized. 

CLEARR Act Solution 

9 

The CLEARR Act would raise the Policy Statement qualifying asset limit from $1 billion 

to $5 billion. 

No Fair Lending Violation Without Discriminatory Intent 

In June 2015, the United States Supreme Court upheld the application of"disparate 

impact" under the Fair Housing Act. Disparate impact describes the differential results 

that arise from "practices that arc facially neutral in their treatment of different groups" 

but that may "fall more harshly on one group than another. " In other words, disparateimpact may arise when the end results of a lender's operations have different 

demographic results despite the uniform application of sound, neutral financial 

standards. Lenders must consider factors such as race and national origin in individual 

credit decisions to protect themselves from fair lending regulatory enforcement actions 

and lawsuits. 

Community banks have seen an alarming trend of increased scrutiny in fair lending 

exams. De minimis pricing disparities that impact few borrowers are being cited as 

substantial "pattern and practice" fair lending violations. Allegations of disparate 

treatment require community banks to spend large amounts of time and resources in 

disproving false fair lending allegations. 

Community banks are particularly vulnerable to such allegations. While large, 

conventional lenders typically take a "check list" approach to granting credit, community 

banks, by contrast, are committed to working with their customers to provide customized 
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loans under exceptional circumstances. Unfortunately, this form of"exccption lending" 

raises red flags and too often draws fair lending allegations. 

CLEARR Act Solution 

10 

H.R. 2133 would amend the Equal Credit Opportunity Act and the Fair Housing Act to 

specify that any discrimination must be "intentional" in order to find a violation of these 

laws. This would ensure lenders that uniformly apply neutral lending standards are not 

subject to unnecessary regulatory enforcement actions or frivolous and abusive lawsuits 

under the Equal Credit Opportunity Act or the Fair Housing Act. 

Support Use of Reciprocal Deposits as a Stable Source of Funding for Community 

Lending 

Reciprocal deposits allow a community bank to accept a deposit that exceeds the 

$250,000 insurance limit by distributing it through a network of banks and receiving 

reciprocal deposits from other banks in the network. This solution allows a large local 

depositor- such as a local government or foundation- to obtain insurance coverage and 

allows banks to accept an equivalent amount of deposits to support local lending. 

Unfortunately, reciprocal deposits have become caught up in the definition of"brokered 

deposit" in the Federal Deposit Insurance Act. Brokered deposits are disfavored and 

discouraged by the FDIC because they are not considered to be a stable source of 

funding. Brokered deposits could result in higher FDIC insurance premiums and a lower 

CAMELS rating. 

Reciprocal deposits did not exist when the Federal Deposit Insurance Act was enacted 

and do not act like the type of deposits the law was meant to cover. Studies have shown 

that reciprocal deposits act similarly to other core deposits: they are from local customers, 

earn the local interest rate, and are a stable source of funding. Because reciprocal deposits 

are wrongly governed by the law on brokered deposits, it is difficult for community 

banks to utilize their full potential. 

At Tioga State Bank, municipal deposits represent about one third of our deposits and are 

a critical source of funding. However, when we keep these deposits on our balance sheet, 

we arc required to pledge bonds for the amount of these deposits above the FDIC 

insurance limit, which reduces our liquidity. In recent years, we have been using 

reciprocal deposits to help restore liquidity. In our experience, these reciprocal deposits 

are stable source of core funding. The negative perception of "brokered deposits" has 

made us reluctant to usc reciprocal deposits to their full potential. 

CLEARR Act Solution 

The CLEARR Act would create a statutory exception for reciprocal deposits from the 

definition of a brokered deposit. Such an exception would not compromise safety and 

soundness protections. 
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11 

Making Better Use of Limited CFPB Examination Resources 

The CFPB does not optimize the use of its limited examination resources by focusing on 

the largest banks and non-banks that are the greatest source of consumer risk. 

CLEARR Act Solution 

The CLEARR Act would raise the threshold for banks exempt from direct examination 

and reporting requirements by the Consumer Financial Protection Bureau (CFPB) from 

$10 billion to $50 billion in assets. Banks ofless than $50 billion in assets would 

continue to be examined for compliance with CFPB rules by their prudential regulators. 

Bank supervision is more balanced and effective when a single regulator examines for 

both safety and soundness and consumer protection. 

Prohibit Coercive and Discriminatory Regulator Scrutiny 

All legal forms of business should be allowed to operate freely with access to essential 

banking services, subject to the discretion of banks, and without excessive pressure or 

intimidation from law enforcement. Law enforcement should focus on law breakers 

directly, without forcing banks to act as police, and their efforts should be narrowly 

targeted. 

In recent years, bank regulators have applied unwarranted scrutiny to bank relationships 

with categories of businesses deemed "high risk" or that supposedly create "reputational 

risk." These businesses include internet-based businesses, short term lenders, 

telemarketers, debt collectors, and other lawful businesses. Regulators have questioned 

long-standing relationships with businesses that have been properly screened by the 

bank's own risk controls. It is beyond the scope of the supervisory process to assess a 

bank's reputational risk or to prohibit or discourage community banks from providing 

these services. Community banks are the best judge of their own reputation risk and have 

every incentive to safeguard their own reputations through proper screening of customers. 

We conduct due diligence to assess the level of risk of each customer relationship and 

ensure that controls are in place to identify and monitor these relationships on an ongoing 

basis. 

CLEARR Act Solution 

Under the CLEARR Act, the three federal banking regulators, the Federal Deposit 

Insurance Corporation, the Federal Reserve, and the Office of the Comptroller of the 

Currency, would be prohibited from suggesting, requesting, or ordering a bank to 

terminate a customer relationship unless the regulator put the order in writing and 

specified a material reason for the action. This requirement would limit the opportunity 

for regulators to abuse their discretion and terminate long-standing banking relationships 

based on biased, unsubstantiated, or subjective notions of"reputational risk." 
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The CLEARR Act would preserve the ability of banks to serve legal and legitimate 

business customers without undue pressure from Jaw enforcement or examiners. 

The Financial Institutions Due Process Act (H.R. 924) 

H.R. 924, introduced by Rep. Rothfus, would go a long way toward improving the 

examination environment by creating a workable appeals process. Bank examination 

reform is a key component ofiCBA's Plan for Prosperity. 

H.R. 924 would create an Independent Examination Review Panel and give financial 

institutions a right to an expedited, independent review of an adverse examination 

determination. Taking the appeals process out of the examining agencies would bring a 

higher level of accountability to the regulators and their field examiners. The current 

system, which grants examiners almost unfettered and unassailable authority, begs for 

checks and balances. 

The Clarifying Commercial Real Estate Loans Act (H.R. 2148) 

12 

H.R. 2148, introduced by Reps. Robert Pittenger and David Scott, is designed to provide 

relief from punitive new capital charges for loans for acquisition, development, and 

construction of commercial projects classified as high-volatility commercial real estate 

(HVCRE) loans. Under Basel III, these loans are risk weighted at 150 percent for the 

determination of regulatory capital, compared to 100 percent before Basel III unless the 

borrower can contribute at origination 15 percent of the projected appraised value of the 

project upon its completion in cash or readily marketable assets. This is an umeasonably 

high bar for a borrower to meet. The borrower must also commit to tying up that capital 

for the life of the project. 

H.R. 2148 would amend the borrower-contribution standard by allowing a lender to 

consider the appreciated value of land, as opposed to its historic value, in determining 

whether a developer has contributed enough capital to avoid the 150 percent risk weight 

requirement. By easing application of the new rule, H.R. 2148 would facilitate 

community bank lending to credit worthy projects that would promote local economic 

development and job creation. 

Closing 

Thank you again for the opportunity to testifY today. We appreciate the role of this 

subcommittee in putting a check on regulatory overreach and rolling back unwarranted 

regulation that is reducing credit and promoting industry consolidation. This committee 

has already passed critical regulatory relief legislation. The bills I've discussed today 

would build on your previous efforts by addressing critical threats to community banking. 

We look forward to working with this committee to advance them into law. 
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~-~ Credit Union 

.)--(_ National 

cuNA Association 

WASHINGTON, D.C 

601 Pennsylvania Avenue NW 

SouthBuilding,Su'1te600 

Washington, D.C 20004·2601 

Phone::W2·638·57n 

Fax: 207.-638-7734 

TESTIMONY OF 

RICK NICHOLS 

PRESIDENT & CEO 

RIVER REGION CREDIT UNION 

BEFORE THE 

FINANCIAL SERVICES SUBCOMMITTEE ON 

FINANCIAL INSTITUTIONS AND CONSUMER CREDIT 

UNITED STATES !lOUSE OF REPRESENTATIVES 

AT A HEARING ENTITLED, 

"EXAMINING LEGISLATIVE PROPOSALS TO PROVIDE TARGETED REGULA TORY RELIEF TO 

COMMUNITY FINANCIAL INSTITUTIONS" 

JULY 12,2017 

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Testimony of 

Rick Nichols 

President & CEO 

River Region Credit Union 

Before the 

Financial Services Subcommittee on 

Financial Institutions and Consumer Credit 

United States House of Representatives 

At a hearing entitled, 

"Examining Legislative Proposals to Provide Targeted Regulatory Relief to Community Financial Institutions" 

July 12,2017 

Chairman Luetkemeyer, Ranking Member Clay, and Members of the Subcommittee: 

Thank you for the opportunity to testify on this important topic. My name is Rick Nichols, and I am President 

and CEO of River Region Credit Union, headquartered in Jefferson City, Missouri. I am also a member of the 

Board of Directors of the Heartland Credit Union Association, and my credit union is a member of the Credit 

Union National Association. 

River Region Credit Union proudly serves more than 22,000 members and offers regular savings at competitive 

rates and quality loans at reasonable rates, and provides other tinancial services to meet its members' needs am! 

the credit union's long term financial stability. Since 1954, our credit union has provided financial services to 

our community, including many organizations and businesses such as the Missouri National Guard, Missouri 

Highway Patrol. the health care industry. the transportation industry, and the Missouri Farmers Association 

(MFA). 

By asset size ($198 million), loans outstanding ($161 million), and member deposits ($176 million), we are a 

small financial institution_ especially when compared to regional and national banks. Unlike other financial 

service providers who are not as connected to the consumers they serve, we are an integral component of our 

community as a not-for profit institution owned by our members. River Region Credit Union was established to 

"encourage growth and better service through education and membership participation." Providing financial 

education and engaging directly with our members to equip them with the resources to face financial 

challenges, as well as the costs of everyday life, is a key component of our community's economic well-being. 

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As you know, the recent economic crisis impacted communities throughout the United States. As such, we 

supported efforts to reexamine and revise the policies that led to the existence of'"too-big-to-fail" institutions 

and their irresponsible actions that economically banned many Americans. Unfortunately, the government's 

response was not tailored to the institutions ultimately responsible for the economic crisis. 

In the wake of the tidal wave of new regulations following the financial crisis, the largest banks and nonbank 

financial service providers continue to grow larger, while smaller financial institutions suffer under an anticompetitive regulatory scheme rigged to favor those that can better afford to comply with the regulations 

coming out of Washington. Unfortunately, the compliance burdens stemming tram this new environment take 

away from our ability to serve our members. For instance, new mortgage disclosure and underwriting 

requirements imposed by the Consumer Financial Protection Bureau (CFPB) have had the unintended effect of 

preventing credit unions, such as River Region Credit Union, from lending at pre-crisis levels. Increasing the 

cost of making a loan does not spur economic growth in communities I ike Jefferson City; rather, it leads to 

fewer consumers having access to the products and services they need. Although our credit union continues to 

provide mortgage loans, many others have either exited the market or reduced their offerings. 

My testimony outlines common-sense proposals that would help responsible community financial institutions, 

like credit unions, continue to serve their members and communities so they can grow and thrive. Some of the 

legislation being discussed today would make significant strides in furthering the goal of removing regulatory 

barriers to allow credit unions to more tully serve their members. We strongly support such targeted regulatory 

relief that will reduce unnecessary compliance burdens for community financial institutions. 

The Current Regulatory Landscape 

Since the outset of the crisis, credit unions have been subject to well over 200 regulatory changes from over a 

dozen federal agencies. which have totaled more than 8,000 Federal Register pages. This never-ending stream 

of new regulations, especially from the CFPB, has caused credit unions to divert resources from serving 

members and has led to tough choices regarding limiting and eliminating certain products and services. 

Additionally, disparity in the cost impact of regulatory burden has accelerated the consolidation of the credit 

union system, as well as smaller participants in the banking sector, reducing consumers' financial institution 

choices. Although the number of credit unions has continually declined since 1970, the attrition rate has 

increased since 2010 following the recession and the creation of the CFPB. In fact, 2014 and 2015 were among 

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the top five years in terms of attrition rates since 1970, at 4.2% and 4.1 %, respectively. Notably, 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 arc of this size-has exceeded 6%. These higher 

attrition rates are a direct result of both the dramatically higher regulatory costs incmTed by small credit unions 

and the increases in those costs since 2010. 

Earlier this year, CUNA surveyed credit union executives to measure the impact of these rules on credit union 

members. 1 The findings indicate: 

More than four in 10 credit unions that offered mortgages sometime during the past five years ( 44%) 

have either eliminated certain mortgage products or services (33%) or stopped offering them (II%), 

primarily due to burden from CFPB regulations. Credit unions with assets ofless than $100 million are 

the asset group most apt to have dropped their mortgage program altogether. 

At 80%. the Truth in Lending Act and Real Estate Settlement Procedures Act (TILA-RESPA) Integrated 

Disclosure rules arc far and away the rules most negatively impacting credit unions offering mortgages. 

This is followed by the Qualified Mortgage rule (43%), Mortgage Servicing rule (30%). and new Home 

Mortgage Disclosure Act (I IMDA) rules (19%). TILA-RESPA serves as the most troublesome rule for 

all asset groups. (Notably, many credit unions have not yet even tumed their full attention to the 

requirements in the new HMDA rules so this impact is likely understated.) 

One in four credit unions (23%) 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 IIMDA 

rules. 

The clear majority of credit unions (93%) that either currently offer payday/small-dollar loans or arc 

considering offering them indicate they will likely no longer consider providing these loans if there are 

increased regulations (33%), will review the impact and then decide whether to continue the currentlyexisting offering (43%), or will likely discontinue the currently existing loan product (without an impact 

review) if there arc increased regulations (!7%). 

1 HaBer, Jon; Ledin, Paul; and Mall a, Bandana, Credit Union National Association Impact ofCFPB Rules Survey, available at 

https://www.cuna.org/uploadedFiles/CUNA!Legislative And Regulatory Advocacv/Removing Barriers Blog!Removing Barriers 

B log/FINAL %20Report%20Summary%20on ly%20Impact%20of'lo20CFPB%20Survey%20Analysis.pdf (Feb. 20 17). 

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As credit unions continue to suffer under the current regulatory scheme, even their prudential regulator, the 

National Credit Union Administration (NCUA), recognizes the clear need for regulatory relief for them. As you 

know, the NCUA has responsibility for maintaining the safety and soundness of the National Credit Union 

Share Insurance Fund (NCUSIF) and examines and supervises credit unions. Through this role. the NCUA has 

recognized the need for relief for credit unions from regulatory hurdens. NCUA Chairman Mark McWatters 

recently sent a letter to CFPB Director Richard Cordray outlining some specific areas where relief is needed. 

Notably, the NCUA recognized that the different structure and size of credit unions warrants tailored 

regulations and in certain instances, exemption from rules since credit unions are already highly regulated and 

have a long history as consumer protectors. In NCUA's letter, it highlighted that the median size for credit 

unions is less than $30 million in assets and the median staff size of a credit union is eight employees. 

Accordingly, it noted credit unions ·'can struggle to stay abreast of complex and evolving compliance 

requirements without the retention of often cost prohibitive counsel, accountants, financial advisors, and other 

professionals."2 

Findings from a study of credit unions' regulatory burden completed in 2016, are consistent with these NCUA 

concems. The study found that the impact of regulatory burden on credit unions and their members was $7.2 

billion in 2014 alone. 3 This represented a 40% increase in compliance costs from 2010. Significant new 

rulemakings have taken effect since 2014, which have undoubtedly increased the cost credit unions and their 

members are paying to comply with rules designed for abusers even more. At the time of the study, credit 

union-wide, the equivalent of about one statT member's time for every four employees was spent on regulatory 

compliance. 

Unfortunately, when credit unions spend their resources on complying with rules aimed at predatory lenders, 

they spend fewer resources on innovating and providing products and services that spur economic growth. As 

the NCUA noted in its letter, when credit unions provide atTordable financial services, this benefits credit union 

members and their communities. 

2 ~ational Credit Union Administration Letter to CFPB Concerning Compliance with CFPB Rules, available at 

https://www.cuna_,g.rg{llillpadedFil~C...llNA/J,..,~E!.L'{L.A.illLRsYlatory Advocacv/Removing Barriers Blo!!!Removing Barriers 

B log/Cordray%20CU%20Compliancc%20with%20CFPB%20Rules%20Letter.pdf (May 24, 20 17). 3 Hui, V., Myers. K, Seymour, K, .. Regulatory Financial Impact Study.'' Cornerstone Advisors, Inc., m'ailable at 

ht1p:I/w\\ \v.cung~..on:/re£J?!lli1tni (Feb. 2016). 

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America's Credit Unions Support H.R. 2133, the Community Lending 

Enhancement and Regulatory Relief Act (CLEARR Act) 

The Community Lending Enhancement and Regulatory Relief Act of 2017 (the CLEARR Act of 20 17) includes 

several provisions that would allow credit unio11s to more fully serve their members. Specifically, credit unions 

support the following proposals in the CLEARR Act: 

Section 2, which directs the CFPB to provide an exemption or adjustment from the mortgage loan 

servicing and escrow account administration requirements in TILA/RESPA for creditors with less than 

$50 billion in assets holding the loans in portfolio or servicers of fewer than 30,000 loans: 

Section 3, which would amend T!LA to exempt higher-risk mortgages from property appraisal 

requirements; 

Section 5. which would repeal the risk-based capital regulation finalized by NCUA in 2015; 

Section 6. which would modify the CFPB's Unfair, Deceptive and Abusive Actions or Practices 

Authority (UDAAP); 

Section 7. which would amend the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act 

(FHA) to require intent to discriminate; 

Section 8, which would make improvements to the CFPB's final HMDA Rules; 

Section 9, which would repeal the CFPB's ability to collect small business loan data; 

Section 10, which would establish requirements under which a federal banking agency could request or 

order the termination of a credit union member's account~ 

Section I 2. which would require the CFPB to issue a rule allowing consumers to waive requirements 

related to the timing of providing closing disclosures tor mortgage loans; 

Section 13, which would increase the CFPB supervisory threshold from $10 Billion to $50 Billion; 

Section 15, which would create a safe harbor for mortgages held in portfolio at credit unions and by 

other mortgage lenders. deeming them qualified mortgages for purposes of the CFPB's mortgage 

lending rules; and 

Section 16, which would transfer to the FHFA the authority to define the ability to pay standard for 

purpose of a qualified mortgage. 

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Section 2- Mortgage Servicing and Escrow Thresholds 

Section 2 would direct the CFPB to provide an exemption or adjustment from the mortgage loan servicing and 

escrow account administration requirements ofRESPA for creditors with less than $50 billion in assets or 

servicers of fewer than 30,000 loans annually. 

Prior to the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), 

credit unions were required to open escrow accounts for one year on higher-priced, first-lien mortgages secured 

by borrower's principal dwelling. However, new rules promulgated by the CFPI3 require credit unions to hold 

an escrow account open for live years. As a result, some credit unions have shied away from higher-priced 

mortgages because of the expertise that is required to establish and maintain escrow accounts. 

It is unfortunate that legislation is necessary on this issue. We believe the CFPB has the authority to make these 

exemptions under the existing authority which Congress conveyed to it to keep the regulatory burden on 

community financial institutions measured while addressing rulemakings on large banks and abusers of 

consumers. However, the CFPB has not exercised this authority fully, making this legislation necessary in order 

to ensure these rules are appropriately focused. The two changes made by this legislation will provide important 

regulatory relief to credit unions and help them efficiently serve their members. We strongly support Section 2. 

Section 3 Appraisal Requirements for Higher-Risk Mortgages 

Section 3 amends TILA to exempt higher-risk mortgages from property appraisal requirements. It also amends 

the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 to exempt this same category of 

higher-risk mortgages from the standards prescribed by the federal interagency appraisal requirements, if such 

mortgage loans arc held on a lender's portfolio for at least three years. 

By providing an exemption !rom the TILA appraisal requirement for properties with transaction values of 

$250.000 or less for loans held in po•ifolio for a least three years, the bill would provide both regulatory relief 

to mortgage lenders and increase access to mortgage credit for borrowers purchasing lower-cost dwellings. 

Simply put, this provision will allow credit unions that afTer mortgage loans secured by covered properties to 

better serve middle to lower income consumers. 

Section 5- Repealing NCUA 's 2015 Risk-Based Capital Rule 

Section 5 would repeal NCUA 's 2015 risk-based capital rule and set criteria for the agency to propose a similar 

rule. While the Federal Credit Union Act requires NCUA to issue a risk-based capital rule, the 2015 regulatory 

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changes went too far and represented a solution in search of a problem. Despite the improvements that the 

agency made through the rulemaking process, implementation of this misguided regulation will still cost credit 

unions significant resources that would be better used to the benefit of their members. 

Section 6- Refonning CFPB's UDAAP Authority 

Basic tenets of the rule of law suggest regulations should be clear, publicized, stable, and just. Through its 

application of its UDAAP authority, the CFPB has failed consumers by ignoring these principles. Thus. 

Congress should take steps, as p'roposed in Section 6, to curtail the Bureau's authority. 

The CFPB has used its UDAAP authority as a broad tool to sweep credit unions into proposed regulations 

consistent with its ideological goals, despite no evidence of harm to consumers. For example, using its UDAAP 

authority, the CFPB has proposed to include consumer-friendly, credit union small dollar loan programs in its 

new Payday and Small Dollar Loan Rule (small dollar rule)4 Though little to no data suggest these products 

have any pattern of harm to consumers, the proposed rule imposes new and complex requirements on credit 

unions. In fact, in the three years prior to the Bureau proposing a new small dollar rule. there were precisely 

four complaints regarding credit union small dollar loans, representing 0.088 percent of complaints regarding 

this type of loan product.5 To the contrary, consumers have stated that credit union small dollar loans are often 

their safest and best option for credit6 Instead of using its broad UDAAP authority to restrict consumer access 

to short term credit from credit unions, the CFPB should be doing more to encourage credit unions to engage in 

this market which is a critical source of credit for low and moderate income consumers. 

The CFPB has also used this authority to send credit unions mixed messages regarding prudential regulator 

guidance and to create new law. For example, in a recent enforcement action against a credit union, the CFPB 

labeled it an unfair practice when it froze members' account access and disabled certain electronic services after 

consumers became delinquent.7 Several NCUA legal opinion letters conflict with this CFPB finding and 

specifically do not preclude a federal credit union from restricting the availability of certain services (e.g., ATM 

4 Payday, Vehicle Title, and Certain High-Cost Installment Loans, 81 Fed. Reg. 47864,47900 (July 22. 2016). 5 CFPB's Consumer Complaint Database, available at http://www.consumerfinance.gov/dataresearch/consumercomplaints/#download-the-data (based on data downloaded on Sept. 29, 20 16). 6 Peace, Elizabeth. ''Consumers Prefer Credit Unions to Payday Lenders," Credit Union Times, available at: 

http:/ /v~'ww .cutimcs.corn/20 15/07/28/consumers-prefer-credit-unions-to-payday-lenders (July 28, 2015 ). 7 In the Matter of Navy Federal Credit Unions, m.:ailoble at 

http://files.consumcrfinancc.gov/f/documents/l 02016 __ cfpb .. NavyFedera!ConsentOrdcr.pdf (Oct 11, 2016). 

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services, credit cards, loans, share draft privileges, preauthorized transfers, etc.) to members provided there is a 

rational basis for doing so, and as long as the members are aware of the policy.8 

Creating new requirements through enforcement actions, particularly when they conflict with longstanding 

statutory precedent, is extremely concerning to credit unions. Credit unions obviously support efforts to ensure 

that credit union members are treated fairly and the concept that all collection efforts should be conducted in a 

respectable and not overly aggressive way. However, we are concerned with any circumstances in which the 

CFPB faults credit unions using its UDAAP authority when we are complying with current law, regulation and 

supervisory guidance. 

Arbitrary policies made outside the well-established procedures of administrative law create uncertainty and 

deter credit unions from offering products and services, and extending credit to borrowers, because the risk and 

exposure of non-compliance is stifling. In fact, in a recent member survey by CUNA, credit unions stated that 

they strongly believe that future CFPB policies making it more difficult for a credit union to collect on debts 

would cause their credit union to cut back on current practices regarding providing credit to "riskier" 

borrowers 9 Both consumers and financial institutions benefit when clear rules are created and enforced free of 

political divisiveness, with numerous voices at the table with various areas of expertise, and a solid 

understanding of current laws and policies. 

My concern regarding the CFPB's use of its UDAAP authority to regulate and supervise credit unions are 

shared by the NCUA, credit unions' prudential regulator. As previously discussed, NCUA recently 

memorialized several suggestions for alleviating unnecessary burdens and improving the ability of credit unions 

to serve consumers in a letter to the CFPB, and mentioned the CPFB's UDAAP authority as an area that needs 

refom1s. 10 

Moreover, the NCUA sent a comment letter to the CFPB urging it to exempt aspects of credit union lending 

from the small dollar rule.' 1 The NCUA later reiterated these concerns in a subsequent letter to the CFPB that 

a 1'\CUA Opinion Letter Concerning Denial of Services to Joint Share Account Owners, available at 

https://www.ncua.gov/Lcga!/OpinionLettcrs/OL2005~0723.pdf#scarch=:.memberD/o20causes%20a%201oss (Sept. 20 2005). 9 Impact ofCFPB Rules Survey supra note 1. 10 National Credit Union Administration Comment Letter to CFPB in response to the CfPB's proposed rule for Payday, Small Dollar, 

and lfigh Cost Loans. available at https://www.ncua.gov/newsroom/Documents/commcnt-lctter-2016-oct~mctsger-payday~rule.pdf 

(Oct. 3, 2016). 

llJd 

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states it should provide clarity to credit unions with respect to UDAAPY The NCUA expressed that 

"uncertainty regarding supervisory expectations can limit the ability of credit unions to provide the services 

sought by their members." 13 In addition, the NCUA noted there is no precedent for understanding the abusive 

prong ofUDAAP. which can be broad. 

When credit unions operate without due process and a clear picture of the rules they are expected to follow, they 

stop innovating and limit their products and services, which is detrimental to their members and communities. 

As such, more clarity regarding the CFPB's use of UDAAP authority would benefit credit unions and their 

members; and removing the abusive prong ofUDAAP seems an appropriate step for Congress to take. For 

these reasons and others, we strongly support Section 6. 

Section 7 Amending the Equal Credit Opportunity Act and Fair Housing Act 

America's credit unions support nondiscrimination and equal access to credit. Our mission is to promote thrift 

and provide access to credit for provident purposes to our members. We understand the importance of and 

support the goals of the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA). Nevertheless, 

these laws presently place lenders in jeopardy of frivolous litigation because of creative legal arguments created 

by plaintiffs' firms. Section 7 brings in line legal standards more closely aligned with the original intent of the 

statutes and recent court rulings to clarify that violation of these laws require proof of intent before imposing 

liability on a lender. Such a change would allow courts to focus on truly bad actors who were the intended 

targets of the original legislation. 

Section 8 -·Raising Home Mortgage Disclosure Act Reporting Thresholds 

The CFPB has acknowledged that credit unions maintained sound credit practices through the economic crisis 

and did not engage in the practices that led to the crash of the housing market. Nevertheless, the HMDA rule 

penalizes credit unions where there has been no evidence of wrongful conduct. We support the CLEARR Act's 

provisions to exempt depository institutions from reporting closed-end mortgage loans if the depository 

institution originated less than 1,000 closed-end mortgage loans in each of the 2 preceding calendar years, and 

L>. Letter from National Credit Union Administration Chairman Mark McWatters to Consumer Financial Protection Bureau Director 

Richard Cordray regarding credit union compliance with CFPB rules, available at 

https://www.cuna.org/uploadcdFiles/CONNLco-islative And Regulatory Advocacy!Rcmoving Barriers Blog/Rcmoving Barriers 

Blog/Cordrav%20CU%20Comp1iance%20with%20CFPB%20Rules%20Letter.pdf(May 24, 2017). 

H Jd. 

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open-end lines of credit if the depository institution originated less than 2,000 open-end Jines of credit in each 

of the two preceding calendar years. 

For HMDA. the NCUA in its May 24,2017, letter also highlighted several specific changes that should he made 

to the CFPB's final rule. It states that consideration should be given by the CFPB to raising the various 

thresholds to a more substantive asset and transaction volume level to further reduce the reporting burden on 

smaller credit unions. The letter further highlights conceru with requiring the reporting of25 new data points. 

Chairman McWatters writes that credit unions should be exempt from reporting the additional 14 data points 

and that, .. such an exemption would provide much-needed regulatory relief to the credit union community and 

assist these institutions in their mission to serve middle class Americans, those striving to join the middle class, 

and small business owners, employees, customers, and vendors." Specifically, the NCUA asks the CFPB to 

consider the economic burden its rule would place on credit unions. 14 

The CFPB went too far in its final HMDA rule and the impact on credit unions and credit union members is 

already taking affect as credit unions prepare to comply with the new regulation. While we hope the Bureau 

would correct its overreach on its own volition through the rulemaking process, the likelihood of that is remote; 

therefore, Congress should act swiftly to correct the overreach by the Bureau by enacting Section 8. 

Section 9- Repealing Small Business Data Collection Requirements 

Section I 071 of the Dodd-Frank Act amends the ECOA 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. Section 9 would repeal this provision. 

Credit unions' unique and distinct memberships, as well as the statutory restrictions on credit union business 

lending and their existing regulatory framework. do not coincide with the CFPB's plans tor data collection and 

would likely result in data that docs not portray a complete or accurate picture of credit union lending. As such, 

we have argued that Congress or the CFPB should exempt credit unions from the Section l 071 requirements 

because the regulatory harms caused by such a rule would far outweigh any benefit of having imperfect data. 

Taking into consideration the burden this type of requirement would impose on small entities- including credit 

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unions- we observe that it could harm the ability of small business owners to obtain credit from communitybased financial institutions. Therefore, credit unions support repealing the provision. 

Section l 0- Restrictions on Operation Choke Point 

Section l 0 seeks to address the problems associated with the Department of Justice's Operation Chokepoint 

program by establishing requirements under which a federal banking agency could request or order the 

termination of a credit union member or bank customer account. 

While we strongly support the government's role in ensuring tbe integrity of financial markets and eliminating 

fraud. the program's arbitrary enforcement tactics could create unnecessary risks to consumers and to the 

economy. Section I 0 would limit federal banking regulators' ability to discourage or restrict depository 

institutions from entering into or maintaining a financial services relationship with specitic customers unless 

certain criteria are met. The provisions would also limit regulators' ability to pressure financial institutions to 

terminate customer accounts, requiring regulators to have a material reason for termination that is not based 

solely on the reputation risk posed by the customer before pressuring the tinancial institution to close the 

account. Credit unions are committed to maintaining the ability to serve their members while strictly following 

all laws and governing regulations. Section I 0 is a reasonable approach to preventing fraud and maintaining 

financial integrity without overreaching. 

Section 12 Empowering Consumers to Waive Unnecessary Waiting Periods for Mortgages 

Section 12 would require the CFPB to issue a rule allowing consumers to waive requirements related to the 

timing of providing closing disclosures for mortgage loans. We support borrowers having the information they 

need and sufficient time to review documents necessary to close a loan agreement. The mortgage lending 

process is complicated for lenders and borrowers alike. Occasionally, clerical errors arc made or events occur 

that delay closings. Onder the current regulatory scheme when a lender needs to update closing documents, the 

clock on the period a borrower has to review the documents restarts. Borrowers should have the flexibility to 

waive the waiting period in order to proceed with closing, particularly when there is no harm to any party or 

where all parties are in agreement. This is a common-sense solution to facilitate the mortgage process while at 

the same time recognizing that humans make errors. We support Section 12. 

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Section 13 Increasing the CFPB Supervisory Threshold to Force the CFPB to Focus Its Supervisory and 

Enforcement Resources on the Wall Street Banks and Other Abusers of Consumers 

Section 13 would increase the threshold for supervision of credit unions and banks by the CFPB from $10 

billion to $50 billion. 

Credit unions are experiencing growing consolidation, with smaller credit unions opting to merge due in large 

part to the strain of growing regulatory burden. The number of community-based financial institutions 

approaching $10 billion in total assets is increasing. As these institutions cross the threshold, the CFPB will be 

required to spend more of its resources examining these newly covered institutions at the expense of other 

important consumer protection activities. Adjusting the supervisory threshold would not significantly change 

the number of institutions or percentage of assets subject to examination by the CFPB, but it would allow it to 

more efficiently use its examination resources in the coming years to focus its attention on Wall Street banks 

and other abusers of consumers. 

Furthermore, while there are only a small number of credit unions subject to the cap today, we believe raising 

the cap would be important recognition that credit unions were not the cause or perpetrators of the financial 

crisis and that credit unions, regardless of size, have a different incentive structure than for-profit financial 

institutions because they are owned by those they serve. 

NCUA examines credit unions with less than $10 billion in assets for compliance with consumer protection law. 

We are confident that NCUA can supervise the five credit unions that presently hold between $10 billion and 

$50 billion in assets, and NCUA appears to agree. Last week, NCUA Chairman Mark McWatters wrote CFPB 

Director Richard Cordray to request he use the Bureau's exemption authority to transfer supervisory authority 

over all credit unions to NCUA. 15 

Inasmuch as there is only one credit union with more than $50 billion in assets, we would encourage the 

Subcommittee to consider exempting all credit unions from CFPB supervision. Further, we ask that the 

Subcommittee include language in this provision to adjust any asset threshold periodically for inflation. 

15 Letter from NCUA Chairman Mark McWatters to CFPB Director Richard Cordray regarding credit union examination and 

enforcement, available at https:!/www.ncua.gov/newsroom!Documents/mcwatters-Jener~to-CFPB-credit-union-examinationenforcement.pdf (July 6, 2017) 

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Section 15 Encourage Community Financial Institutions to Lend by Deeming Mortgages Held in Portfolio as 

Qualified Mortgages 

Section 15 would treat mortgages held in portfolio at credit unions and other mortgages as qualified mortgages 

for purposes of the CFPB's mortgage lending rules. The loans that financial institutions hold on their balance 

sheets should be treated in this manner as the lender retains all the risk involved with these mortgages and is 

subject to significant safety and soundness supervision from its prudential regulator. This will help credit 

unions, many of which are primarily portfolio lenders, continue to provide mortgage credit to their members. 

Section 16- Transferring Rulemaking for Ability to Repay Standards to FHFA 

Section 16 would transfer rulemaking authority for determining a borrower's ability to repay a mortgage loan 

for purposes of the qualified mortgage rule from the CFPB to the Federal Housing Finance Agency (FHFA). 

Inasmuch as a loan meeting the qualified mortgage standards is eligible to be sold on the secondary market 

through a govemment sponsored agency regulated by FHF A, it is appropriate that the FHF A is the entity setting 

this standard. 

America's Credit Unions Support H.R. 924, the Financial Institutions Due Process 

Act of2017 

H.R. 924, the Financial Institutions Due Process Act, would make several improvements to the examination 

process and the examination review process for credit unions. First, it would require NCUA to fumish 

examination reports within 60 days of the exit interview for the examination or the provision of additional 

information by the institution relating to the examination. Second, it would establish a three-judge independent 

examination review panel at the Federal Financial Institution Examination Council to hear appeals of final 

material supervisory determinations of the NCUA and other financial institution regulatory agencies. Third, the 

legislation would allow credit unions and other supervised financial institutions to request the regulatory agency 

provide written documentation of the agency's permission to take action, interpretation of law or regulation, and 

interpretation of generally accepted accounting principles, standards or requirements. 

This legislation takes steps to bring fairness to an examination process that is not always transparent and an 

appeals process that, for credit unions, has never been balanced. CUNA, which maintains a perpetual member 

survey on examination process, practices and experiences, routinely hears of credit unions who have been 

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subject to questionable and inconsistent requests from examiners who are unable or unwilling to substantiate 

their authority to make such requests. 

America's Credit Unions Support H.R. 1457, the Making On-Line Banking 

Initiation Legal and Easy Act (MOBILE Act) 

Credit unions support H.R. 1457. the Making On-Line Banking Initiation Legal and Easy (MOBILE) Act. This 

legislation would allow financial institutions, with an individual's consent. to record personal information from 

a swipe, copy, or image of such individual's driver's license or personal identification card and store the 

infonnation electronically for the purpose of verifying the identity of a customer and preventing fraud or 

criminal activity, It would prohibit financial institutions from selling, renting, transferring, or making such 

infom1ation available to another person 

This legislation is an important step toward helping credit unions and other financial institutions remain 

competitive in a market increasingly disrupted by financial-technology companies, who are often subject to 

fewer regulatory requirements. To the extent that this legislation makes it easier for consumers to join credit 

unions, we view this as a positive step. 

America's Credit Unions Suppmt H.R. 2396, the Privacy Notification Technical 

Correction Act 

Credit unions support H.R. 2396, the Privacy Notification Technical Correction Act. We appreciate that 

Congress recently enacted amendments to privacy notification requirements that no longer require credit unions 

to mail disclosures to members annually. We understand that a technical correction is necessary because some 

credit unions and other financial institutions may provide different notifications to members or customers who 

do not receive electronic statements and different notifications to members or customers depending on their 

account status with the institution. The legislation under consideration today would provide credit unions 

sufficient flexibility to ensure that members have access to the privacy policy pertinent to their relationship with 

the credit union. 

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Other Bills Subject ofToday's Hearing 

America's credit unions take no position on H.R. 2148 or Representative Hollingsworth's discussion draft of 

the EQUAL Act. We continue to review H.R. 864. 

Congress Should Continue to Tackle Regulatory Relief Priorities 

America's credit unions greatly appreciate the Subcommittee's work on these targeted regulatory relief 

proposals. The complexity of the crisis facing community-based financial institutions means that one piece of 

legislation is unlikely to solve all the public policy obstacles these important institutions face in serving 

consumers and small businesses. We encourage the Subcommittee to continue to pursue additional measures to 

provide meaningful relief to community financial institutions, including the following. 

Strengthening the CFPB's Exemption Authority 

The CFPB regularly cites modest thresholds and accommodations it has provided in some mortgage rules and 

the remittances rule as evidence it is considering the impact its rules have on credit unions and their members. 

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. 

Section I 022 of the Dodd-Frank Act provides the CFPB with authority to exempt ·any class of covered entity' 

from its rulemaking. Last year, 399 Members of Congress-bipartisan majorities in both chambers--called on 

the CFPB to exercise this authority to shield credit unions and small banks from rules designed to reign in large 

banks and other abusers of consumers. lf the CFPB remains unwilling to use this authority fully, Congress 

should enact legislation to clarify that credit unions are exempt from CFPB rules unless the Bureau 

demonstrates credit unions arc causing consumers harm. 

Installing a Five Member Commission at the CFPB 

As presently structured, the CFPB is an anomaly in the federal government. The CFPB's extraordinary 

authority is vested in a single person, absent appropriate levels of Congressional oversight. We strongly believe 

that modernizing it to include a multi-member Commission would enhance rulemaking by ensuring diverse 

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perspectives are included in final rules and prevent disruptions caused by personnel changes. Credit union 

members will benefit from policymaking that includes more voices and different expertise. 

Consumer protection should not be about politics; it should be about creating the best environment to enable 

financial health and safety-a mission that 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. 

W c encourage Congress to continue to consider the virtues of a multi-member Commission to bring fairness 

and certainty to the rulemaking process for America's credit unions and small banks. 

Conclusion 

On behalf of America's credit unions and their 110 million members, thank you for the opportunity to testify 

today. I am happy to answer any questions the Subcommittee may have. 

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-~~ MERCATUS CENTER 

-~~~George Mason University TESTIMONY 

REFORMING BANK EXAMINATION PROCEDURES AND CFPB 

AUTHORITY 

J.W. VERRET, JD 

Senior Scholar. Mercatus Center at George Mason University 

Hearing before the House Financial Services Committee 

Subcommittee on Financial institutions and Consumer Credit 

July 12, 2017 

Chairman Luetkemeyer, Ranking Member Clay, and members of the committee: 

I appreciate the opportunity to testify today. My name is J.W. Verret; I am a professor of banking and 

securities law at the Antonin Scalia Law School and a senior scholar with the Mercatus Center at 

George Mason University. 

The legislation under consideration today includes vital reforms to the bank examination process by 

banking regulators, to the Consumer Financial Protection Bureau's (CFPB) jurisdiction and 

enforcement powers, and to the statutes enforced by the CFPB. These changes will help to provide 

more certainty and predictability to banks, and they will begin to alleviate barriers to entry which have 

made it all but impossible to open new banking institutions in recent years.' These new provisions will 

help to ensure economic growth and access to financial services for all Americans. 

It is critical that regulatory barriers to bank competition and to customer access to financial services be 

removed. The committee's attention to these important issues is commendable, and it is consistent with 

other moments in banking history in which Congress was compelled to address inefficient barriers to 

competition in the banking system. 

As the dual banking system evolved over the !50-year period since the Bank Act ofl863 was first 

adopted, a number of states set up intentional barriers to entry to prevent out-of-state institutions from 

competing with home-state banks, and consumers suffered. 

Congress and federal regulators eventually stepped in to promote interstate branching, first through 

holding companies and eventually through efficient preemption of anticompetitive state rules. We 

stand at another such juncture, where congressional action will be vital to renew our banking system. 

1 Rois)n McCord, Edward Simpson Prescott, and Tim Sablik, "Explaining the Decline in the Number of Banks since the Great 

Recession" (Economic Brief. Federal Reserve Bank of Richmond, March 2015). https:/ /www.richmondfed.org/-/media/ 

richmondfedorg/publications/research/economic_brief/2015/pdf/eb_15-03.pdf. 

For more information or to meet with the scholar, contact 

Chad Reese, 703~993-8921, creese1tmercatus.gmu.edu 

Mcrcatus Center at George Mason University, 3434 Washington Blvd., 4th Floor, Arlington, Virginia 22201 

The 1deas presented in this document do not represent official posittons of the Mercatus Center or George Mason University. 
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At times, preemption of state regulatory barriers will be necessary, particularly with respect to the 

nascent financial technology industry. 

In more recent history, a failure of multiple federal banking regulators to coordinate their de novo bank 

processes, rules, examinations, and enforcement proceedings has similarly led to unnecessary barriers 

to entry, excessive compliance costs, and harm to consumers. As in the past, Congress can play a vital 

role in renewing our banking system. 

The examination process for banks is unique in the American regulatory structure. In no other field of 

regulation is the relationship between regulator and regulated so tightly knit. Examiners take up 

residence within institutions. Communications to a bank examiner are provided limited legal privilege 

from discovery, a privilege otherwise reserved for one's lawyer, spouse, or physician. 

The exam process can work well and help remedy financial problems specific to a particular banking 

institution without harming the bank's reputational capital. The unique nature of examination can, 

however, turn quite ugly. Banking institutions report that examiners have sometimes issued retributive 

threats for opposing rules in a public notice-and-comment process or have issued inappropriate 

demands that amount to shadow regulation. 

Furthermore, bank regulators have shown an unwillingness to coordinate bank examinations. Banks are 

in a constant state of examination and sometimes have to balance conflicting demands from different 

examination teams. The ideas reflected in the legislation we will discuss today can begin to ameliorate 

some of those problems, and I commend this committee's attention to these solutions. 

The CFPB is one of the most powerful regulators in the financial services space, yet it is also the 

youngest. The Federal Reserve is more than a hundred years old and, the Office of the Comptroller of 

the Currency dates back to the Civil War. These agencies benefit from regulatory culture and a wealth 

oflegal precedent defining their operative statutes, which have evolved collectively over hundreds of 

years. The CFPB, on the other hand, is five years old, and I don't need to remind this committee of the 

growing pains it has experienced. 

It is therefore entirely appropriate that the CFPB's operative statute, and the statutes it enforces, be 

continually refined. I would argue that one of the most important changes being considered today is the 

proposed change to the broad authority of the CFPB to prevent unfair, deceptive, or abusive acts or 

practices. 

Words have power in the law, and word choice in statutes is particularly important. They have power 

because they can he defined over hundreds of fact patterns in which impartial judges give words 

meaning. The words "deceptive" and "unfair" have such a clear meaning, developed over decades of 

implementation by the Federal Trade Commission, but the word "abusive" does not. 

In the realm of political soundbites, it is easy to accuse someone making a legitimate argument about 

statutory meaning of being "in favor of abusive products." It's an old Washington trick. I would, 

however, challenge any who oppose this statutory change to describe a set of facts that would be 

considered abusive but not unfair or deceptive. 

Another piece of legislation under consideration today would establish an intent requirement for 

violations of the Equal Credit Opportunity Act (ECOA). The CFPB describes itself as a law enforcement 

agency, and indeed the penalties it collects are often large enough to blur the line between civil and 

criminal actions. Our criminal laws overwhelmingly require an intent or "scienter" element to offenses, 

2 
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recognizing that unintentional actions taken by people doing their best to follow the law are not morally 

blameworthy. 

Courts interpreting ECOA have recognized this need for an intent requirement, and they have required 

either intentional or reckless behavior in order to award punitive damages under the statute.2 Recent 

settlements under ECOA have reached levels that would have previously been reserved for punitive 

damages awards under the statute, and so I would argue the statutory fix contemplated today is 

consistent with the original intent ofECOA and with legal precedent interpreting the statute. I would 

further argue that a clear reading of the ECOA statute indicates it does not permit actions based on a 

theory of "disparate impact," further bolstering the argument that the change contemplated today 

merely recognizes an existing feature of the statute. 

I also commend the committee's attention to the use of reputation risk in bank regulation and 

supervision. Citing to amorphous reputation risk has become a new fad among bank regulators in 

recent years, both in justifying rulemaking and in the CAMELS rating process, and it is highly 

problematic. 

First, regulators have yet to demonstrate that reputation risk is a necessary component of the CAMELS 

rating and examination, since existing financial and management measures would capture the effect of 

any reputational problems among bank customers. 

Second, regulators refuse to use the empirical tools available to measure reputation risk, such as stock 

price event studies or hedonic consumer price studies. Instead, they use reputation risk as a vague way 

to justify their personal preferences. The close association between this regulatory tool and the recent 

Operation Chokepoint scandal suggests careful scrutiny is warranted. 

Reform of the examination process, of the CFPB's powers and statutory authority, and of the use and 

abuse of reputation risk in bank examination and regulation will go a long way toward pruning the 

regulatory thicket that has stifled new bank formation in recent years. The various bills today present a 

wealth of ideas, only a handful of which I have touched upon. I look forward to discussing them with you. 

I thank you for the opportunity to testify, and I look forward to answering your questions. 

' See. for example, F1schl v. General Motors Acceptance Corp., 708 F.2d 143 (5th Cir. 1983). 

3 
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Statement for the Record 

On behalf of the 

Financial Services Roundtable 

For the hearing entitled 

"Examining Legislative Proposals to Provide Targeted 

Regulatory Relief to Community Financial Institutions" 

Before the 

Subcommittee on Financial Institutions and Consumer 

Credit 

U.S. House Committee on Financial Services 

July 12, 2017 
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Chairman Luetkemeyer, Ranking Member Clay and members of the Subcommittee, the 

Financial Services Roundtable' appreciates the opportunity to submit this statement for 

the record in support of two important pieces of legislation being discussed at this 

hearing. 

H.R. 1457, the Making Online Banking Initiation Legal and Easy Act of 2017 

The availability of financial services and products on-demand and with the convenience of 

a few finger swipes reflects how consumer expectations are evolving in an increasingly 

digital, friction-free world. To meet these expectations and remain competitive, financial 

firms are moving to adopt new techniques and technologies to serve their customers. 

The potential benefits of this convergence between financial services, enabling 

technologies and the firms that produce them are immense. Aside from providing 

enhanced access, increased efficiencies and enhanced experiences, "Fin Tech" has the 

potential to address the challenge of making available more economically accessible and 

risk-tailored products and services, while maintaining and genuinely improving robust 

consumer protections, risk controls and data security. 

This is the goal at the heart of H.R. 1457, the Making Online Banking Initiation Legal and 

Easy Act of 2017, which was introduced by Representative Scott Tipton and a bipartisan 

group of Members of this Committee. 

New technologies are enabling depository institutions to reach consumers outside their 

geographic footprint, and to offer products and services in an entirely online or mobile 

environment- including account origination. However, a number of state laws governing 

the use of driver's licenses inhibit the ability of financial institutions to allow consumers in 

those states to open new accounts through a mobile application -a process in which 

federal law requires financial institutions to verify the applicant's identification, often with 

a driver's license as proof of identity. These state laws were not intended to restrict 

consumer access to financial services: This is purely the result of advances in financial 

technology that the laws never contemplated. 

H.R. 1457 would ensure financial institutions can reach all consumers, and in particular 

unbanked or underbanked populations, with innovative and affordable financial products 

by clarifying that the use by a financial institution of a consumer's driver's license or 

personal identification card for the purpose of obtaining a financial product or service is a 

permissible activity. This is a common-sense measure that, by addressing an unintended 

1 FSR represents the largest integrated financial services companies providing banking, insurance, payment, 

investment and finance products and services to the American consumer. FSR member companies provide fuel for 

America's economic engine, accounting for $54 trillion in managed assets, $1.1 trillion in revenue and 2.1 million 

jobs. 
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consequence, will encourage innovation and expand financial access to many American 

consumers. 

Discussion Draft entitled "Ensuring Quality Unbiased Access to Loans Act of 2017" 

A hallmark of a thriving financial services system is the availability of products and 

services that meet the diverse needs of American consumers. Small-dollar loans and lines 

of credit are a financial necessity for many, and have historically been offered by both 

regulated financial institutions and less-regulated non-depository firms, including payday 

lenders, pawn brokers and title loan companies. 

With limited justification, guidance put forth by the Office of the Comptroller of the 

Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) in 2013 had the effect 

of nearly drying up the availability of Deposit Advance Products (DAP)- a type of shortterm credit product only available to established checking account customers of a 

financial institution that are repaid by the proceeds of the next direct deposit. Left with 

minimal choices, consumers must search outside the regulated banking sector for 

alternative sources of short-term financing. 

The discussion draft put forth by Representative Hollingsworth would repeal the overly 

restrictive guidance and require any future regulatory efforts targeted at DAP to be 

conducted with a thorough review of the costs and benefits such an offering would have 

on consumers, with a focus on low- and moderate-income Americans. 

Promoting greater competition and choice for consumers in the short-term lending and 

credit market should be achieved through practical, common-sense regulatory 

approaches to products like DAP. Regulated financial institutions want to be able to offer 

safe, well-designed short-term financing products to meet their customers' needs. This 

measure would put the industry on a path toward achieving that goal. 

Thank you for your leadership in developing these policies and holding this hearing. We 

appreciate the opportunity to comment and look forward to working together on these 

and other issues. 
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July 10, 2017 

The Honorable Blaine Luetkemeyer 

Chairman 

Subcommittee on Financial Institutions and 

Consumer Credit 

Committee on Financial Services 

U.S. House of Representatives 

Washington, DC 20515 

The Honorable Lacy Clay 

Ranking Member 

Subcommittee on Financial Institutions and 

Consumer Credit 

Committee on Financial Services 

U.S. House of Representatives 

Washington, DC 20515 

Dear Chairman Luetkemeyer and Ranking Member Clay: 

On behalf of the American Financial Services Association (AFSA),1 I wish to express our appreciation to 

the Subcommittee on Financial Institutions and Consumer Credit for holding a hearing "Examining 

Legislative Proposals to Provide Targeted Regulatory Relief to Community Financial Institutions." We are 

pleased to offer our support for three measures scheduled to be considered by the Subcommittee during 

this hearing. 

AFSA would like to thank you for co-sponsoring H.R. 2396, the "Privacy Notification Technical Clarification 

Act," which amends the Gramm-Leach-Biiley Act (GLBA) to update the exception for certain annual notices 

provided by financial institutions. We urge Subcommittee members to support this important bipartisan 

legislation. 

The GLBA requires financial institutions (Fis) to issue privacy notices to consumers if the Fls share 

consumers' non-public personal information with affiliates or third parties. Such disclosures are required 

to occur when a relationship is first established between the Fl and the consumer, as well as annually in 

written form as long as the relationship continues, even if no changes to the disclosure policies have 

occurred. 

Annual privacy notices without policy changes are redundant, unnecessary, and confusing. They contain 

several pages of small-print legalese, which have little value for consumers. In fact, they are largely 

discarded - unread - immediately upon receipt However, producing and mailing these notices costs 

millions of dollars. 

In fall 2014, the Consumer Financial Protection Bureau (CFPB) finalized a rule allowing Fls to post their 

annual privacy notices online instead of delivering them individually if they meet a series of conditions, 

including not sharing the consumers' nonpublic personal information with unaffiliated third parties. In 

December 2015, Congress went further by enacting an outright exemption from the mailing requirement 

for Fls that: (1) do not share non-public personal information about consumers to unaffiliated third parties, 

and (2) have not changed its disclosure policies and practices since the most recent disclosure was sent 

to consumers. Unfortunately, certain Fls cannot take advantage of the exemption. 

We ask Congress to pass H.R 2396 to level the playing field for all Fls. If a financial institution's privacy 

policy has not materially changed, the institution should be permitted to satisfy the intent of GLBA by 

delivering its privacy notice through an electronic medium, or by mail upon request. 

1 Founded in 1916, AFSA is the national trade association for the consumer credit industry, protecting access to credit 

and consumer choice. AFSA members provide consumers with many kinds of credit, including traditional installment 

loans, mortgages, direct and indirect vehicle financing, payment cards, and retail sales finance. 

' 

g19 ~S'N stree't!l\IW, ~ulte llOO, Washington, ~.OOlt, .2il006 1 (.2l>li))2~5~!! 1 ~~ ~mt:SI'\l_l'il!lil 

" ' 
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AFSA supports H.R. 2133, the "Community Lending Enhancement and Regulatory Relief Act of 2017." 

Particularly, we are in favor of Section 6, which limits the CFPB's authority to regulating and enforcing 

unfair or deceptive acts or practices, not the Bureau's interpretation of abusive acts or practices. The 

Bureau's use of this authority has stifled innovation in the marketplace through its ambiguity and has also 

created a catch-all authority that the CFPB and attorneys general may cite in prosecuting any business 

practice they find disagreeable. In fact, "abusive" is not a standard at all; it is an ill-defined tool that 

singularly expands the scope of regulators' power to determine which financial products and services pass 

muster. 

Our members are committed to fair lending and expend substantial resources to ensure that credit 

decisions are based on a consumer's qualifications for credit and without regard to factors such 

as race or national origin. We therefore support the provision in H.R. 2133 clarifying that intentional 

discrimination is prohibited. AFSA also supports the elevated data thresholds for the Home Mortgage 

Disclosure Act in Section 8, as well as the repeal of the small business loan collection data in Section 9. 

The data collection requirements in this section are not a consumer issue and so should be removed 

from the CFPB's jurisdiction. 

AFSA also favors H.R 924, the "Financial Institutions Due Process Act of 2017," which would bring 

consistency and transparency to the examination process for financial institutions by requiring regulatory 

agencies to issue examination determinations promptly and ensure financial institutions receive full 

documentation of the information used to make the examination determinations. This legislation would also 

give financial institutions the right to have those determinations independently reviewed. A balanced and 

effective examination process is beneficial for both financial institutions and the consumers they serve. 

AFSA urges members to support this legislation and bring more balance and transparency to the 

examination process. 

In addition, we would like to register our support for H.R. 864, the "Stop Debt Collection Abuse Act of 

2017." This bipartisan legislation would ex1end the Fair Debt Collection Practices Act (FDCPA) to private 

debt collectors who work on behalf of federal government agencies. The FDCPA imposes a variety of 

limitations on the ability of financial institutions and debt collectors to recover money owed from consumers. 

Some of these requirements include restrictions on where and when a consumer may be contacted and 

when debt collection practices must stop if requested by a consumer. They also detail numerous 

disclosures that must be made to consumers, including monetary amounts, deadlines, and conditions by 

which the consumer may dispute the matter. The federal government should be held to the same high 

standards when collecting debt from consumers. 

Thank you in advance for your consideration. Please do not hesitate to contact me at (202) 466-8616 with 

any questions. 

Sincerely. 

Bill Himpler 

Executive Vice President 

American Financial Services Association 
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July 13,2017 

CONSUMEH 

BANKEHS 

ASSOCIATION 

The Honorable Blaine Luetkemeyer 

Chairman 

Committee on Financial Services 

Subcommittee on Financial Institutions and 

Consumer Credit 

U.S. House of Representatives 

2230 Rayburn House Office Building 

Washington, D.C. 20515 

The Honorable Lacy Clay 

Ranking Member 

Committee on Financial Services 

Subcommittee on Financial Institutions and 

Consumer Credit 

U.S. House of Representatives 

2428 Rayburn House Office Building 

Washington, D.C. 20515 

Dear Chairman Luetkemeyer and Ranking Member Clay: 

The Consumer Bankers Association (CBA) appreciates the Financial Institutions and Consumer 

Credit Subcommittee's interest in tailoring the regulatory framework for financial institutions 

serving consumers and small businesses. From underwriting loans to main street businesses to 

providing banking services to previously unbanked or underbanked consumers, CBA's members 

are integral to fueling the economic engine that drives prosperity in communities around the 

country. As such, we would like to take this opportunity to submit the following comments on 

the hearing entitled, ''Examining Legislative Proposals to Provide Targeted Regulatory Relief to 

Community Financial Institutions." CBA is the voice of the retail banking industry whose 

products and services provide access to credit to millions of consumers and small businesses. 

Our members operate in all 50 states, serve more than 150 million Americans and collectively 

hold two-thirds of the country's total depository assets. 

Financial institutions of all sizes need relief from the overwhelming regulatory burden that 

requires valuable resources to be redirected away from the customer and focused on satisfying 

the demands from multiple regulatory agencies that operate independently and with little to no 

coordination. The legislation considered today would provide targeted relief and improve 

consumer access to well regulated banking products. 

Ensuring Quality Unbiased Access to Loans Act of 2017 

CBA strongly supports the Ensuring Quality Unbiased Access to Loans Act of2017. This 

legislation would promote access to small-dollar bank loans, often known as deposit advance 

products (DAP), which were available prior to guidance issued in 2013 by the Federal Deposit 

Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC). 

DAP served the critical need of providing emergency credit to pre-existing banking customers. 

Unfortunately, the FDIC and OCC guidance effectively eliminated the ability of the financial 

institutions they regulate to offer a viable alternative to compete with payday lending. The FDIC 

and OCC guidance recommended the use of underwriting that is more appropriately applied to a 

much larger credit product, such as a mortgage loan, and placed other restrictions on the 

CONSUMER BANKERS ASSOCIATION I 1225 EYE STREET, NW, #550 I WASHINGTON, DC 20005 I consumerbankers.com 
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products. This, combined with a low interest rate environment, has made small-dollar credit 

unviable and has forced banks to exit the market. 

We are encouraged that Congress is taking action to allow highly regulated banks to reenter this 

market and ensure consumers have access to small dollar credit liquidity. CBA strongly supports 

the repeal of the current DAP guidance and the requirement that any future guidance be subject 

to a cost-benefit analysis and public notice and comment period. 

Making Online Banking Initiation Legal and Easv Act of2017 

We also strongly support H.R. 1457, the Making Online Banking Initiation Legal and Easy Act 

of 2017 (MOBILE Act), which would simplify consumers' ability to open bank accounts online 

or on a mobile device from anywhere in the United States. This common-sense, bipartisan 

legislation would provide consumers with improved access to safe and regulated financial 

services products and promote financial inclusiveness for unbanked and underbanked consumers. 

Some CBA members have developed applications that allow consumers to verify their identity 

and open a bank account online or on a mobile device without the inconvenience of visiting a 

branch. One method allows consumers to "swipe" their driver's license or other state-issued 

identification card to record their information. Another method requires consumers to take a 

photo of their identification card and face. Both methods simplify the account opening process 

and increase the number of financial institutions that consumers can access at their fingertips. 

The MOBILE Act brings consistency to the various state laws that address a bank's ability to 

implement the needed verification processes that would allow a consumer to swipe or copy a 

state-issued identification card for the purposes of opening an account. 

Community Lending Enhancement and Regulatorv Relief Act of 2017 

CBA supports several provisions included in H.R. 2133, the Community Lending Enhancement 

and Regulatory Relief Act of 2017. 

Abusive Standard 

The CFPB was granted a significant new authority, when compared to other banking regulators, 

to issue enforcement actions based on unfair, deceptive, or abusive acts or practices (UDAAP). 

The inclusion of"abusive" within the power and scope of the CFPB's authority has proven to he 

a powerful tool that the Bureau can usc to bring enforcement actions and levy penalties over the 

institutions they supervise. As the CFPB wields this new and undefined authority, the prudential 

regulatory agencies have authority to enforce traditional unfair or deceptive acts or practices 

(UDAP) powers under the Federal Trade Commission Act, even against large banks subject to 

CFPB supervision. The prudential agencies and the CFPB pursue actions without consultation, 

which not only creates duplication and overlap but could result in divergent interpretation and 

application of the legal standards. 

2 
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CBA supports this legislation that would provide uniformity between the financial regulators by 

removing the "abusive" standard and require the Bureau to consult with the appropriate 

prudential regulator before taking action in an effort to eliminate duplication and ensure that 

there is a unifonn standard for UDAP. 

Section 1071 

CBA members anticipate compliance and litigation complications that could lead to a chilling of 

small business lending and due to the complex new data collection requirements under Section 

1071 of the Dodd-Frank Act. 

Section 1071 amends the Equal Credit Opportunity Act to create a Home Mortgage Disclosure 

Act (HMDA)-like set of requirements for business credit applications. In brief, every financial 

institution must inquire of any business applying for credit whether the business is a small 

business, women- or minority-owned business, maintain a record of the information separate 

from the application, and report the information along with related information about the 

application (location of business, action taken, amount of credit provided, etc.). The information 

must be made public on request in a manner to be established by regulation, and will be made 

public annually by the Bureau. 

The potential for overly burdensome data collection requirements could stifle small business 

lending, greatly increase compliance costs for small business lenders, open the door to costly 

litigation, and duplicate existing law. Lenders will need to revamp lending systems and 

processes in order to collect the required data, adding cost to compliance. The net result will 

limit the resources banks have to make loans and add greatly to compliance burdens and risks, a 

negative tor small business lending. In order to prevent a reduction in small business lending 

and an increase in costly litigation that could occur from the misuse of the information collected, 

CBA supports the repeal of Section 1071. 

Operation Choke Point 

CBA supports the inclusion oflegislation to place restrictions on Operation Choke Point. The 

Department of Justice (DOJ) instituted Operation Choke Point with the goal of"choking off' 

banking services to businesses the government deemed fraudulent or high risk regardless of the 

legality of their operations. CBA and our members oppose any effort by DOJ or the bank 

regulatory agencies to force financial intuitions to terminate business relationships without proof 

of illegal behavior. 

Financial Institutions Due Process Act of 2017 

Additionally, CBA supports H.R. 924, the Financial Institutions Due Process Act of 2017. This 

legislation would ensure financial regulatory agencies provide timely examination reports to 

allow banks to take corrective action swiftly. It would also create an independent examination 

review panel of three judges to hear appeals of supervisory determinations. Furthermore, H.R. 

924 would set up an advisory opinion process through which financial institutions could request 

3 
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a written determination from regulators for permission to take action or an interpretation of Jaw, 

regulations, or accounting standards. 

Privacy Notification Technical Correction Act 

CBA supports H.R. 2396, the Privacy Notification Technical Correction Act, to reduce 

unnecessary paperwork by streamlining the reporting of bank privacy policies. Specifically, 

H.R. 2396 would relieve a bank of its annual privacy policy notice requirement if it has not 

changed its policies and practices, makes its current policy publically available, notifies 

customers of the availability of the notice on periodic billing statements or electronically, and 

posts all notices if it maintains more than one policy. 

Conclusion 

CBA stands ready to work with Congress to ensure a sound regulatory framework that 

safeguards the American consumer. ensures access to credit for consumers and small businesses, 

and promotes competition in the financial marketplace. On behalf of the members of CBA, we 

appreciate the opportunity to submit this letter for the record. 

Sincerely, 

Richard Hunt 

President and CEO 

Consumer Bankers Association 

4 
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July 13, 2017 

CONSUMER 

BANKERS 

ASSOCIATION 

The Honorable Trey Hollingsworth 

U.S. House of Representatives 

1641 Longworth House Office Building 

Washington, D.C. 20515 

Dear Representative Hollingsworth: 

The Consumer Bankers Association (CBA) commends you for introducing the Ensuring Quality 

Unbiased Access to Loans Act of2017. This legislation will provide consumers access to small-dollar 

bank loans, often known as deposit advance products (DA P), by repealing the overly restrictive guidance 

issued in 2013 by the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the 

Currency (OCC) that significantly limited a bank's ability to offer a safe and affordable small dollar 

alternative product. CBA is the voice of the retail banking industry whose products and services provide 

access to credit to millions of consumers and small businesses. Our members operate in all 50 states, 

serve more than 150 million Americans and collectively hold two-thirds of the country's total depository 

assets. 

We are encouraged that Congress is taking action to allow highly regulated banks to reenter this market 

and ensure consumers have access to small dollar credit liquidity. DAP served the critical need of 

providing emergency credit to pre-existing banking customers. Unfortunately, the FDIC and OCC 

guidance (2013-10101; 2013-0005) effectively eliminated the ability of the financial institutions they 

regulate to offer a viable alternative to compete with payday lending. The FDIC and OCC guidance 

recommended the use of underwriting that is more appropriately applied to a much larger credit product, 

such as a mortgage loan, and placed other restrictions on the products. This, combined with a low interest 

rate environment, has made small-dollar credit unviable and forced banks to leave the market. 

CBA strongly supports the repeal of the current DAP guidance and the requirement that any future 

guidance be subject to a cost-benefit analysis and public notice and comment period. We stand ready to 

work with Congress to ensure availability of properly regulated small-dollar loan products that will 

continue to meet the credit needs of consumers and promote competition in the financial marketplace. On 

behalf ofCBA's members, we thank you for introducing legislation on this important issue. 

Sincerely, 

Richard Hunt 

President and CEO 

Consumer Bankers Association 

CONSUMER BANKERS ASSOCIATION I 1225 EYE STREET, NW, #550 I WASHINGTON, DC 20005 I consumerbankers.com 
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QUESTIONS FOR THE RECORD REP. ED ROYCE (CA-39) 

Financial Institutions Subcommittee Hearing entitled: "Examining Legislative Proposals to 

Provide Targeted Regulatory Reliefto Community Financial Institutions." 

Wednesday, July 12. 2017 2:00PM in 2128 Rayburn HOB 

Questions for Mr. Rick Nichols. President and Chief Executive Officer. River Region Credit 

Union, on behalf of the Heartland Credit Union Association (TTF) 

Mr. Nichols, one of the bills we are reviewing today focuses on commercial real estate loans 

made by banks, but I'd like to ask you a question about residential loans made by credit 

unions. Currently, when a federally insured credit union makes a loan for a non-owner occupied 

1- to 4-unit family dwelling that loan counts against the member business lending cap established 

in the Federal Credit Union Act. If a bank were to make the same loan, it would not count as a 

commercial loan. I've introduced H.R. 389 to provide parity for credit unions in the treatment of 

these loans. What are your thoughts on this issue? 

Credit union members should have the same access to these types of loans as bank 

customers. Credit unions that make such home loans have an established track record of safe 

and sound underwriting, and there is no policy reason why credit unions and their members 

should be placed at a disadvantage in the regulatory treatment of these loans. 

Credit unions have been lending to small businesses for more than 100 years and continued to 

do so during the financial crisis when large and small banks withdrew access to credit. NCUA 

has recently taken steps, which the courts have affirmed, to make it easier for credit unions to 

lend to their members. That said, the Federal Credit Union Act continues to restrict credit 

unions' full potential. 

Credit union members support H.R.389, the Credit Union Residential Loan Parity Act, as there is 

neither an economic nor a safety and soundness reason for these loans to be considered 

business loans especially when these same loans are classified as residential loans when made 

by banks. Providing parity would grant credit unions flexibility to provide more access to credit 

for their small business members. Credit unions urge the Committee to hold a hearing on H.R. 

389 with the intention of reporting it to the House as a stand-alone measure. 

Mr. Nichols, although we have passed some targeted amendments to the Federal Credit Union 

Act in recent years, it's been nearly two decades since Congress substantially amended the 

Federal Credit Union Act. Because your credit union is on the frontlines of providing needed 

credit and banking services to nearly 22,000 members, I'm interested in learning your thoughts 

about any areas like capital, business lending, and CUSOs, where Congress could make changes 

to federal law to help you better serve your members. 
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Just like the overall financial marketplace updates and evolves to address the changing needs of 

consumers, the legal regime governing credit unions is in need of updating on a constant basis 

to address the needs of its members. A change to the Federal Credit Union Act to permit 

supplemental capital would be beneficial from a safety and soundness standpoint, as well as a 

member service focus. The arbitrary cap on member business lending makes no sense, and 

should be removed as a way to provide much-needed capital to entrepreneurs. It would also 

serve as a tangible form of private-sector economic stimulus. 

Although this is not a change to the Federal Credit Union Act, Congress should consider 

reforming the Consumer Financial Protection Bureau to exempt credit unions under $50 billion 

in assets from CFPB rules UNLESS those institutions demonstrate abusive or anti-consumer 

practices. Any well-intentioned aspects initially inherent in CFPB have been obscured by overly 

complex and burdensome regulations that actually serve to harm legitimate service offerings to 

consumers. The result has been more cost and fewer choices for consumers. 

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 few 

outstanding required rulemakings promulgated in the Dodd-Frank Act. This requirement does 

not take into account credit unions' unique and distinct memberships. As credit union field-ofmembership varies broadly across the country, it 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, it would be credit unions' recommendation that the 

CFPB exclude credit unions from this rule and its requirements using the Section 1071 and/or 

Section 1022 exemption authority. Regulatory burden likely to be associated with this rule, 

particularly for smaller credit unions, would harm the ability of small business owners to obtain 

credit from their credit union. 

I would also like to highlight the Military Lending Act (MLA) and its impact. Credit unions 

continue to strongly support Military Lending Act (MLA) protections for service members, but 

have concerns regarding a final rule from the U.S. Department of Defense (DoD) that expands 

the credit products covered by a 36% rate cap and amends "consumer credit" to extend the 

definition to a much broader range of closed-end and open-end credit products. Specifically, we 

are disappointed there was not a blanket exemption for credit unions that provide alternatives 

to predatory loans, and that seek to provide their members with products and services at a fair 

and reasonable interest rate. 

While many of the new MLA requirements have gone into effect, requirements relating to the 

calculation of the "military annual percentage rate" (MAPR) for a credit card account go into 

effect on October 3, 2017, with an extension of up to one additional year possible. In addition 

to a one-year extension, DoD should provide guidance on compliance with the credit card 

provisions. 
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28747.076

Mr. Nichols, I see that your credit union makes some member business loans, about27 loans 

valued at around $2.2 million according to your latest Call Report. What are some of the barriers 

you encounter when making business loans? How could Congress make it easier for federally 

insured credit unions like yours to support their member businesses and advance economic 

growth in America's communities? 

Credit unions' restrictive business lending authority creates the largest barrier to making 

business loans. The 12.25% arbitrary cap on business lending has no rational basis. It limits 

access and choice for credit union members who prefer to use a financial institution they know 

and trust for their business loan needs, but may not be able to use a credit union due to these 

limitations. 

There is a distinct need for regulatory relief for business lending. Right now, everything is a 

one-size-fits-all model, with small businesses- including microbusinesses facing the same 

requirements and paperwork as larger businesses. It is a huge deterrent and limits access to 

credit for microbusinesses in particular. 

Mr. Nichols, the Federal Credit Union Act presently specifies the amount of capital a credit 

union must hold in order to protect both its safety and soundness and the solvency of the Share 

Insurance Fund. For purposes of prompt corrective action, a federally insured credit union must 

maintain a leverage ratio of 7 percent to be considered well-capitalized, a level that is about 2 

percentage points higher than the equivalent bank requirements. Many experts have noted that 

this capital allocation system is inefficient and does not appropriately account for risk. What are 

your thoughts on revising capital standards in the Federal Credit Union Act? If Congress 

adopted legislation to provide greater parity between banks and credit unions in the area of 

leverage ratios. would your credit union be able to make more loans and offer more services? 

If Congress adopted legislation to provide greater parity between banks and credit unions in the 

area of leverage ratios, the answer is unquestionably yes that we would be able to make more 

loans and offer more services. Our credit union manages our balance sheet in a way that 

maximizes both member service and safety and soundness. Additional flexibility in the area of 

capital would enable the credit union to put more money in the pockets of our members. 

Mr. Nichols. in 1998 Congress put in place limitations on member business lending by federally 

insured credit unions. These provisions, however, exempted member business loans of less than 

$50.000 from the cap's calculation. Adjusted for inflation, that value would be nearly $75,000 

today. Do you sec the need for Congress to adjust this threshold? If so, what are your thoughts 

about the threshold? Should it be$! 00,000 or higher? Should it be indexed for 

inflation? Should Congress delegate to the NCUA Board the ability to set the cap, up to some 

level? 

There is a definite need to increase the exemption limit. An adjustment for inflation is longoverdue, and would provide a more realistic and useful depiction of what is, and isn't, a 
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member business loan. For the purposes of safety and soundness, credit unions support the 

idea of having Congress delegate to the NCUA Board the ability to set the cap, up to some level. 

Putting a dollar amount cap is problematic because the limitations of the cap artificially forces 

loans to be categorized as business loans when they are not. The complexity of underwriting 

and ongoing documentation should be flexible to allow for proper risk assessment. 

For example, right now, if a farmer wants to purchase a $60,000 work truck for the farm and 

comes to my credit union, that loan would have to be categorized as a business loan. That 

means the farmer will be required to provide cash flow statements, balance sheets and tax 

information annually while the loan is outstanding. No other lenders require that, and it puts 

an unnecessary burden on that farmer for simply using a credit union to purchase a work truck. 

Mr. Nichols, several years ago, Congress enacted my bill to provide pass-through share 

insurance coverage for lawyers' trust accounts and other similar escrows held at federally 

insured credit unions. Although this statutory change provided parity with the insurance 

coverage provided by FDIC, we still have more issues to address. For example, pass-through 

share insurance coverage is not provided for prepaid, payroll, and other stored value cards, 

unless the holder of these products is also the credit union's member. Does your credit union 

offer any of these products currently? lf so, has the lack of share insurance coverage hampered 

your efforts to offer the product? If you don't currently offer these products, would your credit 

union offer them if Congress enacted statutory changes to allow for share insurance coverage? 

Our credit union does not currently offer these products. At this time, we aren't in a position to 

assess future offerings in regards to this issue. 
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0 Innovative Lending Platform Association 

July 11,2017 

The Honorable Scott Tipton 

U.S. House of Representatives 

218 Cannon House Oflice Building 

Washington, D.C. 20515 

Dear Congressman Tipton, 

On behalf of the Innovative Lending Platform Association ('\\''\\'~Sil.l!IQVativelcndipg,Qig), thank 

you for introducing H.R. 1547, the Making Online Banking Initiation Legal and Easy Act of 

2017 (MOBILE Act). 

The Innovative Lending Platform Association (ILPA) is the leading trade organization for online 

lending platfom1s and service companies serving small businesses. The members of the ILP A are 

united by a shared commitment to the health and success of small businesses in America We 

believe that promoting sensible policies to advance the financial technology- "Fin Tech"-

industry will improve access to capital for small businesses and foster economic growth. 

Small business is critical to the U.S. economy and the American workforce, and in order to grow 

their businesses and create jobs, entrepreneurs need access to timely and affordable credit 

Fin Tech companies are an important and growing source of capital largely because the 

technological innovations introduced by Fin Tech companies have increased efficiencies in the 

application, underwriting, funding, and payments disbursement processes to provide financial 

services and products to customers underserved by the mainstream credit market. However, 

many of the innovations introduced by Fin Tech companies are constrained by existing policy 

and regulatory frameworks that never contemplated a mobile-based economy and are failing to 

keep pace with such innovation. 

Legislation such as the MOBILE Act equip FinTech lending platforms with the tools they need 

to verify data to make the credit decisioning process more efficient and reliable. By permitting 

financial institutions to photocopy or swipe a driver's license to verifY the identity of a person 

opening an account, the MOBILE Act promotes financial inclusion and customer access to safe 

and well-regulated financial services and products. 

Specifically, the MOBILE Act would protect customer privacy and ensure compliance with 

federal bank secrecy laws by allowing financial institutions to use personal information only for 

identity verification and by prohibiting them from selling, renting, transferring or making the 

infonnation available to another person (other than an affiliate). The Act also limits retention of 

the information to only that information needed to open the account or obtain a financial product 

or service. Additionally, the MOBILE Act ensures transparency by requiring financial 

institutions to give customers notice about the type of information collected. 

www.innovativelendj.!J&:9J:g 
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Customers are increasingly demanding access to financial products and services through digital 

channels. The MOBILE Act meets that need by making it simpler to sign up for an account 

online or through a mobile device from anywhere in the United States, while also improving 

fraud prevention methods available to financial providers. 

Thank you again for introducing H.R. 1457, and we support passage of the MOBILE Act by the 

U.S. House of Representatives Financial Services Committee. We look forward to working with 

you to advance policies that support innovation in financial services and products for the benefit 

of the small business sector. 

I 

Sincerely, 

Chris Walters 

Executive Director 

Innovative Lending Platform Association 

deck 

www.innovativelending.org 
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April 7, 2017 

The Honorable Scott Tipton 

U.S. House of Representatives 

218 Cannon House Office Building 

Washington, D.C. 20515 

Dear Congressman Tipton: 

James Ballentine 

Executive Vice President 

Congressional Relations 

And Political Affairs 

202-663-5359 

iballent@aba.com 

The American Bankers Association (ABA) writes to express our strong support for H.R. 1457, 

the Making Online Banking Initiation Legal and Easy Act or MOBILE Act. This bipartisan 

legislation would allow financial institutions- with the consent of an individual to record 

personal information from the swipe of a driver's license or personal identification card and 

retain it for the purposes of opening an account with a financial institution or obtaining a related 

banking product or service. 

The ABA believes that this legislation is mutually beneficial to both, our members and their 

customers, as it will help expand access to crucial banking services for underbanked populations 

by offering similar retail services through mobile technology. At the same time, the MOBILE 

Act safeguards consumer privacy through the storage of personal identification information in an 

electronic fom1at, which can be an important and accessible barrier to prevent fraud or other 

criminal activity. 

ABA supports this legislation and other legislative efforts by congressional leaders to help 

consumer's access financial services products in a safe and efficient manner. 

Thank you for your leadership. 

Sincerely, 

James C. Ballentine 
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March 10, 2017 

CONSUMER 

BANKERS 

ASSOCIATION 

The Honorable Scott Tipton 

U.S. House of Representatives 

218 Cannon House Office Building 

Washington, DC 20515 

The Honorable Patrick McHenry 

U.S. House of Representatives 

2334 Rayburn House Office Building 

Washington, DC 20515 

The Honorable Terri Sewell 

U.S. House of Representatives 

2201 Longworth House Office Building 

Washington, DC 20515 

The Honorable Randy Hultgren 

U.S. House of Representatives 

2455 Rayburn House Office Building 

Washington, DC 20515 

The Honorable David Scott 

U.S. House of Representatives 

225 Cannon House Office Building 

Washington, DC 20515 

The Honorable Kyrsten Sinema 

U.S. House of Representatives 

1725 Longworth House Office Building 

Washington, DC 20515 

Dear Representatives Tipton, Hultgren, McHenry, Scott, Sewell and Sinema: 

On behalf of the Consumer Bankers Association (CBA), I would like to express our support of 

H.R. 1457, the Making Online Banking Initiation Legal and Easy Act of2017 (MOBILE Act), 

which would simplify consumers' ability to open bank accounts online or on a mobile device 

from anywhere in the United States. CBA is the voice of the retail banking industry whose 

products and services provide access to credit for consumers and small businesses. Our 

members operate in all 50 states, serve more than 150 million Americans, and collectively hold 

two-thirds of the country's total depository assets. 

The Federal Deposit Insurance Corporation (FDIC) recently reported that 7 percent of the U.S. 

population is unbanked and 19.9 percent is underbanked. 1 The FDIC concluded previously that 

mobile banking is best positioned to "meet the day-to-day financial services needs of 

underbanked consumers as well as consumers at risk of account closure,'' and that mobile 

banking "has the potential to help the underserved gain access to the banking system and grow 

their financial capability."2 CBA supports these conclusions and believes this common-sense, bipartisan legislation would provide consumers with improved access to safe and regulated 

financial services products and promote financial inclusiveness for unbanked and underbanked 

consumers. 

Some CBA members have developed applications that allow consumers the ability to verify their 

identity and open a bank account online or on a mobile device without the inconvenience of 

visiting a branch. One method allows consumers to "swipe" their driver's license or other stateissued identification card to record their information. Another method requires consumers to take 

1 Federal Deposit Insurance Corporation {FDIC), 2015 FDIC National Survey of Unbanked and Underbanked Households, at 1 (Oct. 2016). 

available at https://www.fdic.gov/househo/dsurvey/2015/2015report.pdf. 

2 FDIC, Assessing the EconomiC Inclusion Potential of Mobile Financial Services {June 30, 2014), available at 

https://wwwJdic.gov/consumers/communlty/mobile/Mobile-Financia!-Services.pdf. 

CONSUMER BANKERS ASSOCIATION I 1225 EYE STREET, NW, #550 I WASHINGTON, DC 20005 I consumerbankers.com 
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a photo of their identification card and face. Both methods simplify the account opening process 

and increase the number of financial institutions that consumers can access at their fingertips. 

2 

The MOBILE Act brings consistency to the various state laws that address a bank's ability to 

implement the needed verification processes that would allow a consumer to swipe or copy a 

state-issued identification card for the purposes of opening an account. This bill will not reduce 

any financial institutions commitment to comply with federal laws aimed at preventing identity 

theft, financial fraud, money laundering, and terrorist financing, including the Bank Secrecy Act, 

its anti-money laundering rules, and Know Your Customer and Customer Identification 

Programs. 

The MOBILE Act provides consumers easier access to the highly regulated banking industry by 

simplifying their ability to open an account through the process of swiping, scanning or copying 

their state issued identification card. Thank you for introducing legislation on this important 

issue. 

Sincerely, 

Richard Hunt 

President and CEO 

Consumer Bankers Association 

CONSUMER BANKERS ASSOCIATION I 1225 EYE STREET, NW, #SSO I WASHINGTON, DC 20005 I consumerbankers.com 
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I 

July 7, 2017 

Christian Jorgenson 

Legislative Counsel to Rep. Scott Tipton 

218 Cannon House Office Building 

Washington DC 

Dear Mr. Jorgenson, 

The Center for Financial Services Innovation (CFS!) supports the legislative efforts in the House 

of Representatives to enable consumers to open bank accounts and sign up for other financial 

services using their mobile devices and PCs in conjunction with a driver's licenses and other 

appropriate forms of identification. We believe that financial inclusion and access to transaction 

and savings accounts are necessary for consumers to achieve financial health. We recognize that 

currently there are several states where it is illegal to take a photograph or other reproduction of 

a driver's license, and this presents an obstacle to the mobile or remote account-opening process. 

We support H.R. 1457, the MOBILE Act of2017, and would be supportive of similar legislation 

in the Senate. 

There are several arguments for allowing mobile or PC-enabled account opening: 1) access to 

mobile devices is nearly ubiquitous, which means more consumers will be able to access and use 

financial services; 2) prices are more affordable because the cost of opening accounts is lower; 3) 

consumers can open accounts when and where it is convenient for them, not when the bank or 

credit union is open (and this is especially important in more rural areas of the country, such as 

western Colorado); 4) security improvements in the financial services industry allow for more 

"real time" verification via digital channels, which in turn means that banks and credit unions 

can comply with customer identification protocols and Know Your Customer requirements. 

We believe that finance can be a force for good in people's lives and that meeting consumer 

needs responsibly is ultimately good for both the consumer and the provider. CFSI is a national 

authority on consumer financial health and we lead a Network of financial services innovators 

committed to building higher quality products and services. CFSI informs, advises, and connects 

its Network to seed innovation that will transform the financial services landscape. Our vision is 

to see a strong, robust, and competitive financial services marketplace, where the diversity of 

consumer transaction, savings, and credit needs are met by a range of providers offering clear, 

transparent, and high-quality products and services at reasonable prices. This vision is guided by 

our Compass Principles- Embrace inclusion, Build trust, Promote success, and Create 

opportunity. 1l1cse principles are built on a solid foundation that recognizes the core market 

values of profitability and scalability, deep customer knowledge, safety, variation and choice, 

consumer-provider relationships, and cross-sector participation. 
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One of our signature programs is our Financial Solutions Lab, managed by CFSI with founding 

partner JP Morgan Chase & Co. The Lab seeks to identify, test and bring to scale promising 

innovations that help Americans increase savings, improve credit, and build assets. Both in the 

Lab and through our Network of financial service providers, we have seen examples of how 

mobile account opening can improve inclusion and promote success and financial health for 

American consumers. We believe all Americans should be able access and use these products 

and support legislative efforts to this end. 

We would be happy to meet with you further to discuss our experience and answer any questions 

you might have. 

Sincerely, 

Jeanne M Hogarth 

Vice President 

Center for Financial Services Innovation 

202.888.7586 

jhogarth@cfsinnovation.org 

2 
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June 5, 2017 

Congressman Scott Tipton 

218 Cannon House Office Building 

Washington, DC 20015 

Re: H.R. 1457, the Making Online Banking Initiation Legal and Easy (MOBILE) Act of 2017 

Dear Congressman Tipton: 

On behalf of the members of the Financial Services Roundtable, I write to express our 

support for H.R. 1457, the Making Online Banking Initiation Legal and Easy Act of 2017. 

New technologies are enabling depository institutions to reach consumers outside their 

geographic footprint. and to offer products and services in an entirely online or mobile 

environment- including account origination. However, a number of state laws governing the 

use of driver's licenses inhibit the ability of financial institutions to allow consumers in those 

states to open new accounts through a mobile application - a process in which federal law 

requires financial institutions to verify the applicant's identification, often with a driver's 

license as proof of identity. These state laws were not intended to restrict consumer access 

to financial services: This is purely the result of advances in financial technology that the laws 

never contemplated. 

H.R. 1457 would ensure financial institutions can reach all consumers. and in particular 

unbanked or underbanked populations, with innovative and inexpensive financial products by 

clarifying that the use by a financial institution of a consumer's driver's license or personal 

identification card for the purpose of obtaining a financial product or service is a permissible 

activity. 

Your bill is a common-sense measure that, by addressing an unintended consequence, will 

encourage innovation and expand financial access to many American consumers. Thank you 

for your efforts to introduce this legislation and we look forward to working with you to 

advance it through Congress. 

Sincerely, 

Anthony Cimino 

Senior Vice President 

Head of Government Affairs 

\HI 

500 13th Street. NW, Suite 400, Washington, D.C 20005 I 101·289·4322 I info@ifSRoundlable.org I www.fSRoundtable.org 
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~·~ 1•~ Americans for 

• ; Financial Reform 

United States House of Representatives 

Committee on Financial Services 

Financial Institutions and Consumer Credit Subcommittee 

"Examining Legislative Proposals to Provide Targeted Regulatory Relief to Community 

Financial Institutions" 

.July 12,2017 

Americans for Financial Reform (AFR) 1 appreciates the opportunity to provide this statement for 

the record of this Financial Institutions and Consumer Credit Subcommittee hearing, which 

considers several bills that would significantly undermine consumer financial protection and the 

safety and soundness of the financial system. Although the hearing is entitled "Examining 

Legislative Proposals to Provide Targeted Regulatory Relief to Community Financial 

Institutions," the bills under consideration are not focused principally on community financial 

institutions. The most sweeping provisions of these bills apply to all institutions, many of which 

would radically decrease oversight of the nation's largest banks and increase the risk of harm to 

the public. 

A non-exhaustive list of examples follows: 

• H.R. 924 would create a cumbersome new de novo appeals and review process that would 

create numerous opportunities for banks to delay and derail changes that examiners require to 

protect consumers and the public. These changes would apply to both consumer protections 

and the enforcement of safety and soundness rules designed to prevent another financial 

crisis. This radical reduction in the authority of bank regulatory agencies would negatively 

impact regulatory oversight across the entire financial system, including the largest banks. 

• Section 6 ofH.R. 2!33 would repeal the CFPB's authority to stop abusive acts and 

practices in consumer finance by literally striking the prohibition on abusive acts and 

practices from the U.S. Code. The CFPB has exercised its authority over abusive conduct 

to take action against companies that have inflicted significant harm on consumers, 

including: Wells Fargo, which fraudulently opened accounts without its customers' 

permission; a credit card company that took advantage of its customers' 

misunderstanding oflimited-time no-interest promotional offers; and a student loan debt 

1 AFR is a coalition of more than 200 national, state, and local groups who have come together to reform 

the financial industry. Members of our coalition include consumer, civil rights, investor, retiree, 

community, labor, faith based, and business groups. A list of AFR member groups is available at 

http://ourfinancialsecurity.org/aboutlour-coalition/. 

1620 L Street NW 11'h Floor Washington, DC 20036!202.466.18851 ourfinancialsecurity.org 
130 


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relief company that charged fees for worthless advice on applying to programs that 

borrowers did not qualify for. 2 

• Section 6(a)(3)(B) of H.R. 2133 would make it effectively impossible for the CFPB to 

issue rules defining unfair and deceptive acts and practices. The provision would impose 

unworkable '·Magnuson-Moss" requirements for such rulemakings. These requirements 

now apply only to the Federal Trade Commission (FTC) and have never applied to any 

bank regulator.3 These procedural requirements lengthened FTC rulemakings under these 

procedures to an average of more than five-and-a-half years, leading the FTC to abandon 

such rulemakings altogether4 

• Section 7 ofH.R. 2133 would repeal the Fair Housing Act of 1968 and the Equal Credit 

Opportunity Act's prohibitions on disparate impact discrimination, overriding the 

Supreme Court's decision only two years ago in Texas Department of Housing and 

Community Affairs v. The Inclusive Communities Project, Inc. Section 8 of that bill 

further undermines fair housing enforcement by reducing the number of institutions 

reporting full mortgage lending data. 

• The "Ensuring Quality Unbiased Access to Loans Act of 201 7" would allow banks to 

again make abusive deposit advances- in essence payday loans. Before federal 

regulators stepped in, these loans typically carried an annual percentage rate (APR) of 

225%-300% and borrowers took out 13.5 loans per year, trapping customers in a cycle of 

unaffordable debt5 

• Section 15 ofH.R. 2133 would undermine the statutorily-required CFPB "Qualified 

Mortgage" rules that have made mortgage loans fairer and simpler, and reduce the risk of 

default and foreclosure. The provision would exempt all mortgages held on bank 

portfolios including those originated by the largest Wall Street banks from these new 

rules. Unfortunately, evidence from the financial crisis makes it clear that banks holding 

loans on their books is not sufficient to ensure that they will not make predatory or 

exploitative loans on a large scale. Washington Mutual and Wachovia-two large 

regional banks-failed because of the significant losses in mortgage loans held in their 

2 AFR, 41 organizations oppose H.R. 5112, May 20, 2016, http://ourfinancialsecurity.org/wpcontent/uploads/2016/05/0ppoLetterHR5112-5-12-16-l.pdf. 

3 Id. 

4 JeffreyS. Lubbers, ''It's Time to Remove the 'Mossified' Procedures for FTC Rulemaking," The 

George Washington Law Review, Nov. 15,2015, http://www.gwlr.org/wp-content/uploads/2016/0J/83-

Geo-Wash-L-Rev-1979.pdf. 

5 Rebecca Borne and Peter Smith, Triple Digit Danger: Bank Payday Lending Persists, Center for 

Responsible Lending (March 2013), available at http://www.rcsponsiblclending.org/paydaylending/research-analysis/Triple-Digit-Bank-Payday-Loans.pdf; the CFPB found consistent findings at 

CFPB White Paper, Payday Loans and Deposit Advance Products (2013), available at 

http://files.consumerfinance.gov/f/20 1304 _ cfpb _payday-dap-whitepaper.pdf. 

2 
131 


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own portfolios. Congress should not allowing financial institutions to return to those 

practices. 

• H.R. 2148 would reverse regulatory rules that require higher levels of private capital 

supporting higher-risk commercial real estate loans. 

• Section 9 of H.R. 2133 would abandon the effort required by Dodd-Frank (Section 1071) 

to learn more about small business lending through systematic data collection, 

undermining enforcement of the Equal Credit Opportunity Act and missing a badly 

needed opportunity to better understand the small business lending market and help small 

businesses access credit. 

• Section 10 ofH.R. 2133 seeks to prevent banking agencies from discouraging a 

financial institution from providing financial services to facilitate fraud or other illegal 

activity.6 

This hearing considers other problematic and poorly considered proposals as well. (Again, this is 

not an exhaustive list.) For example, draft legislation advanced by Representative Tenney would 

restructure the deposit insurance application process to exclude the Federal Deposit Insurance 

Corporation (FDIC) from the evaluation of deposit insurance applications. Instead, it would 

permit national banks chartered by the Office of the Comptroller of the Currency to receive 

deposit insurance without any requirement for approval by the FDIC, allowing institutions to 

shop for approval between multiple federal agencies. It is absurd to remove the agency with the 

greatest experience and interest in evaluating whether to pledge the full faith and credit of the 

United States to guarantee millions or billions of dollars of obligations of a private enterprise. 

The few legislative proposals under consideration that do utilize size thresholds to detennine 

eligibility for regulatory rollbacks are also largely not focused on community banks. For 

example, Section 13 of H.R. 2133 would end the CFPB's supervision of banks and credit unions 

with $10 billion to $50 billion in assets, reducing the number of depository institutions examined 

by the CFPB from 119 to 42.7 This would disperse the consumer protection supervision authority 

for these institutions to the other agencies that failed to use it effectively in the past. and provide 

opportunities for firms to play one regulator off against another. Some of the largest bank 

failures in the financial crisis were caused by poor consumer protection supervision of banks of 

this size.lndyMac failed with $30.6 billion in assets as a result of risky mortgage lending, 8 

costing the Deposit Insurance Fund more than $12 billion-- the largest loss in history. 9 Poorly 

underwritten mortgage loans were also a principal cause in the failure of other institutions with 

6 See also Letter to Congress: AFR, 37 Organizations Oppose l-IR 766. Urge Congress Not to Give Banks 

a Free Pass on Fraud, Feb. 2, 2016, available at http://ourfinancialsecurity.org/wpcontent/uploads/2016/021160203 _l-IR766 _house_ oppose-l.pdf 

7 Institutions subject to CFPB supervismy authority. available at 

https://www.consumerfinance.gov/policy-compliance/guidance/supervision-examinationslinstitutionsl 

8 Office of Inspector General Department of the Treasury, Material Loss Review of lndyMac Bank. FSB 

(OIG-09-032), Feb. 26, 2009. available at https:llwww.treasury.gov/about/organizationalstructure/ig/Documents/oig09032.pdf. 

9 Federal Deposit Insurance Corporation: Failures and Assistance Transactions (Table BFOl). 

3 
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$10 billion to $50 billion in assets: Bank United ($13.1 billion in assets), 10 Downey ($12.7 

billion), 11 and Am Trust ($11.4 billion). 12 

With regard to those few provisions that seck to specially exempt community banks from 

generally applicable rules, we urge that the Committee consider carefully what the reasons for 

such exemptions might be, and what risks they pose. Certainly the blanket claim that DoddFrank has harmed community banks is simply not supported by the facts. Community bank 

earnings grew 10.1% from 2015 lo 2016, outpacing those at larger banks, as they have done for 

the last several years. Total loan balances at community banks increased 8.3% in 2016, 

substantially more than at larger banks. The percentage of community banks making a profit has 

increased to 95.7%. up from 78.8% in 2010 when the Dodd-Frank Act was passed. 13 

* * * 

Thank you for the opportunity to express AFR's views on these legislative proposals. For more 

information, please contact Marcus Stanley, Policy Director, at marcus@ourfinancialsecurity.org 

or 202-466-3672, or Brian Marshall, Policy Counsel, at brian@ourfinancialsecurity.org or 202-

684-2974. 

Respectfully submitted, 

Americans for Financial Reform 

10 Office of Inspector General Department of the Treasury, Material Loss Review of BankUnited, F~')B 

(OIG-10-042), June 22, 2010. available at https:l/www.treasury.gov/aboutlorgani71ltionalstructurelig/Documents/OIG I 0042%20%28BankUnited%20MLR%29 .pdf 

11 Office of Inspector General Department of the Treasury, Material Loss Review of Downey Savings and 

Loan, FA (OIG-09-039), June 15,2009, available at https:llwww.treasury.gov/aboutlorganizationalstructureli g/Documents/0 IG090 3 9. pdf 

12 Office of Inspector General Department of the Treasury, Material Loss Review of Am Trust Bank (OIG11-076), July 6. 2011. available at https:/lwww.treasury.gov/aboutlorganizationalstructure/ig/Documents/OIG-11-076.pdf 

'

3 FDIC Quarterly Banking Profile, Fourth Quarter 2016. available at 

https:/ lwww.fdic.gov/bankJanalyticallqbp/20 16decl. 

4 
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Written Testimony of William Bynum 

Hope Federal Credit Union/ Hope Enterprise Corporation 

House Financial Services Committee 

Financial Institutions and Consumer Credit Subcommittee 

"Examining Legislative Proposals to Provide Targeted Regulatory Relief to 

Community Financial Institutions" 

July 12, 2017 

Thank you for holding this hearing on proposals that would affect financial institutions like ours 

and, more importantly, the members that we serve. My name is William Bynum and I serve as 

the Chief Executive Officer of HOPE (Hope Enterprise Corporation I Hope Federal Credit 

Union) www.hope-ec.org and www.hopecu.org. 

HOPE is a $310 million community development financial institution (CDFI), credit union and 

policy institute with 36,000 members and 30 locations. Over 1/3 of HOPE's members were 

unbanked prior to joining. Fifty-two percent (52%) of HOPE's members have incomes below 

$35,000 and one out of four used high cost financial services in the past. 

Notably, HOPE's service area, the Mid South states of AR, LA, MS and TN, is home to one 

fourth of the nation's persistent poverty counties and parishes -places where the poverty rate has 

eclipsed 20% for three decades in a row. Roughly a third of the region's persistent poverty 

counties are majority black and 35 of the 39 majority black counties within the region are 

persistently poor. The region also has notoriously weak consumer protection laws as 

documented by the Pew Charitable Trusts 1 and our own experience working with members who 

have fallen into a cycle of debt when loans were made by high cost lenders without any 

consideration for our members' ability to repay the loans. 2 

For the purposes of this hearing, I will focus my comments on Sections 6-9 of the Community 

Lending Enhancement and Regulatory Relief Act of 2017 (CLEARR Act): 

• Section 6: Bureau Authority Over Unfair and Deceptive Acts or Practices 

• Section 7: Amendments to the Equal Credit Opportunity Act and the Fair Housing 

Act to Require Intent to Discriminate 

• Section 8: Amendments to the Home Mortgage Disclosure Act of 1975 

Section 9: Repeal of Small Business Loan Collection Data 

1 State Payday Loan Regulation and Usage Rates. Pew Charitable Trusts. 

http://www.pewtrusts.org/enlmultimedia/data-visualizations/20 14/state-payday-loan-regulation-and-usage-rates 

January 14 2014. 2 Written Testimony of Ed Sivak Hope Enterprise Corporation and Mississippi Economic Policy Center Before the 

Mississippi House of Representatives Banking and Financial Services Committee "Federal Regulation and Access to 

Small Dollar Credit" http:i/hopepolicy.org/manage/wp-content/uploads/Written-Testimony-of-Ed-Sivak-Banking-5-

20-20 14-FINAL.pdf 
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Underpinning all of our comments is a strong and inherent belief that the Consumer Financial 

Protection Bureau (CFPB) is critically important in the facilitation of equitable access to credit 

and financial services. Efforts to roll back its enforcement and rulemaking authority carry with 

them a great price that will be borne by the American people. 

Section 6: Bureau Authority Over Unfair and Deceptive Acts or Practices 

HOPE has grave concerns regarding the inclusion of Section 6 of the CLEARR Act which 

effectively eliminates the CFPB's enforcement and rulemaking abilities around the use of unfair 

deceptive and abusive practices (UDAAP). In the absence of this authority, we fear that 

predatory lending will proliferate and go unchecked without any remedy for the consumer. 

HOPE's mission is to strengthen communities, build assets, and improve lives in economically 

distressed parts of Arkansas, Louisiana, Mississippi, and Tennessee by providing access to 

affordable, responsibly-structured financial products and services. Vital to the fulfillment of this 

mission is the preservation of income and assets through strong consumer protections. 

Removing the CFPB's enforcement and rulemaking ''abusive" UDAAP authority would reduce 

protections for consumers, effectively negating the work done by HOPE and similar 

organizations. The CFPB's ability to take action against institutions engaged in unfair, 

deceptive, or abusive acts or practices has been critically important in the Mid South, a region 

that experiences a disproportionate level of high cost lending relative to the rest of the nation. 

Evidence of the importance of the CFPB is found in its enforcement actions "to end All 

American's unlawful practices, obtain redress for consumers, and impose penalties." All 

American Check Cashing is a check cashing and payday lending business that operated at least 

50 stores in AL, LA and MS. Specifically, All American used deceptive tactics to facilitate high 

cost transactions and trap customers in a cycle of debt. 3 Due to good work of CFPB, All 

American Cash Checking is no longer operating and subjecting consumers to deceptive financial 

practices. 4 Without a strong CFPB focused on protecting consumer interests, this bad actor 

would continue its predatory practices on residents resident in the region. 

Section 7: Amendments to the Equal Credit Opportunity Act and the Fair Housing Act to 

Require Intent to Discriminate 

HOPE is against weakening the Fair Housing Act. The disparate impact liability has been a core 

component of the Fair Housing Act in addressing discrimination in housing and lending. HOPE 

strongly supports continuing the disparate impact doctrine to eliminate unnecessary 

discriminatory practices. HOPE believes that a strong Fair Housing Act is important to 

protecting people from discrimination when securing housing. HOPE's commitment to a strong 

'"CFPB Takes Action Against Check Cashing and Payday Lending Company for Tricking and Trapping 

Consumers." Press Release. Consumer Financial Protection Bureau. May ll, 2016. 4 Carter, Ted. "Lengthy probe, legal tussles end with All American Check Cashing shutdo·wn, $1.5 million penalty."' 

Mississippi Business Journal. http://msbusiness.com/20 17/05/breaking-mississippi-shuts-pavday-lender-orders-lSm-fines/ 
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Fair Housing Act is affinned by its participation in a 2015 Amicus Curiae brief with the National 

Fair Housing Alliance and the Center for Community Self-Help urging the Supreme Court to 

uphold the "disparate impacf' doctrine within the application of the Fair Housing Act. 5 The 

standard exists to limit the harmful effects of seemingly neutral policies on protected classes of 

people, which includes characteristics such as race, gender, age and disability. Maintaining the 

disparate impact doctrine is important in eliminating abusive, predatory practices in housing. 

Section 8: Amendments to the Home Mortgage Disclosure Act of 1975 

HOPE opposes raising the threshold to l ,000 closed-end mortgages or 2,000 open-end Jines of 

credit for reporting requirements. The current reporting guidelines do not place a burden on 

HOPE. The current reporting requirements provide data that can help to ensure the flow of 

credit to qualified borrowers in underserved communities. Importantly, the data provides critical 

information about whether similarly situated borrowers and underserved communities are 

receiving equitable access to mortgage credit. 

Section 9: Repeal of Small Business Loan Collection Data 

HOPE opposes repealing the requirements of creditors to collect and publicly report certain loan 

and personal characteristic data on non-mortgage credit applications from women-owned, 

minority-owned, and small businesses. The data provides regulators and lenders with important 

insights with regard to access to small business credit, and about the capital gaps faced by 

historically, and continually underserved people and places. 

Conclusion 

The Mid South region faces some of the most severe poverty in the United States. Strong 

consumer protections are vital to ensuring that all people have access to responsible, affordable 

financial services required to support their families, create jobs, build assets and otherwise 

contribute to a strong, fair economy. Thank you for the opportunity to submit these comments. 

5 Brief for the SEC as Amici Curiae National Fair Housing Alliance, Center for Community Self-Help and HOPE 

Enterprise Corporation. Texas Department of Housing and Community Affairs, et al., v. The Inclusive 

Communities Project No.l3-1371 
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July 11, 2017 

The Honorable Blaine Luetkemeyer 

Chairman 

Subcommittee on Financial Institutions and 

Consumer Credit 

House Committee on Financial Services 

U.S. House of Representatives 

Washington, DC 20515 

The Honorable Wm. Lacy Clay 

Ranking Member 

Subcommittee on Financial Institutions and 

Consumer Credit 

House Committee on Financial Services 

U.S. House of Representatives 

Washington, DC 20515 

Dear Chairman Luetkemeyer and Ranking Member Clay: 

On behalf of the Conference of State Bank Supervisors, 1 I am writing to express our members' 

strong opposition to draft legislation that proposes to enable the Office of the Comptroller of the 

Currency (OCC) to approve deposit insurance without the approval of the Federal Deposit 

Insurance Corporation (FDIC). 

Being a bank -- an insured depository institution -- means agreeing to a set of rights and 

responsibilities. Since 1991, federal banking laws have required a separation between the 

chartering and the deposit insurance function 2 in order to balance the goal of promoting a 

competitive marketplace with the importance of ensuring that deposit insurance -and the 

taxpayer exposure that accompanies deposit insurance be conferred only on institutions with 

well-established and well-tested banking business models. 

History has shown that the FDTC's role as deposit insurer necessitates the FDIC have 

responsibility for approving the grant of deposit insurance. This draft bill would be a return to 

the bad old days of the 1980s when the OCC, in attempting to promote the value of the national 

bank charter, effectively went on a chartering spree. Indeed, the OCC approved on average 89% 

of new bank charter applications a year that decade. At the time, the FDIC was required to grant 

deposit insurance to all nationally chartered banks even though it had no say in the process. 

Many of these national banks ultimately failed at significant taxpayer cost. 

The draft bill could potentially expose taxpayers to new and untested companies that receive 

deposits, while simultaneously taking away the FDIC's existing authority to protect the Deposit 

1 CSBS is the nationwide organization of banking regulators from all 50 states, American Samoa, the District of 

Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands. State banking regulators charter and supervise 

approximately 4,570 institutions, representing over 78 percent of the nation's banks. Additionally, most state 

banking departments regulate a variety of non-bank financial services providers, including mortgage lenders. For 

more than a century, CSBS has given state supervisors a national forum to coordinate supervision of their regulated 

entities and to develop regulatory policy. 2 12 U.S.C. 1815(a) 

1129 2Qih Street, N.W. • Ninth Floor· Washington, DC • 20036 

www.csbs.org • 202-296-2840 • FAX 202-296-1928 
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2 

Insurance Fund. The banking system and broader financial services industry are in a unique 

period of innovation and disruption. New market entrants are developing and offering financial 

products and services via innovative business models, corporate structures, and delivery 

channels, many of which do not fit neatly inside existing federal banking legal and regulatory 

frameworks. These financial innovations hold much promise, but Congress, state and federal 

financial regulatory agencies, the industry, consumer groups, and other stakeholders should have 

a comprehensive and robust discussion over the future of banking and its regulation. The draft 

bill bypasses critical stakeholder deliberations, and essentially provides the OCC with sole 

discretion over which entities and business models have access to deposit insurance going 

forward. 

State regulators recognize that the dearth of de novo institutions and the corresponding industry 

consolidation over the past decade has reduced the number of community-focused banks in this 

country. We also know that financial services innovations require a rethink of our state and 

federal financial legal and regulatory frameworks. However, this draft bill is not the solution. It 

would do nothing to promote locally accountable, community oriented banking. Instead, it 

would limit regulatory accountability and transparency by silencing others' voices and 

conferring greater authority on a single regulatory agency in Washington. 

Sincerely, 

John W. Ryan 

President and CEO 

cc: The Hon. Jeb Hensarling, Chairman, House Committee on Financial Services 

The Bon. Maxine Waters, Ranking Member, House Committee on Financial Services 

1129 20'h Street, N.W. • Ninth Floor· Washington. DC • 20036 

www.csbs.org • 202-296-2840 • FAX 202-296-1928 
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July 11,2017 

OPPOSE I l.R. 2133, THE ''CLEARR ACT OF 20 17" 

Dear Member of the House Committee on Financial Services: 

On behalf of The Leadership Conference on Civil and Human Rights and the undersigned 

organizations, we write to express our strong opposition to H.R. 2133, the •·community 

Lending Enhancement and Regulatory Relief (CLEARR) Act of 2017.'' H.R. 2133 includes a 

number of provisions that would, under the innocent-sounding guise of"regulatory relief," 

drastically undennine our nation's most important civil rights and consumer protection laws. 

We urge you to speak out against this proposal in Wednesday's hearing. 

We are especially troubled that H.R. 2133 would rewrite the Fair Housing Act of 1968 and 

the Equal Credit Opportunity Act to make it significantly harder for victims of 

discrimination to obtain relief. It would explicitly require plaintiffs to prove that defendants 

acted "intentionally," eliminating almost 50 years of congressional intent and federa] courts' 

approval- most recently by the Supreme Court in Texas Department of Housing and 

Community Affairs v. The Inclusive Communities Proiect. Inc. (20 15)- of the "disparate 

impact'' standard. 

When the Fair Housing Act was enacted a week after the assassination of Dr. Martin Luther 

King, Jr., Congress recognized that it was critical to prohibit all fonns of discriminationnot only acts resulting from discriminatory intent. but also those resulting from policies and 

practices that appear neutral on their face but that have an unjustified discriminatory effect. 

Disparate impact litigation under this and other civil rights laws has allowed victims of 

discrimination to challenge obstacles that limit the availability of fair housing and credit for 

people based on characteristics such as race. color, national origin, religion, disability status, 

familial status, and gender. Such obstacles have included "one-child-per-bedroom" policies 

that force families with two or more children to pay higher rents for multibedroom 

apartments; •·zero-tolerance" provisions in leases that allow the eviction of not just 

perpetrators, but also victims of offenses such as domestic violence; and mortgage ]ending 

practices that steered tens of thousands of minority borrowers into risky subprime mortgages 

even though they qualified for prime loans. 

Equal opportunity is a bedrock American principle, and critical to our success as a nation. 

H.R. 2133 would undennine this principle. and make it far more difticult to ensure that all 

families are treated fairly in their search for a place to live and in their efforts to obtain 

greater financial security. 

H.R. 2133 would undermine other important civil rights and consumer protection laws as 

well. For example: 

• It would eliminate the authority of the Consumer Financial Protection Bureau (CFPB) to 

stop abusive financial products and services, by striking that word altogether from key 

consumer protection laws. 
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July II, 2017 

Page 2 of3 

It would repeal section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 

which requires the CFPB to collect and release lending data on small, women-owned, and minorityowned businesses, making it harder to gather information on potentially discriminatory credit 

practices. 

Similarly, it would weaken the CFPB's Home Mortgage Disclosure Act (HMDA) rule and the ability 

for the public to discern mortgage lending trends, including critical problems such as redlining, by 

exempting many institutions currently covered by the law. 

It would undermine the CFPB's "Qualified Mortgage" rules- which have been carefully written to 

ensure that home loans are not made to borrowers who cannot afford them -by exempting loans held 

in bank portfolios, even though several banks failed during the mortgage crisis because ofloans they 

retained on their own books. 

In short, H.R. 2133 would undermine our nation's civil rights laws and discard the lessons of the 2008 

financial crisis. We strongly urge you to oppose it. 

Sincerely. 

The Leadership Conference on Civil and Human Rights 

ACCSES 

Allied Progress 

American Civil Liberties Union 

Americans for Financial Reform 

Autistic Self Advocacy Network 

The Arc of the United States 

Baltimore Neighborhoods, Inc. 

California Reinvestment Coalition 

Center for Responsible Lending 

Consortium for Citizens with Disabilities Housing Task Force 

Consumer Action 

Consumer Federation of America 

Housing Choice Partners 

Human Rights Campaign 

Interfaith Center on Corporate Responsibility 

Lawyers' Committee for Civil Rights Under Law 

NAACP 

NAACP Legal Defense and Educational Fund, Inc. 

National Alliance on Mental Illness 

National Association for Latino Community Asset Builders 

National Association of Consumer Advocates 

National CAP ACD 

National Community Reinvestment Coalition 

National Consumer Law Center (on behalf of its low-income clients) 

National Fair !lousing Alliance 

National Housing Law Project 

National Housing Trust 
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July I L 2017 

Page 3 of 3 

National Low Income Housing Coalition 

National Urban League 

New Economy Project 

New Jersey Citizen Action 

Paralyzed Veterans of America 

PolicyLink 

Poverty & Race Research Action Council 

Prosperity Now (formerly CFED) 

Public Citizen 

U.S.PIRG 

UnidosUS, previously known as National Council of La Raza 

Woodstock Institute 

World Privacy Forum 
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Statement for the Hearing Record, 12 July 2017 

Financial Services Committee 

Edmund Mierzwinski, Consumer Program Director 

U.S. PIRG Opposes HR 2396, 

The So-Called Privacy Notification Technical Clarification Act (Trott) 

Should Be Called "Wall Street, Payday Lender, Fly-By-Night Firm Sharing Loophole"' 

Summary: We oppose HR 2396, the so-called Privacy Notification Technical Clarification Act. It is not 

a clarification, it minimizes if not removes substantive required annual disclosures that inform consumers 

they have the right to opt-out of the sharing by any financial institutions of their non-public personal 

information with nonaffiliated third parties. Previously-passed legislation (the End Privacy Notice 

Confusion Act embedded in 2015 transportation legislation known as the FAST Act) eliminated annual 

notices and provided regulatory relief only to companies- generally community banks -- that had not 

changed their privacy regimes since their last disclosure and, importantly, do not share personal 

information with nonaffiliated third parties. 1 

HR2396 would minimize if not eliminate clear annual notices even for firms that do share 

information with nonaffiliated third parties, effectively helping large Wall Street baoks, as well as 

payday lenders and even fly-by-night financial firms, at the expense of consumers learning their privacy 

rights. While consumer and privacy organizations would prefer more robust privacy protections, it is 

certainly important that consumers be given annual notice of their rights to opt-out of information sharing 

by those financial institutions that are promiscuous with their non-public personal information. 

Otherwise, consumers would ouly learn of the practice, and their right to stop it, upon opening an account 

but likely never again. Proponents may claim that the bill requires more frequent notice through a billing 

statement option, but this option could be ignored with a mere website post. 

Background: The 1999 Gramm-Leach-Biiley Financial Services Modernization Act was enacted to 

respond to changes in the marketplace. Banks, insurance companies and securities firms were more and 

more selling products that looked alike. The firms wanted the privilege of and synergies derived from 

selling them all under one roof. Yet, the Gramm-Leach-Bliley Act was also enacted against a backdrop of 

financial privacy invasions. including some involving the nation's biggest banks, and members wanted to 

ensure that the new law wouldn't make things worse. Consumer and privacy groups argued that if the 

Congress was going to create one-stop financial supermarkets, then privacy protections ought to extend to 

all information sharing, whether with affiliates or with third parties. 

The 1999 Gramm-Leach-Blilcy Act was a joint product of the then-named Commerce Committee (with 

jurisdiction over securities and investments) and this committee's predecessor committee, the Banking 

Committee (with jurisdiction over banking). 

The Commerce Committee mark ofHR10 in 1999 included the bi-partisan Ed Markey (D-MA (now 

Senator Markey)-Joe Barton (R-TX (still a member ofE&C)) amendment requiring financial institutions 

to provide customers a notice and right to opt-out before financial institutions shared their non-public 

personal information with either affiliates or nonaffiliated third parties2 

Conversely, the Banking Committee mark stated that sharing with either affiliates or nonaffiliated third 

parties acting as joint marketing partners selling financial products on behalf of the financial institution 
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would be under a no-opt regime (no consumer choice). Only sharing with nonaffiliated third parties 

could be stopped by a consumer opt-out included in Title V. 

The Rules Committee accepted the Banking Committee's bill as base floor text and denied Messrs. 

Markey and Barton (a fair floor vote on their committee-approved amendment. Consequently, the 

Gramm-Leach-Bliley Act's consumer privacy provision was largely limited to annual disclosure of 

sharing practices, except in the case of sharing with nonaffiliated third parties selling non-financial 

products, where an opt-out was provided. 

HRJO was then conferenced with S900, which became the Gramm-Leach-Blilcy Act. 3 The final act stated 

that sharing with either affiliates or nonaffiliated third parties acting as joint marketing partners selling 

financial product~ on behalf of the financial institution would be under a no-opt regime (no consumer 

choice). Only sharing with nonaffiliated third parties could be stopped by a consumer opt-out included in 

TitleV. 

It was Congressional intent in 1999 to warn consumers annually that their information was being shared 

and to give them an adequate opportunity to stop the sharing in some circumstances. 

We urge opposition to this broadly drafted bill, which minimizes if not eliminates a clear annual warning 

even from a firm that is sharing your non-public information with nonaffiliated third parties selling nonfinancial products. It hides valnable information from you that you have the right to say no to this sharing, 

which could lead to unwanted marketing or, worse, identity lheft. 4 

Please contact me if you have any questions. 

Ed Mierzwinski, Consumer Program Director, U.S. PIRG, 202-461-3821 or cdm(a~-pim.org 

1 Note that the CFPB has also taken regulatory action to modify Regulation P to provide firms with 

alternate disclosure methods wherever possible. https://www.consumerfinance.gov/poli91:: 

compliance/Jillis!.'!!'~Pervision-ex.<!_[Ylinations/p_rjyjl_91::COnsumer-financial-information-gramm-leachThe Electronic Privacy Information Center maintains a page on the GLBA, including descriptions of 

some of the serious privacy violations by banks (including a Bank of America predecessor and US Bank 

and/or their affiliates) that helped lead to inclusion of Title V (which also includes other data security 

provisions). See b!!P.?:Jl.<!Plf'-'![g{~_cyLgi~<!L 
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July 12.2017 

The Honorable Jeb Hensarling 

2228 Rayburn House Office Building 

Washington. DC 20515 

The Honorable !vlaxine Waters 

2221 Rayburn House Office Building 

Washington. DC 20515 

Dear Chairman Hensarling and Ranking Member Waters: 

On behalf of the National Community Reinvestment Coalition (1'\CRC) and its 600 communitybased organizations. I am writing to express our strong opposition to H.R. 2133, the "Community 

Lending Enhancement and Regulatory ReliefiCLEARR) Act of2017." H.R. 2l33 includes a 

number of provisions that would undermine our nation's consumer protection and fair housing 

laws. 

Complicates housing discrimination relief 

NCRC is particularly concerned that, if passed, H.R. 2133 would make it difficult for victims of 

discrimination to obtain relief by rewriting provisions in both the Fair Housing Act of 1968 and 

the Equal Credit Opporruniry Act. In 2013. HUD finalized a Disparate Effects rule- a unifonn 

standard for analyzing evidence of disparate impact in cases brought under the Fair Housing Act 

and in 2015. the U.S. Supreme Court upheld the Disparate Impact Doctrine under the Fair 

Housing Act in Texas Department of Housing and CommuniTy Affairs vs.lnclusil'e Communities 

Project. The Disparate Impact Doctrine bars policies that have a discriminatory impact even if 

there is no intention to discriminate. This tool is very important to fair housing and fair lending 

advocates. combating modern-day redlining where an intention to discriminate can be nearly 

impossible to prove. 

To the contrary. H .R. 2133 would explicitly require plaintiffs to prove that defendants acted 

"intentionally.'' however, we should note. most discrimination is not overt. but subtle. The 

CLEARR Act will make it far more difficult to ensure that Americans are treated fairly in their 

search for a place to live and in their efforts to obtain greater financial security. 
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28747.101

Eliminates Consumer Financial Protection Bureau (CFPB) authority to stop abusive 

financial products and services 

In the aftermath of the 2008 financial crisis the CFPB was established to enforce consumer 

financial laws so that "all consumers have access'' to products and services, and to ensure that 

markets "are fair, transparent, and competitive.''' Since its creation the CFPB has been very 

successful in carrying out its statutory charge. In its short tenure, the agency has returned close to 

$12 billion in relief to 29 million consumers through their supervisory and enforcement work, 

has proposed rules to put an end to payday debt traps, has handled over a million consumer 

complaints fair lending actions against lenders discriminating in the marketplace, and much 

more.' 

The need for a strong CFPB to protect consumers from risky or unscrupulous financial servicers 

can be seen from the sheer number of complaints the agency has had to address. As of April l, 

2017 .the CFPB has handled over a million consumer financial products and services complaints, 

most relating to debt collection, credit reporting, and mortgage issues.3 All of this reflected the 

agency's regulatory focus. The CLEARR Act would undo much of the good work of the CFPB 

by eliminating its authority to stop abusive financial products and services, by striking the word 

"abusive" altogether from key consumer protection laws. 

Repeal of Section 1071 of the Dodd Frank Act-Small Business Lending Data 

The CLEARR Act, if passed in its current form, would also repeal section 107 I of the DoddFrank Wall Street Reform and Consumer Protection Act, which requires the CFPB to centralize 

the collection and public release of !ending data on small, women-owned, and minority-owned 

businesses. In 2015. over 80 members of the House of Representatives and 13 members of the 

House Financial Services Committee reaffirmed support for Section 1071, and the CFPB has 

been working diligently on the provision since finalizing its HMDA rulemaking in the fall of 

2015. 

Data on small businesses are needed more than ever. It was found in a 2008 report by the U.S. 

Government Accountability Office that studies using data collected by the Federal Reserve 

Boards suggested discrimination may play a role in small business lending, but that the data was 

limited overall.4 It was noted in the GAO report that the available data was unable to give a full 

picture of small business lending and only looked at data from borrowers. By comparison. 

HMDA data is comprehensive enough to identify discriminatory practices by lenders as well as 

lenders that might be at high risk of engaging in possible mortgage lending discrimination:' 

HMDA data allows for a fuller view of lending that helps regulators better prioritize fair lending 

'Dodd-Frank Act, Section 1021. 2

CFPB. CFPB by the Numbers. 

tlw 

'CFPB, Monthly Complaint Report: April 2017, Vol. 22 .. 

4 United States Government Accountability Office, Fair undiug: Race and Gender Dam Are Umited for 

Nonmortgage Lending, June 2008, p. II. 5

lbid. 
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28747.102

laws. With the importance of small businesses in the U.S. economy and the role discrimination 

appears to play in that segment, a full and comprehensive view of small business lending is 

needed. 

Weaken the effectiveness of Home Mortgage Disclosure Act (HMD.4) data 

If implemented, H.R. 2133 would exempt nearly all of the nation's mortgage lenders from the 

CFPB's updated Home Mortgage Disclosure Act (HMDA) requirements. which would limit the 

ability of the public to discern mortgage lending trends, including critical problems such as 

redlining. This bill upsets the careful balance recently set by the CFPB by changing HMDA 

proposed r.:porting thresholds to I ,000 for dosed end loans or 2.000 for open-end lines of credit. 

Based on 2013 data, under the threshold set by the CFPB. 22 percent (I ,400) of the depository 

institutions that currently report on their closed-end mortgages would be exempt. 6 While the 

CFPB does not estimate for the number of banks or non banks that would be exempt under a 

I ,000 closed-end loan threshold, it does estimate that 85 percent (5,400) of depositories and 48 

percent of nondepositories (497) would be exempt under a loan threshold half that size-- 500.-

This higher threshold would sacrifice key data about lending in underserved communities that 

would help to ensure the flow of credit to qualified borrowers. stimulate the economy, and 

prevent future mortgage crises_ 

Undermine the CFPB's "Qualified Mortgage" rules 

The CLEARR Act would also would undermine the CFPB's "Qualified Mortgage" rules by 

exempting loans held in bank portfolios, even thongh several banks failed during the mortgage 

crisis because of loans they retained on their own books. The CFPB's Qualified Mortgage (QMl 

rule and ability-to-repay standards directly addressed the abuses that led up to the 2008 financial 

crisis. Those rules were specifically designed to reorient the market towards safe and sustainable, 

non-predatory lending. The QM rule supports sustainable homeownership and wealth building, 

and early HMDA data bears out that the rule has not curtailed credit availability." It should be 

noted that the QM rule was drafted to ensure that home loans are not made to borrowers who 

cannot afford them. 

The CLEARR Act of 20!7 would be major setback for Americans who depend on the fairness, 

transparency. and stability of the financial system. A vote for this bill is a vote against working 

class Americans, pure and simple, and would fly in the face of promises made to them by the 

administration. and historical lessons learned in the recent recession. The bill only helps financial 

institutions which are experiencing their greatest profitability in modern history. 

I urge you in the strongest tenns possible to reject this bill. Thank yon again for your 

consideration. Should you have any questions or comments on NCRC's position, please feel free 

'Home Mortgage Disclosure (Regulation C). 12 CFR Part l 003 (2015) 

'ibid 

8 FEDS Notes, Effects of the Abilitv to Repay and Qualified Mortgage Rules on the Mortgage Market. 

December 29,2015. htips:.·•""" f,•d,•r·rlr.""''' 
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to contact me at (202) 464-2703 or Gerron Levi. our Director of Policy and Government Affairs 

at (202) 464-2708. 

Sincerely. 

John Taylor 

President and CEO 

0