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S. HRG. 114–616 

HOW THE HIDDEN COSTS OF FEDERAL 

REGULATIONS IMPACT SMALL BUSINESSES 

AND ECONOMIC GROWTH 

FIELD HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

AND ENTREPRENEURSHIP 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

MARCH 30, 2015 

Printed for the Committee on Small Business and Entrepreneurship 

( 

Available via the World Wide Web: http://www.fdsys.gov 

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(II) 

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP 

ONE HUNDRED FOURTEENTH CONGRESS 

DAVID VITTER, Louisiana, Chairman 

BENJAMIN L. CARDIN, Maryland, Ranking Member 

JAMES E. RISCH, Idaho 

MARCO RUBIO, Florida 

RAND PAUL, Kentucky 

TIM SCOTT, South Carolina 

DEB FISCHER, Nebraska 

CORY GARDNER, Colorado 

JONI ERNST, Iowa 

KELLY AYOTTE, New Hampshire 

MICHAEL B. ENZI, Wyoming 

MARIA CANTWELL, Washington 

JEANNE SHAHEEN, New Hampshire 

HEIDI HEITKAMP, North Dakota 

EDWARD J. MARKEY, Massachusetts 

CORY A. BOOKER, New Jersey 

CHRISTOPHER A. COONS, Delaware 

MAZIE K. HIRONO, Hawaii 

GARY C. PETERS, Michigan 

ZAK BAIG, Republican Staff Director 

ANN JACOBS, Democratic Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS

Page 

Vitter, Hon. David, Chairman, and a U.S. Senator from Louisiana ................... 1 

Graves, Hon. Garret, a U.S. Representative from the State of Louisiana .......... 14 

WITNESSES

Johnston, Charlotte, Owner, 3South Companies, Baton Rouge, LA ................... 6 

Overton, John, President and Co-Founder, Turn Key Solutions, Baton Rouge, 

LA .......................................................................................................................... 9 

Campbell, Jr., J.H., President and CEO, Associated Grocers, Baton Rouge, 

LA .......................................................................................................................... 14

Kennedy, Preston, President and CEO, Bank of Zachary, Zachary, LA ............. 20 

ALPHABETICAL LISTING

Campbell, Jr., J.H. 

Testimony .......................................................................................................... 14 

Prepared statement .......................................................................................... 17 

Graves, Hon. Garret 

Opening statement ........................................................................................... 14 

Independent Community Bankers of America 

Report titled ‘‘Plan for Prosperity’’ .................................................................. 38 

Johnston, Charlotte 

Testimony .......................................................................................................... 6 

Prepared statement .......................................................................................... 8 

Kennedy, Preston 

Testimony .......................................................................................................... 20 

Prepared statement .......................................................................................... 22 

Overton, John 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 12 

Vitter, Hon. David 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 4 

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(1) 

HOW THE HIDDEN COSTS OF FEDERAL 

REGULATIONS IMPACT SMALL BUSINESSES 

AND ECONOMIC GROWTH 

MONDAY, MARCH 30, 2015 

EAST BATON ROUGE PARISH

COUNCIL CHAMBER, 

Baton Rouge, LA. 

The Committee met, pursuant to notice, at 10:00 a.m., at the 

East Baton Rouge Parish Council Chamber, 222 St. Louis Street, 

Room 348, Hon. David Vitter, Chairman of the Committee, presiding. 

Present: Senator Vitter. 

OPENING STATEMENT OF HON. DAVID VITTER, CHAIRMAN, 

AND A U.S. SENATOR FROM LOUISIANA 

Chairman VITTER. Good morning. Thank you for joining me for 

the Senate Small Business Committee’s Field Hearing to discuss 

how the hidden costs of federal regulations impact small businesses 

and economic growth. The most costly and complex regulations 

have come from laws that represent the largest federal takeover in 

two major industries: health care and banking. 

Today we will focus our discussion on how ObamaCare and the 

Dodd-Frank ‘‘Too Big to Fail’’ regulations impact our communities 

and small businesses and the economy, as well as the actions I am 

taking in Congress to pass regulatory relief for small businesses. 

During the ObamaCare debate, then House Speaker Nancy 

Pelosi was certainly correct when she said, ‘‘We have to pass the 

bill to find out what is in it.’’ The 2,000-plus page bill has yielded 

more than 14,000 pages of regulations from the Department of 

Health and Human Services, Labor, Treasury, Social Security Administration, and more. 

What’s even more worrisome is that the unelected bureaucrats in 

Washington are the ones who issue these regulations as if the 

world is flat and people will just accept the growing demands of 

health care law, but these regulations have real consequences. 

Louisianans constantly question if they can keep their health insurance coverage, doctor, and their job. 

The 30-hour workweek is a prime example of an increased regulatory burden on businesses that hurts workers and hinders economic growth. Starting in 2015, employers with 100 or more fulltime workers will be subject to the employer mandate using 2014 

workforce data. In 2016, employers with 50 or more full-time workDeShaun on LAP51NQ082 with DISTILLER

2 

ers will be subject to the employer mandate and all of the related 

reporting requirements. 

The ACA defines a full-time employee as an individual who is 

employed an average of at least 130 hours per month (30 hours per 

week). Large employers must then offer minimum essential coverage to full-time employees and their dependents for a corresponding 6 to 12-month stability period if an employee averages 

full-time hours during the look-back measurement period. 

If an employer chooses not to offer minimum coverage to fulltime employees and their dependents, they will pay employer mandate penalties, which will be calculated monthly. 

As a result, many businesses are cutting hours to prevent workers from going over the 30-hour workweek, laying folks off to stay 

under 50 employees or choosing not to hire more workers to prevent future employer mandate penalties. 

In a previous hearing in Shreveport, I was alarmed to hear one 

of the witnesses say, for the first time in her lifetime, small businesses were choosing not to expand. 

While Republicans in Congress fight for a full repeal of 

ObamaCare, and its burdensome mandates, we will also work to 

pass legislation that restores the 40-hour workweek. The ‘‘Forty is 

Full-time Act’’ will provide much needed relief for businesses by 

simplifying the reporting requirements and complex accounting 

measures that seek to raise compliance costs and taxes on job creators. 

Another piece of legislation I have opposed was the Dodd-Frank 

‘‘Too Big to Fail’’ legislation. Under the guise of painful financial 

crisis, Dodd-Frank became a huge taxpayer-funded bailout for large 

financial institutions, while community banks became too small to 

save, ignoring major issues community banks continue to face in a 

stagnant economy. 

Not only does Dodd-Frank fail to effectively address the root 

problems that caused the crisis, but it has since increased legal and 

regulatory compliance burden and created more barriers for small 

community banks to continue providing niche services and generate 

loans for small businesses to access capital. 

As you will learn in today’s hearing, community banks provide 

most of the small business loans for our neighbors, and it comes 

as no surprise that lending went down as compliance costs went up 

during the enactment of Dodd-Frank. 

I am fully invested in providing full regulatory relief for community banks. I have authored a bipartisan bill that would reduce 

major impediments for small banks and thrifts to raise capital or 

pay dividends. This will unleash community banks’ ability to lend 

to small businesses so they can grow their businesses, offer more 

goods and services to the community, and grow the economy. 

Small businesses are often on the front lines of seeing the impact 

of government regulations. They generally don’t have highly paid, 

well-connected lobbyists fighting for back room deals in Washington. 

That is precisely why, as Small Business Committee Chairman, 

I believe it is important we do these field hearings and bring Washington out of the beltway bubble in order to hear from hard working constituents we represent. 

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I look forward to today’s discussion and plan on bringing their 

suggestions and reforms back to Washington to roll back the impact of government regulations on our community, businesses, and 

the economy. 

I’m going to begin by introducing our first expert witness. That’s 

Charlotte Johnston. Charlotte is the owner of 3South, a small business based here in Baton Rouge. Her business model provides research and equipment solutions for first responder clients in Louisiana and around the country so they can stay mission-focused, 

which is saving lives and protecting property in all of our communities. 

Charlotte wrote into my office last year to discuss how 

ObamaCare has hurt her and her business with the cost of providing health care to her family first, and also by increasing the 

cost of expanding her business and hiring more workers. 

Charlotte, welcome. 

[The prepared statement of Chairman Vitter follows:] 

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Chairman David Vitter Hearing Summarv Statement 

U S Senate Committee on Small Bustness and Entrepreneurship 

"How the Hidden Cost of Federal Regulations lrnpact Srnall Businesses and Economic Growth" 

March 30, 2015 

Good morning and thank you for joining me for the Senate Small Business Committee's field hearing to discuss how 

htdden cost of federal regulations tmpact small businesses and economic growth 

The most costly and complex regulations have come from laws that represent the largest federal takeover tn two 

major industries: health care and banktng. Today we will focus our dtscusston on how Obamacare and the DoddFrank "Too Big to Fatl" regulations impact our communtttes, small businesses, and the economy, as well as the 

actions I am taktng 111 Congress to pass regulatory relief for small businesses 

Dunng the Obamacare debate, then-House Speaker Nancy Pelosi was certainly correct when she said, 'We l1ave to 

pass the btll to find out what is in it" The 2,000 plus page bill has yielded more than 14,000 pages of regulattons from 

the Departments of Health and Human Services, Labor. Treasury, Social Security Administration. and more 

\:Yhat's even more womsome is that unelected bureaucrats tn Washington are the ones who issue these regulat!Ons 

as 1f the world is fiat and people wtll just accept the growtng demands of the health care taw, but these regulattons 

have real consequences 

Louisianians constantly question if they can keep their health insurance coverage, doctor. and their job 

The 30-hour work week is a prime example of an 1ncreased regulatory burden on businesses that hurts workers and 

hinders economic growth Starttng 1n 2015, employers with 100 or more full-time workers wtll be subject to the 

employer mandate ustng 2014 workforce data. In 2016, employers wtth 50 or more full time workers will be subjeCt to 

the employer mandate and all of the related reporttng requirements 

The ACA defines a full-time employee as an individual who is employed an average of at least 130 hours per month 

(30 hours per week). Large employers must then offer minimum essential coverage to full-time employees and thetr 

dependents for a corresponding 6-12 month stabiltty penod if an employee averages full-time hours durino the lookback measurement penod. lf an employer chooses not to offer minimum coverage to full~trme employees and the1r 

dependents. they will pay employer mandate penaities, which will be calculated monthly 

As a result. many businesses are cutting hours to prevent workers trorn going over the 30-hour work week, lay:ng 

folks off to stay under 50 employees, or choos111g not to hire more workers to prevent future employer mandate 

penalties 

In a previous hearing in Shreveport, I was alarmed to hear one of the wttness say, "For tl1e first time tn [her] ttfet1me. 

small businesses were choosing not to expand " 
5 

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While Republicans in Congress fight for full repeal of Obamacare and 1ts burdensome mandates, we wril also work to 

pass legislation that restores the 40-hour work week. The 'Forty is Full-Time Act' will prov1de much-needed rel1ef for 

businesses by simplifying the reporting requirements and complex accounting measures that seek to raise 

compliance costs and taxes on JOb creators 

Another piece of legislation I have opposed was the Dodd-Frank "Too B1g to Fall'' legislation. Under the guise of a 

painful financial crisis. Dodd-Frank became a huge taxpayer funded bailout for large financial institutions. while 

community banks became "Too Small to Save" ignonng major 1ssues commun1ty banks continue to face 1n a 

stagnant economy 

Not only does Dodd-Frank fail to effectively address the root problems that caused the cns1s. but it nas s1nce 

mcreased legal and regulatory compliance burden and created more barriers for small community banks to cont1nue 

prov1dmr1 niche services and generate loans fO! small bus1nesses to access cap1tal 

As you will learn m today's hearing, community banks provide most of the smaH business loans for our ne1ghbors, 

and 1t comes as no surpnse that lending went down as cornpi1ance costs went up dunng tho enactment of DoddFrank 

I am fully mvested in provrding full regulatory rel1ef for cornrnur11ty banks. l have authored a bipartisan bill that would 

reduce major impediments for srnaH banks and thrifts to raise capttai or pay dtvidends Thrs w1l! unleash cornrnun1ty 

banks abtl1ty to lend to srnal! businesses so they can grow their businesses, offer more goods and serv1ces to the 

community. and grow the economy 

Small businesses are often on the frontlines of seeing the 1mpact of government regulations They generally don't 

have h1ghly paid, we!l connected lobby1st fighting for back~roorn dears in Washmgton That is precisely why as Small 

Business Comm1ttee Chairman. I bel1eve 1l1mportant we do these field heanngs and bnng Washmgton out of the 

beltway bubble in order to hear from the hardworking constituents we represent I look forward to today's discuss1on. 

and plan on bnngmg their suggestions and reforms back to Washington to roll-back the 1mpact of government 

regulations on our commun1ty, businesses. and the economy 
6 

STATEMENT OF CHARLOTTE JOHNSTON, OWNER, 3SOUTH 

COMPANIES, BATON ROUGE, LA 

Ms. JOHNSTON. Good morning. David has already introduced me, 

but I started 3South in June of 2011. I’ve worked for large companies, Fortune 500 companies over the course of 20 years, all very 

good companies, but one of my clients approached me, several actually, approached me because they were frustrated. They weren’t 

getting the attention or technical support that they needed after 

the sale, and these are folks like Office of Homeland Security, fire, 

police departments, et cetera. 

So together with some of my manufacturers that I worked with, 

I found somebody who was willing to back me initially financially. 

I’m a single mom with two boys. I was a little nervous about going 

off on my own without that support. 

So, began the company and did very well and kind of had in 

mind how I needed to grow the company once the sales dictated it. 

I did not realize just how expensive getting general liability insurance and health care insurance would be. I knew going into the private, you know, health care for my family what that would cost 

and, actually, I got a very similar product to what I had when I 

was with a larger company. It cost me about $687 a month. That 

would provide health care, life insurance, short-term, long-term 

disability, dental and vision. So it was very encompassing much 

like my prior plan had been. It was a little higher deductible, but 

still very reasonable. 

But once I began to start my company, and get a little bit more 

into it, I knew that the Affordable Care Act was coming down the 

road and so I sat down and met with someone and talked to them 

from my health care company, Blue Cross Blue Shield, to find out 

what kind of impact that would have on my business. 

Initially I was told, and as somebody who has worked really 

hard, I mean, there are times I might work 100 hours a week. If 

that’s what it takes to get the grant money projected and worked 

out for my clients, that’s what I’m going to do. Because I don’t 

want them losing any grant money because of my lack of ability to 

time spend on the project. 

But when I sit down and the first thing they tell me is, you 

know, if you need to, you can just get subsidies from the Federal 

government to pay your health care. And that was extremely frustrating to me because I thought, I’m not working 100 hours a week 

for somebody to bail me out. I mean, I either can make this business a success and pay my way or I can’t, but I’m not going to get 

a subsidy. That’s not why I work hard. I don’t want to teach that 

to my kids, to look for somebody to help me out. Either I can make 

money in business or I can’t. 

And so when I asked about the impact, I said, let’s say I don’t 

take the subsidy, because I’m not going to, what is the impact on 

my business? They told me it would be, at the most, $200 more a 

month. I thought that’s a lot of money. If I want to hire people, because I’m getting to the point where I’m starting to grow, now I’m 

going to bring somebody on, I have to come up with another 800 

bucks for their family insurance. If I don’t offer that, that’s going 

to significantly eliminate a lot of people that might want to come 

out for the job to work with us. 

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When I got my actual premium, it was not $200 more, it was 

$990 for me and my family, and I was told if I brought anybody 

on, with family insurance, it would probably be about the same. 

That did not include—that included health care, did not include 

dental, did not include vision, did not include short-term and longterm disability, did not include life insurance. It was purely the 

health care portion. If I wanted to add dental or vision, that could 

be another 100 to $200. 

So I realized at that point I was kind of at a stalemate. My company is growing. Clients come to me and recommend me to other 

people and I’m getting frustrated because I know I can only do 100 

to 120 hours a week for so long. I can only get two and three hours 

of sleep. I need to add people to be able to continue to provide that 

customer service. 

Right now I spend $1,000 on general liability and a $1,000 on 

health care. That’s more than 50 percent of the cost of running my 

business. So how do I now add another $1,000 for each person? 

They would have to generate hundreds of thousands of dollars in 

sales for me to be able to justify that. It’s very frustrating. I want 

to pay my way. I want to do what’s right in my business. But if 

I thought that I was getting greater value, that would be one thing, 

but my deductible with that $687 policy was $300 for my family, 

$100 per person. For my business, I pay $2,500 deductible and 

$7,500 for my family. 

I mean, I just don’t know who can afford to be in a small business nowadays without taking that into account. It needs to be 

fixed. It just needs to be tweaked. You can’t tell me there’s not a 

way to repair it. I was in medical sales for 15 years prior to starting my business. I know just simple solutions that could happen. 

So to me, if something is broken, sit down at a table and figure 

out where it needs to be tweaked. That’s really what needs to happen. 

[The prepared statement of Ms. Johnston follows:] 

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3south, lie 

Charlotte johnston 

Small Business Owner 

Senate Committee on Small Business and Entrepreneurship Field Hearing 

Monday, March 30, 9:30am, Council Chambers of East Baton Rouge Parish City Hall 

Good morning, I'm Charlotte johnston and I own 3south, a small business based in Baton 

Rouge. We began operations in june 2011 after several clients requested greater support 

than what they were getting from larger companies. Our business model provides research 

and equipment solutions to First Responder clients in LA and around the country so they 

can stay mission-focused, which is saving lives and property in their communities. 

Our clients aren't a number to us; we know them and their needs well after 15 years in the 

industry. Whether it's personal protective gear for LA State Police Emergency Services Unit, 

gas detection for Lafayette Fire or gear for a SWAT team in Ft Worth, Bossier or Baton 

Rouge, we anticipate products to help them stay safe. 

We named our company 3south because we believe in the power of 3, our clients, our 

manufacturers and us as a facilitator to bring them together. We also believe in the standard 

KISS method, for those of you unfamiliar with that term, keep it simple, stupid. Our 

business model is simple, we try to take care of the fundamentals for our clients at a 

reasonable price. It is a win for the taxpaying agency, the manufacturers we partner with 

and 3south. Every transaction should be a 3 way win. 

We are in the best position to grow right now as our sales continue to increase and our 

clients recommend us to other agencies. Howevet; the current healthcare system directly 

impacts our ability to grow as a company. We need to add 2 positions right away for 

customer care and service; we can't do it due to the current cost of healthcare. 

My healthcare plan in prior positions gave better coverage, lower deductibles and cost about 

$687 per month for my family of 3. lt included short and long term disability, life insurance, 

dental and vision, had a $300 per family deductible and paid 90% of doctor visits. With 

ACA, I now pay $990 per month for health care for me & my two sons. This is just healthcare, 

no dental, no vision, no disability, no life insurance. My deductible is $2500 per individual, 

$7500 for family and coverage is about 70% for doctor visits. The Jist goes on but basically 

the coverage isn't even close to what I had before. So tell us how is this system is better? 

My boys see me every night working hard. Because 3south is growing, our lives are better 

than they were for the last 15 years. I am encouraged by my clients to grow but our service 

levels are falling because to grow, we need additional employees. That extra $3 20 a month 

in premiums and the additional out of pocket costs are killing my ability to grow as a small 

business. My recent bill for an annual xray, mammogram and doctor's visit out of pocket is 

$1200. How is this good insurance, tell us how is this system better? 

After 5 years in medical sales and seeing the healthcare system up close, it needed to be 

repaired but there are other solutions, better solutions. Arguments for the current system, 

don't make sense. When something doesn't add up, you take the time to repair it. I'd like to 

hire more employees but until we remove unjustifiable costs, small companies will continue 

to sit on the precipice of growth, waiting for common sense from our legislators to help. 

Please help us and if you can't, be ready to tell us how this system is better. 
9 

Chairman VITTER. Thank you very much, Charlotte. Very compelling testimony. And Charlotte will be followed now by John 

Overton. John is the owner and CFO of Turn Key Solutions, a company in it’s 16th year, headquartered here in Baton Rouge, serving 

the IT infrastructure, security, and business continuity needs of 

two big markets: health care and small business. John has 12 employees, and he will be discussing the impacts of ObamaCare on his 

business and the businesses he works with, as well as IRS regulations that hinder small business growth. 

John, welcome. 

STATEMENT OF JOHN OVERTON, PRESIDENT AND COFOUNDER, TURN KEY SOLUTIONS, BATON ROUGE, LA 

Mr. OVERTON. Good morning, Chairman Vitter and also Congressman Graves. Thank you for inviting me here to testify. Big 

thanks also to all the other small business owners in the audience 

and employees of small business owners. 

When the President infamously told the nation of small business 

owners that ‘‘You didn’t build that,’’ the National Federation of 

Independent Businesses, they responded in a lot of meaningful 

ways, but also in kind of a whimsical supportive message. They 

sent a bumper sticker out to all of the members and said, ‘‘I built 

my business.’’ I’m not a bumper sticker guy, but I held on to that 

one. I thought that’s good. That’s good. 

This Administration takes credit for a lot of the stuff that small 

business owners do with investing our heart and soul into our businesses, but the reality is that the Administration fails to take credit for a lot of the negative impacts of the mounting regulations. 

Regulations that have to be overcome just to stay in business let 

alone grow. 

And so it got me thinking, when I looked at this bumper sticker, 

I thought maybe the Administration needs their own bumper sticker that says, ‘‘We killed your business.’’ Because that’s the reality. 

The cost of complying with regulations both in terms of time and 

money is crippling, like Charlotte related. 

My father recently closed his clinic due to the impossibility of a 

small pediatric practice keeping up with the ever-growing Federal 

regulations while trying to serve his patients. 

Another ominous impact of these regulations is on aspiring entrepreneurs. People with a dream, they have put together a team 

of like-minded people, they have built a business plan, but then 

when they realize the regulatory environment that they are going 

to start that business in, it kills their dream before it even gets a 

chance to come to life. 

Just this weekend I spoke to a veterinarian who was really excited about starting his own practice, but then when he realized 

that with all the small business regulations and just the incredible 

cost of providing health care to the team that he wanted to recruit, 

he wouldn’t be able to do it. So he decided to keep his job with the 

state. 

So I thought, you know, there’s another bumper sticker this Administration needs for their limos and, perhaps, for the golf carts 

is, ‘‘We aborted your business.’’ So many businesses, before they 

even get a chance to get off the ground. 

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So according to David Burton, a Senior Fellow in Economic Policy at the Heritage Foundation, business exits now exceed new 

business formations. That’s not my America. That’s not the land of 

opportunity. There’s something wrong here when we have more 

businesses closing their doors than we have businesses opening up. 

That’s a sign that the American dream is going the wrong direction. 

Here’s some concrete examples of regulations that have affected 

me. The IRS Section 179, the big issue for small businesses is how 

do we plan capital expenditures, investing in the growth of our 

company when the Section IRS 179 limits on deducting capital expenditures were finally renewed just weeks before the end of the 

calendar year. How do you plan investing in the growth of your 

company when you’re holding on to the last minute to see if, hey, 

is this limit going to be expanded again. I know a lot of fellow 

small business owners and small business clients found it very difficult. 

Of course, there’s ObamaCare. For many small businesses the 

cost of providing health care to our staff is in our top five expenses. 

For me, it’s right behind the cost of paying my staff. Our rates 

right now are more than double what they were before this president took office. So you have got not only that, but then you have 

co-pays and deductibles that are several times higher. And our 

rates are also going to keep going up because we are subsidizing 

the Affordable Care Act. 

The reality is where the rubber meets the road is I’m not paying 

my staff twice what I was in 2008, so where does an employee 

come up with an additional 8 to 12 grand a year to cover their family? Where does the small business owner like me, I cover 80 percent of my employees’ portion of medical, dental, and vision, how 

do I make up my increased overhead? Can I put that on the back 

of my clients by increasing rates and still stay competitive with my 

regional or national competitors? And am I going to keep my employees if I don’t offer coverage? 

So, you know, when they said, ‘‘John, you have got 12 employees. 

You don’t have to do that.’’ I said, okay, I’m an IT company. I will 

just go tell my staff of technicians, ‘‘Good news, guys. We are under 

50 full-time employees, so you can go out on the least secure 

website on the planet, you can put in all your personal private information out on the healthcare.gov and you can sign up there.’’ 

And realize how difficult that would be for me with a staff of highly 

trained security and data security experts. So that went over like 

a ton of bricks. 

So we can’t measure our success in just turning back the clock, 

how far can we turn back the clock. Small business owners, we still 

want to take care of our staff. We still want the same thing, we 

want affordable health care that is quality coverage, and 

ObamaCare went the opposite direction. 

So it’s not just enough to get us back to where we were in 2007. 

We still need the same thing. So there are other things that vex 

small business owners like pretty much anything NLRB does, but 

these are two pretty good examples. Uncertainty hurts. ObamaCare 

hurts. These are things that put businesses out of business and 

keep new aspiring entrepreneurs from starting their business. 

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So in the spirit of entrepreneurship, if the NFIB wants my prototype bumper stickers, I’m happy to give them if they want to distribute those to a few folks in D.C. Don, I have got some prototypes 

for you. Thank you again for the opportunity. 

[The prepared statement of Mr. Overton follows:] 

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Hearing: 

Date: 

Name: 

Title: 

Company: 

Senate Committee on Small Business and Entrepreneurship Testimony 

March 30, 2015 

John Overton 

Owner/Partner and CFO 

Turn Key Solutions, LLC 

INTRODUCTION: 

Good morning. Thank you to Chairman Vitter, and the members of the Senate Committee on Small 

Business and Entrepreneurship for inviting me to testify today on how the hidden cost of federal 

regulations impact small businesses and economic growth. 

My name is John Overton. I am an owner and the CFO of Turn Key Solutions, a company in our 16'h year, 

headquartered in Baton Rouge, serving the I.T. infrastructure, security and business continuity needs of 

two primary vertical markets: Healthcare and Small Business. Though we have a large footprint, we are 

truly a small business, with 12 employees. I also come from a family of small business owners; my father 

was one of the last private practice pediatricians in Hammond Louisiana. 

I am pleased to be here representing not only my company, but also as a member of LAB I, where I chair 

the Small Business Council, the NFIB where a serve as chairman of the Louisiana Leadership Council, and 

as a member of the SBAC. I have also twice served as chairman of the Baton Rouge Area Chamber's SBC, 

and am a current BRAC board member. 

TESTIMONY: 

NFIB responded to the infamous "You didn't build that!" affront to small business owners across the 

Nation in numerous ways, including sending members a whimsical but supportive bumper sticker that 

said "I built my business!" 

This administration takes credit for a lot of good things that countless small business owners make 

happen by pouring our hearts and souls into what we do; but the reality is that the administration fails 

to take credit for the negative impact of mounting regulations--regulations that we must overcome just 

to stay in business, let alone aspire to grow. 

Perhaps the administration needs their own bumper sticker, "We killed your business!" That is the 

reality. The cost of complying with the regulations both in terms of money and time is crippling. 

My father recently closed his clinic due to the impossibility of a small private practice keeping up with 

ever-growing federal regulations while trying to serve patients. His colleagues regularly tried to talk him 

into following them to go work for large groups, but in his heart he was an entrepreneur to the end. 

Also ominous is the effect of regulations on aspiring entrepreneurs-people with a dream, a team, a 

business plan, but. . when they realize the prohibitive regulatory environment in which they would 

have to operate, their dream dies before it gets a chance to come to life. Another bumper sticker this 

administration needs on their limos is "We aborted your business!" 

According to David Burton, a Senior Fellow in Economic Policy at the Heritage Foundation, Business exits 

now exceed new business formations. 

Here are some concrete examples of crippling regulations: 

,_ Section 179: How can a small business plan capital expenditures-investing in the growth of 

their company (if they're lucky enough to access capital) when the IRS Section 179 limits on 

deducting capital expenses were finally renewed just weeks before the end of the calendar 
13 

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year?! That puts small business owners waiting until the last minute to make major purchases 

and makes planning for capital expenditures almost impossible. 

Obamacare: 

o For many small businesses, providing healthcare benefits to our staff remains a top 5 

expense, often right behind salaries! Our rates are more than double than what they 

were before the President took office-and not only that, but our co-pays and 

deductibles are 2-3x higher! And our rates will continue going up because we're 

subsidizing this failing plan called the ACA. 

o No, I'm not paying my employees twice as much, so where does an employee come up 

with the additional8-12k more a year to cover their family? Where does the small 

business owner like me-who covers 80% of his employee's portion of medical, dental, 

vision make up that increased overhead? Can I put that on the back of my clients and 

still remain competitive with big national firms? If I want to keep my employees, I have 

to provide competitive coverage. 

o Maybe Mr. Gruber can tell me how a company of I.T. Professionals can say to his 

technicians, "Hey, good news! We don't have to provide healthcare coverage now 

because we're under the FTE equivalency number. You can now go put all your most 

personal, private information into one of the least secure websites on the planet and 

sign up for coverage at healthcare.gov!" That's a tough sell to anyone who is concerned 

about data security, let alone a team of experts. 

o We cannot measure our win by how far we turn back the clock. Small Business owners 

don't just want Obamacare repealed, we simply want to provide our staff with quality 

healthcare coverage that is affordable. Obamacare went the opposite direction. It 

simply will not be enough to repeal it. It must be replaced with something that works 

and is affordable I 

There are other things that vex small business owners (like most of what the NLRB does), but these two 

examples are pretty simple. Uncertainty hurts. Obamacare hurts. These things put good businesses out 

of business and kill the dreams of aspiring small business owners. 

Again, thank you to Chairman Vitter and Committee members for this opportunity to speak with you 

today. I am happy to address any questions you have for me. 
14 

Chairman VITTER. Great. Thank you very much, John. Now, Congressman Graves will introduce our next two witnesses. 

Representative GRAVES. Next witness we have is J.H. Campbell, 

Jay Campbell, with Associated Grocers. He has been with Associated Grocers for more than four decades, as President and CEO for 

more than 20. They are located in Baton Rouge, and in May of this 

year will be celebrating their 65th year in business here in Baton 

Rouge. 

The testimony that Mr. Campbell will be offering will be focused 

on retail and wholesale grocery business and the effects it has on 

the associated companies or grocery stores affiliated with his business, but also on the consumers that utilize those facilities. 

Mr. Campbell. 

STATEMENT OF J.H. CAMPBELL, Jr., PRESIDENT AND CEO, 

ASSOCIATED GROCERS, BATON ROUGE, LA 

Mr. CAMPBELL. Thank you, Chairman Vitter, Congressman 

Graves. Thank you for inviting me to this field hearing. 

Let me give you a little history about Associated Grocers. It was 

founded in 1950 by 17 individuals, and it has grown to a membership of over 200 retail outlets in three states, Louisiana, Texas, and 

Mississippi. But all of these businesses are family owned. 

So family-owned businesses own Associated Grocers, and we 

have over 700 employees, and we remain committed to our mission, 

which is the support and success of the independent retail grocer. 

Federal regulations and their compliance requirements are having a great financial impact on our company and their companies 

and our ability to fulfill our mission. With a targeted 1 percent net 

margin, every mandate and directive impacts our cost of operations 

and therefore consumer prices. 

I’m going to go through a variety of Federal regulations for you 

to kind of give you an inkling of that. The first is Country of Origin 

Labeling, often referred to as COOL. When COOL was passed by 

Congress in 2002, the industry was already voluntarily engaged in 

extensive efforts to provide interested consumers with the origin information for the food items that they purchased. 

The industry spent tens of millions of dollars in unnecessary 

compliance costs and yet Canada and Mexico brought a complaint 

to the WTO claiming that COOL violated our country’s trade commitments, which it did, and they won. 

Now wholesalers and retailers will once again spend resources 

necessary to change their systems to meet the new regulations. 

This program now means nothing to consumers. Absolutely nothing. And it will require us to tell consumers where their meat was 

born, raised, and slaughtered. You will have more DNA on your 

food products than you know probably about your family. 

Second, in Louisiana, the WIC program. We have been, in Louisiana, under a moratorium that prevents any new stores or any 

stores who change in ownership to be eligible for a permit authorizing them to be a WIC food dealer. If you don’t know what WIC 

is, it’s for low-income individuals who have women, infants, and 

children. It’s a very vital program for people. It’s a safety net. 

Government should not be penalizing stores and consumers who 

did nothing wrong, but should merely punish the violators in the 

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15 

system. Only three states in our country are affected by this moratorium, which was unilaterally put into place by the USDA, who 

is in charge of WIC. 

Which means for us, plans for new stores, acquisitions of stores 

or outlets are being postponed or canceled right now. The placing 

of such an indefinite moratorium on new licenses without any notice of time frame makes it very challenging for anyone to plan for 

new locations or for low-income citizens to locate a store where 

they can easily redeem their benefits. There is also a significant 

need to automate the WIC program very similar with the EBT 

technology being used for SNAP benefits. 

Now it’s my turn to talk about the Affordable Care Act, which 

is not a cost containment act at all. It’s a coverage act. It did nothing but cover people. It did nothing to make care affordable. 

We are concerned about the definition of full-time employees and 

the mandatory auto-enrollment requirements. Full-time status 

should be defined as 40 hours per week and the means of 

verification and tracking employees should be made simple, and 

easy to comply. 

The companies that are fully insured or the ones that are selfinsured, like our companies, should be allowed to make needed 

plan changes without losing grandfathering status. You may not 

know, we cannot make any changes in our plan. If we do, we lose 

grandfathering. 

The fact that our company and many others were providing coverage well prior to ACA for their employees should be proof that 

we were doing the right thing before ACA was passed. 

Next is menu labeling. In the ACA act, in the Affordable Care 

Act of 2,000 pages, there were four words that were added that will 

cost the industry hundreds of millions of dollars. Those four words 

are ‘‘similar retail food establishments.’’ Supermarkets with over 20 

outlets will now have to create ways to display, analyze, and keep 

records on calorie count, complete nutritional information, and provide a succinct statement regarding how this is measured for a 

2,000-calorie diet. All of these requirements have to be accomplished by December 1 of this year. Totally unworkable. 

The Food Safety Modernization Act passed in the 111th Congress 

in 2011 is the largest piece of food safety legislation passed in over 

70 years. The law makes expansive changes which includes new 

enforcement authorities, new program activities, and increased inspections. 

On the screen, you should have for you that. That is the list of 

seven major proposed rules that we have to comply with for which 

the regulations have not been promulgated, and each of these has 

over 500 pages in length already. 

Other concerns we have, that’s on the next slide. The Fair Labor 

Standards Act and its various limitations which restrict our ability 

to provide incentives to hourly employees and the Department of 

Labor’s desire to change the definition of primary duty, and the 

salary threshold. 

The rule-making authority of the National Labor Relations Board 

and their attempts to make unionization easier. Truck driver hours 

of service, and the unrealistic and unpractical of nature of rules 

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16 

limiting the ability of drivers to work and to be behind the wheel. 

They have now come up with a BMI and a sleep apnea test. 

Interchange and swipe fees. Our concern over the ever-increasing 

cost which raises the cost to consumers. GMO labeling, which is 

Genetically Modified Organisms, we need one definition for the 

country. Estate tax, the survival and transferability of privately 

owned businesses in America and the need for real corporate and 

individual tax reform. 

In closing, the Federal government and its regulatory agencies 

assume that the regulated are guilty until proven innocent. I think 

that you know that is unlike our criminal justice system where you 

are innocent until proven guilty. 

As you can tell, I went through this very quickly and I listed only 

a few of the regulations that we are concerned with. I will be happy 

to try to answer any questions you might have. Thank you. 

[The prepared statement of Mr. Campbell follows:] 

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U.S. SENATE 

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP 

"How the Hidden Cost of Federal Regulations Impact Small Businesses and Economic 

Growth" 

March 30.2015 

Prepared Testimony of J.H. Campbell. Jr. 

President and CEO. Associated Grocers. Inc. 

Chairman Vitter, Congressman Graves, and Members of the Committees: 

First. thank you for the opportunity to testify at this important field hearing on ··How the Hidden 

Cost of Federal Regulations Impact Small Businesses and Economic Growth.'" 

Associated Grocers. Inc. was founded in 1950 by 17 individuals. and has grown to a membership 

of over 200 independent retail outlets in Louisiana. Mississippi and Texas. We currently have 

approximately 700 employees in Louisiana. and are committed to our original mission of the 

"support and success of' the independent retail grocer." 

Achieving our mission has proven to be more challenging. and I can think of nothing that is 

currently having a greater financial impact on our company. and our mission. than federal 

regulations and federal compliance requirements. 

\Vith a targeted I% net profit margin. every mandate and directive impacts our costs of 

operations and therefore consumer prices. 

I will start by highlighting a few regulations that will be obvious to consumers, and then others 

that are more behind the scenes in their impact and effect. 

First is Country of Origin labeling (oilen referred to as COOL). When COOL was passed by 

Congress in 2002, the industry was already voluntarily engaged in extensive efforts to provide 

"interested" consumers with "origin" information fi.Jr the food items they purchased. The new 

law essentially short-circuited this market-driven approach, and forced the industry to spend tens 

of millions of dollars in unnecessary compliance costs. Despite the expense. COOL was put into 

place. and the industry achieved high compliance rates in inspections by USDA and state 

inspectors. I [owever. Canada and Mexico brought a complaint in the World Trade Organization 

claiming COOL violated our country's trade commitments. and they won. USDA "rewrote" the 

rule implementing COOL in order to comply with the WTO's decision, and wholesalers and 

retailers once again spent the resources necessary to change their systems. The USDA's changes 

have. so far. been found to be insutlicicnt to address the WTC)'s concerns. and wholesalers and 

retailers are once again going to be held responsible ror additional changes to their systems and 
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record keeping. This program. that now means nothing to consumers. will require us to tell 

consumers where their meat was born. raised. and slaughtered. 

Second: In the state of Louisiana, I must mention W!C (also known as the Supplementary 

Nutrition Assistance Program for Women. Infants and Children) and the moratorium that is 

currently in place that prevents any new stores, or any stores who change ownership, to he an 

authorized WlC food retailer. This prevents WlC customers from shopping in a new store 

potentially opening in a food desert. or a store with better prices, or fresher offerings. 

Government should not penalize stores and consumers who did nothing wrong. There are only 3 

states in the country affected by this moratorium. which was unilaterally implemented by the 

USDA regulators in charge of WlC. This "USDA-imposed" moratorium is directly affecting the 

viability of stores operating in Louisiana and hindering economic development. Plans for new 

stores and/or acquisitions of outlets are being postponed or cancelled altogether. The grocer) 

business is very competitive. and placing an indefinite moratorium on new licenses. without any 

notice or time frame. makes it challenging t<x retail food outlets to open new locations and lor 

low-income citizens to find stores to purchase WIC food products. There is also a need to 

automate the WlC program. with the EBT technology used for SNAP benefits. 

Next: The At1ordable Care Act. and its detinition of full time employees. and its mandatory auto 

enrollment requirements arc problematic. full time status should be defined as being 40 hou1·s 

per week. and the means of verification and tracking should be made simple and easy to comply. 

The companies with fully insured and/or self-insured health plans should be allowed to make 

needed plan changes without losing "grandfathering" status. The fact that these companies 

offered coverages prior to the ACA for their employees should be proof that those companies 

were doing the right thing for their employees and should not be penalized. 

Next is Menu Labeling. In the 2000+ page Affordable Care Act, 'Tour" words were added that 

'viii cost the industry hundreds of millions of dollars: Those four words are "similar retail frlod 

establishments." Because supermarkets do not generally have menus. or menu boards. and yet 

may have hundreds of·'covcrcd" items. they will have to create ways to display. analyze. and 

keep records on calorie content. complete nutritional information. and provide a succinct 

statement regarding how this is measured for a 2,000 caloric diet. If a product is not labeled. 

then it is considered misbranded and not allowed to be sold. All of these requirements have to be 

accomplished by December I. 2015- a totally unworkable timeframc. 

The Food Safety Modernization Act 

During the Ill th Congress. lawmakers passed food safety legislation that authorized the most 

significant changes to U.S. food safety laws in over 70 years. The Food Safety Modernization Act 

-"FSMA'' (P.L. 111-353) was signed into law on January 4. 2011. and was designed to improve 

and modernize the country's food safety system and provide the food and Drug Administration 

(fDA) with the necessary tools and authorities to protect our food supply. The law makes 

expansive changes to the Federal food, Drug. and Cosmetic Act. which includes new enforcement 

authorities, new program activities, and increased inspections. Our industry was supportive 

throughout the legislative process and worked to ensure that the statute would not impose 

unnecessary burdens on the industry. Now we arc faced with seven major proposed rules under 
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FSMA: 

I) Current Good Manufacturing Practice and !Iazard Analysis, and Risk-Based Preventive 

Controls for "Human Food". 

2) Current Good Manufacturing Practice and Hazard Analysis. and Risk-Based Preventive 

Controls tor Food for "Animals". 

3) Standards for the Growing, Harvesting. Packing, and Holding of Produce tor Human 

Consumption. 

4) Food Supplier Verification Programs (FSVP) for Importers of Food for Humans and Animals. 

5) Sanitary Transportation of Human and Animal Food. 

6) Focused Mitigation Strategies to Protect Food Against Intentional Adulteration. 

7) Accreditation of Third-Party Auditors and Certification Bodies to Conduct Food Safety Audits 

and to Issue Certifications. 

Each or these rules are close to 500 pages in length. I represent indepcndetlt retailers who are 

trying to stock shelves and sell groceries, not read, understand, and implement rules longer than 

··war and Peace." 

Other concerns 

I) The Fair Labor Standards Act and its various limitations and restrictions placed on providing 

incentives to hourly workers. Their desire to raise the salary threshold and make changes to 

the current "primary duty test". 

2) The rule making of the National Labor Relations Board (NLRB) and their attempts to make 

unionization easier. 

3) Trucking regulations and truck driver "hours of service". and the unrealistic and impractical 

nature of the rules limiting the ability of the driver to work and he behind the wheel (BiVII! 

Sleep i\pnea testing particularly). 

4) Interchange/Swipe Fees- concern over the ever-escalating costs and rate increases. 

5) GMO labeling (Genetically Modified Organisms). 

6) Estate Tax- the survival and transferability of private-owned business in America. and the 

need f(Jr real corporate and individual tax reform. in general. 

In closing. the Federal Government. and its regulatory agencies. assume that the "regulated" arc 

guilt) until proven innocent. unlike in our criminal justice system where the guilt must be 

proven. Obviously. I have only highlighted a few of the big concerns. but we certainly 

appreciate your interest and focus on these very important areas and would be happy to try to 

answer any of your questions. 
20 

Chairman VITTER. Great. Thank you. 

Representative GRAVES. Thank you, Mr. Campbell. 

Last witness we have today is Preston Kennedy, who is the 

President and CEO of Bank of Zachary, a bank that was established in 1904 and has three offices in Louisiana today. The bank 

has about 46 employees, and importantly, their role is largely serving as a community bank, an entity that lends funds to other small 

businesses in the State of Louisiana. 

Mr. Kennedy is going to be talking sort of from the community 

bank perspective, representing thousands of other community 

banks across the United States, and discussing the difficulties that 

community banks are having in complying with Dodd-Frank, which 

was the legislation designed to address banks ‘‘Too Large to Fail,’’ 

and I think, without putting words in your mouth, perhaps the disproportionate compliance challenges associated with community 

banks under this Federal legislation. Mr. Kennedy, thank you for 

being here. 

STATEMENT OF PRESTON KENNEDY, PRESIDENT AND CEO, 

BANK OF ZACHARY, ZACHARY, LA 

Mr. KENNEDY. Congressman Graves, Chairman Vitter, members 

of the committee, thank you for having this hearing. I testify today 

on behalf of the Louisiana Bankers Association, as well as the 

Independent Community Bankers of America, and the more than 

6,000 community banks that they represent nationwide. 

With that said, I’d like to recognize you, Chairman Vitter, for 

your legislation to ensure community bank representation on the 

Federal Reserve Board. Thanks to your persistence, that legislation 

is now law. And you have also done important work on the problem 

of Too Big to Fail banks. On behalf of my bank and all community 

banks, thank you for that. Bank of Zachary was founded in 1904. It’s a $200,000,000 community bank. We have deep roots in Zachary and the other communities that we serve. As Congressman Graves said, we have 3 offices and 46 employees, and we are a small business, and we lend 

to other small businesses. 

The Bank of Zachary is typical of more than 150 community 

banks across Louisiana. Community banking is a time-tested business model that built this country and has worked for generations. 

Community banks are prodigious small business lenders. Though 

we hold less than 20 percent of U.S. banking assets, we hold a 

much greater share of small business loans, 55 percent. The viability of community banks is linked to the success of our small business customers. 

The partnership between community banks and small business is 

at risk today from the exponential growth of regulation. In a few 

short years, the nature of community banking has fundamentally 

changed from lending to compliance. Banks need more scale to accommodate the expense of compliance, which includes hiring, training, software, and other costs. 

I believe new regulatory burden has contributed significantly to 

the loss of over 1,300 community banks since 2010. With fewer 

community banks, small businesses have less access to credit. The 

local bank may be replaced by an out-of-market bank less willing 

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21 

to make a loan. The good news is that there are readily available 

solutions to this pending crisis. 

ICBA’s Plan for Prosperity is a regulatory relief agenda that will 

allow Main Street to prosper. A copy of that plan is attached to my 

written remarks. 

While the plan includes nearly 40 recommendations covering 

major threats to community banking, I want to focus my comments 

on the plan’s mortgage reform provisions. New regulations are 

changing the economics of this line of business. What’s more, there 

is a direct link between mortgage lending and small business. 

Home equity is often an entrepreneur’s greatest source of capital, 

and they should be able to tap it to start or expand a business. 

However, it is often hard for self-employed individuals to document their income as required by the CFPBs qualified mortgage or 

QM rule. QM is a safe harbor that shields a lender from new draconian litigation risk. For most community banks, QM effectively 

puts a tight box around underwriting and loan terms because it is 

inflexible and does not give a banker discretion to use his own 

judgment. QM is cutting off small business credit. 

You hear the same story again and again from community bankers all over the country. We believe any mortgage a community 

bank holds in portfolio should be a qualified mortgage. When a 

lender is exposed to 100 percent of the credit risk in a portfolio 

loan, he has every incentive to ensure the loan is well underwritten 

and affordable to the borrower. 

While we have other recommendations, this provision alone 

would go a long way toward repairing the damage of the new rules 

and helping small business owners. We’re encouraged by the bills 

introduced in the Senate and House so far. 

The senate bill that best represents the scope of the Plan for 

Prosperity is the CLEAR Act, S.812, sponsored by Senators Jerry 

Moran and John Tester. S.812 includes the portfolio QM provision 

that I described. It would also provide that any mortgage held in 

portfolio by a community bank is exempt from costly escrow requirements. Again, the portfolio lender holds all the risk. Last, it 

would exempt community banks from expensive and redundant internal control assessment mandate of Sarbanes-Oxley 404(b). 

ICBA also support the Financial Institutions Examination Fairness and Reform Act, S.774, introduced by Senators Moran and Joe 

Manchin, and the Privacy Notice Modernization Act, S.423, introduced by Senators Moran and Heidi Heitkamp. We encourage you 

to co-sponsor these important bills, and we look forward to additional bills embodying plans for prosperity. 

Thank you again for the opportunity to testify, and I look forward to questions. 

[The prepared statement of Mr. Kennedy follows:] 

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INDEPENDENT COMMUNITY 

BANKERS of AMERICA 

Testimony of 

Preston Kennedy 

President and CEO 

Of 

Bank of Zachary 

Zachary, LA 

On behalf of the 

Independent Community Bankers of America 

Before the 

United States Senate 

Committee Small Business and Entrepreneurship 

Field Hearing on 

"How the Hidden Cost of Federal Regulations Impact Small 

Businesses and Economic Growth" 

March 30, 2015 

Baton Rouge, LA 
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Chairman Vitter, Congressman (]raves, and members of the Committee. my name is Preston 

Kennedy. and I am President and CEO of the Bank of Zachary in Zachary, LA. I testify today on 

behalf of the Louisiana Bankers Association as well as the Independent Community Bankers of 

America and the more than 6.000 community banks they represent nationwide. Thank you t'or 

convening today's hearing on "How the Hidden Cost of Federal Regulations Impacts Small 

Businesses and Economic Growth." 

The Bank of Zachary, founded in 1904, is a $200 million community bank with deep roots in 

Zachary and the other communities we serve. With three offices and 46 employees. we are a 

small business and we lend to other small businesses and small business owners. The Bank of 

Zachary is typical of more than 150 community banks across Louisiana and thousands more 

across the country. We are locally owned and make decisions locally. We are relationship 

lenders, as opposed to transactional lenders, and our customer relationships span generations. We 

rely on direct, personal knowledge of the borrower. local economic conditions. and other "soft 

data'' to underwrite customized loans and other services tailored to the unique characteristics of 

our customers and communities. This is our competitive advantage over larger banks, We have a 

traditional business model and a straightforward capital structure. Finally, we are part of the 

fabric of our community. Our officers. directors and employees are actively involved in nearly 

every civic and charitable organization in our trade area. We played a critical role in the 

formation of the Zachary Community School System, which has grown into a model of success. 

:Vlany other community banks have similar stories to telL 

At the outset of this statement. 1 would like to recognize you. Chairman Vitter, for your 

amendment to the Terrorism Risk Insurance Act to ensure community bank representation on the 

Federal Reserve Board of Governors. Thanks to your persistence. that amendment is now law. 

Federal Reserve Board representation will greatly improve monetary and regulatory policy. On 

behalf of my bank and all community banks. thank you. 

Community Banks and Small Business Lending 

Community banks are prodigious small business lenders. Though we hold less than 20 percent of' 

U.S. banking industry assets, we hold a disproportionate market share of small business loans55 percent- supporting a sector responsible for more job creation than any other. We provide 

small business credit in good times as well as challenging times. Federal Reserve data shows that 

while overall small business lending contracted during the 1·ecent recession. lending by a 

majority of small community banks (those of less than $250 million in assets) actually increased. 

and small business lending by banks with asset sizes between $250 million and S I billion 

declined only slightly. By contrast, small business lending by the largest banks dropped otT 

sharply. The viability of community banks is linked to the success of our small business 

customers in the communities we serve. and we don't walk away from them when the economy 

tightens. 

The type of small business lending community banks do simply cannot be duplicated by a bank 

based outside the community. As a recent study by scholars at Harvard's Kennedy School noted: 

"In certain lending markets. the technologies larger institutions can deploy have not yet proven 
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effective substitutes for the skills. knowledge. and interpersonal competencies of many 

traditional banks:· 1 

Regulatory Overkill Poses a GraYc Threat to the Community Hank-Small Business 

Partnership 

The exponential growth of regulation in recent years is suffocating community banks· ability to 

serve their small business customers. Compliance has become a major distraction for communit) 

bank managers. llny community banker will tell you that their job has fundamentally shifted 

from lending and serving customers to struggling to stay on top of ever-changing ruks and 

guidance. Every aspect of community banking is subject to new regulation. but the impact is 

especially severe in the area of mortgage lending. 

Banks need more scale to accommodate the increasing expense of compliance which includes 

hiring. training. software. and other costs. I believe this increase in regulatory burden has 

contributed significantly to the decrease of 1.342 community banks in the U.S. since 20 I 0. The 

number of banks with assets below $100 million shrunk by 32 percent. while the number of 

banks with assets between $100 million and $1 billion fell by II percent." /1 financial landscape 

with fewer. larger banks will reduce access to credit for small businesses. 

Legislative Solutions Are Needed 

The good news is that there are readily available legislative solutions to this pending crisis. 

Working with community bankers from across the nation. ICBA developed its Plan for 

Prosperity. a platform of legislative recommendations that will provide meaningful relief for 

community banks and allow them to thrive by doing what they do best serving and growing 

their communities. Each provision of the Plan was crafted to preserve and strengthen consumer 

protections and safety and soundness. I encourage the members of this Committee to review the 

Plan. which is attached to this statement. 

While the Plan contains nearly 40 separate legislative recommendations. they are organized 

around three pillars: Relief from mortgage regulation to promote lending; improved access to 

capital to sustain community bank independence; and reforming oversight and examination 

practices to better target the true sources of risk. Each of these pillars helps small businesses by 

preserving and strengthening the community banks that partner v\ ith them. I will note a few of 

the recommendations under each pillar. 

Mortgage Reform for Communi!Y Hanks 

Every aspect of mortgage lending is subject to new. complex. and expensive regulations that are 

upending the economics of this line of business. In ICBA ·s 2014 Community Bank Lending 

Survey. which surveyed over 500 community banks nationwide. 44 percent of respondents said 

that they made fewer first lien residential mortgage loans in 2014 when the CFPB"s qualified 

1 ·'The State and Fate of Community Banking.'' Marshall L.,ux and Robert Greene. Mossavar-Rahmani Center for 

Business and Government at the Harvard Kennedy School. February 20 I 5. 2 Parsons. Richard J. Bank Think. American Banker, Feb. 16.2015. 
25 

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mortgage rules were in effect than they made in 2013. The improved housing market should have 

created more loans, not fewer. More troubling, 73 percent of respondents said that regulatory 

burdens were preventing them from making more residential mortgage loans. 

Small business owners often use home equity loans to finance their businesses. However, small 

business owners may have difficulty complying with the income documentation requirements 

under the ability-to-repay rule. despite their excellent credit. The underwriting requirements of 

the "qualified mortgage" (or QM) rule- which shields lenders from litigation under the abilityto-repay rule by defining mortgages that are deemed to comply with the rule are inflexible and 

do not afford the lender discretion to use judgment or to weigh compensating factors such as 

high net worth in making credit decisions. You hear the same story again and again from 

community bankers all over the country. 

Key provisions of the Plan for Prosperity are designed to keep community banks in the business 

of mortgage lending and to give them more flexibility in extending credit. Plan provisions 

include: 

··Qualified mortgage'' status under the CFPB's ability-to-repay rules for any mortgage 

originated and held in portfolio for at least three years by a lender with less than $10 

billion in assets. 

• An exemption from any escrow requirements any first lien mortgage held in portfolio 

by a lender with less than $10 billion in assets. 

The principal rationale for these provisions. and the reason they can be safely enacted. is they 

apply Q!lly to loans originated and held in portfolio by community banks. As relationship lenders. 

community bankers arc in the business of knowing their borrowers and assessing their ability to 

repay a loan. What's more, when a community bank holds a loan in portfolio it holds I 00 perce_l}! 

of the credit risk and has an overriding incentive to ensure the loan is well underwritten and 

affordable to the borrower. In a typical community bank portfolio. even a small number of 

defaults can put a bank at risk. Community bank po11folio lenders ensure they understand the 

borrower's financial condition and structure the loan accordingly. If the bo1Tower has trouble 

making payments due to job loss or other unforeseen circumstances. a community bank pOI'tfolio 

lender will work with the borrower to restructure the loan and keep the borrower in their home. 

By the same token, portfolio lenders will protect their collateral by ensuring borrowers remain 

current on tax and insurance payments. For this reason, the escrow requirement. which must be 

outsourced at a relatively high cost by community banks with a low volume of mortgages. is an 

unnecessary burden when a loan is held in portfolio. 

Access to Capital 

The second pillar of the Plan for Prosperity is capital access and preservation for community 

banks. A number of the provisions are dedicated to strengthening community bank viability by 

creating new options for capital raising and capital preservation. 

One such provision would provide relief for community banks under $1 billion in asset size t!·01n 

the internal control attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. Since 
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community bank internal control systems are monitored continually by bank examiners. they 

should not have to incur the unnecessary annual expense of paying an outside audit linn for 

attestation work. This provision will substantially lower the regulatory burden and expense for 

small. publicly traded community banks without creating more risk for investors. 

Three capital provisions of the Plan for Prosperity would amend Basel Ill for banks with assets 

of $50 billion or less to restore the original intent of the accord which was intended to apply only 

to large. internationally active banks. 

!CBA also recommends reforming Regulation D, which governs private offerings of shares. so 

that anyone with a net worth of more than $1 million. including the value of their primary 

residence, would qualify as an "accredited investor." The number of non-accredited investors 

that could purchase stock under a private offering should be increased from 35 to 70. 

Reforming Bank Oversight and Examination to Better Target Risk 

The third pillar of the Plan for Prosperity is improving the exam environment for community 

banks. This includes three provisions as described below. 

Call Reports 

The quarterly call report filed by community banks now comprises 80 pages of fonm and 670 

pages of instructions. Implementation of the new Basel Ill capital standards may add nearly 60 

additional pages to the already burgeoning call report. In September. nearly 15,000 communit) 

bankers representing 40 percent of all community banks nationwide signed an ICBA petition to 

the regulatory agencies calling for more streamlined quarterly call report filings. 

!CBA 's recent Community Bank Call Report Burden Survey empirically demonstrates this 

problem. Eighty-six percent of survey respondents said the total cost of preparing the quarterly 

call report has increased over the last l 0 years. 1 Thirty percent said it had increased significant!). 

A typical $500 million asset community bank spends close to 300 hours a year of senior level. 

highly-compensated staff time on the quarterly call report. 

Only a fraction of the information collected is actually useful to regulators in monitoring safety 

and soundness and conducting monetary policy, The 80 pages of forms contain extremely 

granular data such as the quarterly change in loan balances on owner-occupied commercial real 

estate. Whatever negligible value there is for the regulators in obtaining this type of detail is 

dwarfed by the expense and the staff hours dedicated to collecting it. To put things in 

perspective. consider this contrast: some large credit unions li led a less than 30 page call report 

in the first quarter of 2014. Surely, regulators can supervise community banks with significantly 

less paperwork burden than they currently demand. 

For this reason. ICBA is calling on the agencies to allow highly-rated community banks to 

submit a short form call report in the first and third quarters of each year. A full call report would 

be filed at mid-year and at year-end. The short form would contain essential data required by 

'21 04 ICBA Community Bank Call Report Burden Survey. 

http:;,'www. icba.org/fi les/ICBASites/POfs120 14Call ReportSurveyResults. pdf 
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regulators to conduct offsite monitoring, including income. loan growth. changes in loan loss 

reserves. and capital position. In the recent survey noted above, community bank respondents 

overwhelmingly agreed that instituting a short-form call report in certain quarters would provide 

a great deal of regulatory relief. Seventy-two percent of respondents indicated the relief would be 

substantial. 

Extended Exam Cycle 

Under current agency rules, a bank with assets of less than $500 million that has a CAMELS 

rating of I or 2 is eligible for an exam cycle of 18 months. Banks that do not meet these criteria 

are examined on a 12 month cycle. The extended exam cycle allows examiners to focus their 

limited resources on the banks that pose the greatest systemic risk. In order to more fully of r·eap 

the benefit of risk-focused exams, the exam cycle can and should be further extended to 24 

months and available to banks with assets up to $2 billion, provided they have a CAMELS rating 

of I or 2. Preparations lor bank exams. and the exams themselves, distract bank management 

from serving their communities to their full potential. 

Strengthen Accountability in Examinations 

The trend toward oppressive. micromanaged regulatory exams is an ongoing concern to 

community bankers nationwide. ICBA believes that the best means of creating a more balanced 

exam environment is to create a workable appeals process. lCBA 's Plan for Prosperity calls for 

the creation of an independent body to receive, investigate, and resolve material complaints from 

banks in a timely and confidential manner. The goal is to hold examiners accountable and to 

prevent retribution against banks that file complaints. 

The current appeals process is arbitrary and frustrating. Appeals pant:ls. or other processes, 

routinely lack the independence and market expertise necessary to reach a fair. unbiased 

decision. 

Eliminate Burdensome Data Collection 

The Plan for Prosperity calls for exempting banks with assets below $10 billion from the new 

small business data collection requirements. This requirement, ;;hich is in statute but has yet to 

be implemented by the CFPB, requires the reporting of information regarding every small 

business loan application. Adding to the complexity, records of applications must be kept 

separate fi·om records of the responses to applications and must be kept separate from the 

underwriting process. In other words. the requirement creates a separate bureaucracy within the 

bank that cannot be integrated with lending operations. This is especially inefficient and may not 

be feasible in organizations that are too small to accommodate fire wall structures. Further. data 

collected by community banks and subsequently made public by the CFPB could compromise 

the privacy of applicants in small communities where an applicant's identity may be easily 

deduced, despite the suppression of personally identifying information. 

ICBA is grateful to Chairman Vitter and Senator Brown for including in the Too-Big-To-Fail 

Act of the last Congress a provision that would exempt banks with assets of$10 billion or less 

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from the new small business data collection requirement. 

ICI3A hopes that the Plan fen· Prosperity will serve as a guide to this Committee and the Senate. 

Introduced Legislation 

The 1141

h Congress provides a unique opportunity to provide meaningful regulatory relief for 

community banks. ICI3A urges this Committee and all Senators not to let this oppol1lmity slip. 

We"re encouraged by the bills that have been introduced in the Senate and House so f~1r. several 

of which are noted below. 

The Community Lending Enhancement and Regulatory Relief Act of 2015 (the "CLEAR 

Act", S. 812), introduced by Senators Jerry Moran and Jon Tester. advances three priority 

provisions of Plan for Prosperity: qualified mortgage status and an escrow exemption for any 

mortgage held in portfolio by a community bank with less than $10 billion in assets. and relief 

from the SOX 404(b) internal control assessment mandate f(ll· community banks with less than 

$1 billion in assets. 

The Financial Institutions Examination Fairness and Reform Act (S. 774). introduced by 

Senators Moran and Joe Manchin, would go a long way toward improving the oppressive 

examination environment by creating a workable appeals process. This legislation would 

improve the appeals process by taking it out of the examining agencies and empowering a newly 

created Independent Examination Review Director. situated in the Federal Financial Institutions 

Examination Council. to make final appeals decisions. Though we favor additional measures to 

bring a higher level of accountability to the regulators and their field examiners. we are pleased 

to support the provisions this legislation. 

The Privacy Notice Modernization Act of2015 {S. 423), introduced by Senators Moran and 

Heidi Heitkamp, would eliminate redundant mailings of annual privacy notices when a financial 

institution's privacy policy has not changed. A similar bill introduced in the 113111 Congress 

garnered a broad list of75 bipartisan cosponsors. Under Gramm-Leach-13liley, financial 

institutions arc required to mail annual privacy notices to customers even when their policies 

have not changed. S. 423 would eliminate this requirement when no change in policy has 

occmred. while ensuring customers have continued access to their institution·s current privacy 

policy. Annual notices. when no change in policy has occurred. do not pt·cwide useful 

information to customers and are often a source of confusion to them. What's more. they 

represent an unproductive expense for community banks that could be better directed toward 

serving consumers. 

ICBA urges the members of this Committee to cosponsor the bills noted above. 

Closing 

Thank you again for the opportunity to testify today. ICI3A hopes this testimony. while not 

exhaustive. gives the Committee a sense of the sharply increasing resource demands placed on 

community banks by regulation and examination and the destructive impact they have on small 

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business lending. ICBA hopes to work with this committee to craft urgently needed legislative 

solutions. 

ATTACHMENTS 

lCBA Plan tor Prosperity 

7 
30 

Chairman VITTER. Great. Thank you all very, very much for your 

testimony, and now we are going to go into discussion and questions and comments. 

Let me kick that off by asking any or all of you about thoughts 

and any direct personal experience in terms of your companies with 

two key provisions of ObamaCare that we have talked about. One 

is the line of 50 employees or more. Once you cross that line, you 

have an employer mandate. So although certainly I take the point 

that John made, it’s not like everybody below that line is somehow 

unaffected. You’re certainly affected by cost increases. But in addition, above that line, you have all the employer mandates of 

ObamaCare. So what does that do to small businesses hovering 

right around that line? 

Second issue that we have touched on is the 30-hour full-time 

workweek rule. So not to get into the weeds too much, but basically, the way ObamaCare counts full-time personnel, they define 

30 hours or more as full-time, and that has clearly encouraged a 

lot of businesses to cut hours of a lot of people below 30 hours. 

So in many cases, folks are being cut more than a quarter of 

their hours, more than a quarter of their take-home pay. If any or 

all of you have any personal experience with those two categories. 

Jay. 

Mr. CAMPBELL. We have obviously, our company was well beyond 

the 50, but a lot of our owners had less than 50 or borderline to 

50, and so the concern was, first of all, how do you calculate fulltime equivalence? And the calculation was quite cumbersome. It 

still is quite cumbersome and very difficult. That’s one of the comments I made. It needs to be made very easy, very simple, very 

straight-forward where anybody can understand either you are fulltime or you’re not. And that either you are in compliance or you’re 

not or you have to be covered with the employer mandate. 

So many of them were trying to just figure this thing out, and 

they had deadlines they had to meet to do the calculations. It was 

quite awkward to do. And so many of them just kind of threw up 

their hands and said, ‘‘We going to do coverage anyway,’’ because 

they were providing coverage for most of their people anyway. It 

wasn’t a real coverage issue as much as who is going to be covered, 

who is going to defined. 

We have been of the opinion that the hourly determination of 

full-time 30 is too low. We believe 40 has been the standard that 

everybody talked about is 40 hours, which is 2,080 hours in a year. 

Now people are going to fall below that. So should they be penalized for that? Then you determine full-time equivalency. But something needs to be done to define that critically and make it easier 

to compute so it’s not such a burdensome process. 

More importantly, we should look at employers who before ACA 

were providing coverage to their employees anyway, they should be 

exempt from the mandate because they were doing it anyway. 

Chairman VITTER. Right. Any other comments including about 

the 50 employee line? 

Mr. OVERTON. I have less than 50 employees, but a lot of my clients are small businesses, and one of the challenges that they are 

looking at is, especially those who are right at that threshold, then 

they start to have to navigate, well, if we are going to grow, how 

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do we grow without having to do a lot more research and spend a 

huge amount of time trying to figure out what an FTE is. And so 

it shifts some of that workforce to lesser quality jobs, to 1099 contractors, and everybody that I’ve ever interviewed for a job and has 

come from a position as a contractor, they just can’t wait to become 

a full-time employee. 

So you have a large part of the workforce that is being kind of 

pushed into contracting as opposed to full-time employees because 

of that limit. 

Chairman VITTER. Right. Okay. Anybody else? Garret. 

Representative GRAVES. Thank you. My first question, and I will 

go ahead and give you a heads up and talk for a minute and give 

you time to think about it. I’m curious, at the 100,000-foot level, 

if you’re king for the day, in your unique businesses, if you had the 

ability, again, be king for the day, or perhaps President Obama, 

what is the one thing you would do that would allow you to hire 

more employees? I will give you a minute to think about it and talk 

about a few things. 

It’s interesting, in Louisiana, I noted earlier that we have nearly 

900,000 jobs that are based upon small businesses in Louisiana. 

Yet in the first quarter of 2014, we had about 4,100 new small 

businesses that were established, yet 4,400 small businesses that 

shut down. That’s obviously not the direction that we’d like to see 

the state or this country move into. 

I noted earlier that compliance costs or regulatory compliance 

costs are somewhere in the $8 to $10,000 per employee for businesses in the United States. If those costs were lower, what would 

happen in regard to the ability to hire more employees? 

And I will give one example. I was talking to a small business 

here in—I don’t know if they are a small business or not, but I will 

say a business here in Louisiana that many of you know and talking to them about their business planning. They were telling me 

as a result of changes in overtime rules and the ACA, their costs, 

staffing costs were going to increase by 30 percent above their projected costs in the next years. How do you plan for a business if 

you’re going to have that type of growth in your staffing cost? 

And it’s important, and in answering this question, keep in mind, 

the world has become much smaller. It’s no longer a big deal to 

think about a company relocating to Mexico, to India, to Brazil, to 

China, or many other countries as opposed to the United States if 

the regulatory compliance costs are so high here and they can compete, have a competitive advantage by locating in another country. 

I hoped I filibustered long enough to give you time to think about 

it, but I’d like to hear your response. 

Ms. JOHNSTON. Didn’t take me long. For me, my business is so 

small, I’m well below John’s company because it’s me and I 1099 

for the very reason he said because I can’t afford to take on this 

type of health care yet, and really I feel like it’s unnecessary. If we 

fix it correctly, I just think with some tweaks here and there, it 

would make it easier for small businesses to add folks. 

But I guess to me, the key characteristics that make a small 

business so great, and it doesn’t replace large business, it’s just a 

good complement to it, is we tend to be a little more agile. Whereas 

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32 

large business tends to take them a little bit longer to move or 

make decisions, we tend to be a little bit more fast on our feet. 

For me to be able to add somebody, as a full-time employee, I 

just need to know, kind of keep it simple, stupid. I grew up knowing that. If you make things fairly simple and transparent, then it’s 

easier for a small business to plan. And I want to be able to know 

if I’m hiring somebody, that I don’t really have a lot of confidence 

that that thousand will stay a thousand. I don’t know if two years 

down the road the Affordable Care Act isn’t going to cost me three 

times as much. I just don’t have the confidence in it. 

For me, you know, the IRS is a whole nother set of issues, but 

just focusing on the health care portion of this, I need to have the 

ability to add full-time employees because if there’s a huge project, 

I can’t gauge and say, that person is only going to have to work 

40 hours this week. It might be 60 hours if we are on a major 

project. So I need a little bit of flexibility from the government 

when it comes to health care that let’s say I can either 1099 or if 

somebody already has health care with their spouse that they can 

come on and if I end up growing to 50 employees and they don’t— 

that that’s not a mandate. That that person can be covered by their 

spouse. There just needs to be more flexibility for small business, 

I believe. 

Representative GRAVES. Thank you. 

Mr. KENNEDY. I appreciate your question, what one thing would 

you do. Banking is highly regulated. Unfortunately, there is no one 

thing that we could do. Last quarter alone there were 79 regulatory 

changes, and that was a light quarter. In the second quarter, it 

was 75, third quarter 85. Over 4,000 pages of regulation added in 

the fourth quarter of 2014 alone. 

So it’s not one thing that is crippling the community banks, it’s 

death by a thousand cuts. It just comes in waves. And if there were 

any one thing that would make our lives easier, it would make, I 

know Bob Taylor, the CEO of Louisiana Bankers’ job easier, because he could focus all his energies on that; however, it’s so widespread, and it affects every aspect of our business. 

So it’s not the one thing, it’s the attitude that exists that everything needs to be put in a box. Everything needs to be standardized, and everything needs to be made one size fits all that is really 

crushing the community banks. 

Representative GRAVES. Thank you. Mr. Overton. 

Mr. OVERTON. I think at the heart of every small business owner 

is to be the master of our own destiny. We treasure our staff. We 

treasure our clients. Those are our greatest assets and to be able 

to take care of them, to take our dream and run with it, and make 

an impact with it, whether you’re the aspiring entrepreneur and 

getting into—just you’re focusing on your idea and your team and 

putting together your business plan, but then to step into the 

harsh reality of, like Pres said, the death by a thousand cuts, the 

regulatory environment in which we have to operate our businesses 

is soul crushing. 

It makes it where I spend so much of my time—got audited by 

the IRS. I was right. I didn’t end up paying anything, but I spent 

hundreds of hours, instead of running my business, recruiting peoDeShaun on LAP51NQ082 with DISTILLER

33 

ple, recruiting clients, providing reams of paperwork back years 

and years ago to prove that we didn’t screw up. 

And you know, that type of thing, the Affordable Care Act, the 

NLRB, the micro-unions, all these different things that are telling 

me how I have to run my business and it just takes it out of our 

heart and I can understand why people say, ‘‘Why would I go in 

business? I will work for the state. I don’t want to deal with all 

that.’’ So it really attacks the heart of what it means to be an entrepreneur, just the burden of regulations. 

Representative GRAVES. Mr. Campbell, you want to add anything? 

Mr. CAMPBELL. Well, since I would be king, I would have more 

than one thing I’d want to fix. You did say that, right? 

Representative GRAVES. Correct. 

Mr. CAMPBELL. On the health care front, there’s no question 

about it, the way this was done was improper. The better way to 

do it is, say, define what a base health coverage is. If you’re better 

than that, you can do whatever you want with the plan. Here’s the 

base coverage we’d like to see for every American in this country. 

Here’s the base coverage, and if a company provides better than 

that, so be it. But if you provide the base, then we can determine 

what the cost is going to be for people to allow people to make the 

change if they want, if it fits and suits their needs. 

Access to capital for small business people is critical. When you 

have a dream, you need capital to make that dream come to fruition. But you also need a stable, predictable tax environment, 

which we do not have. It’s a constantly changing thing with these 

budget rules. The last thing would be employment rules and regulations need to be consistent but realistic for the workforce so that 

you understand what the rules of the game are and they don’t 

change halfway through the game. 

Chairman VITTER. Great. Thank you all. Preston, let me ask you, 

moving to the banking sector and community banks. Since 2008, 

since Dodd-Frank, what do you think the overall compliance costs 

of Bank of Zachary have done? What sort of percentage growth, 

roughly? 

Mr. KENNEDY. I have been asked this question before, so we have 

done some research into it. And a pretty accurate number, ours is 

about $10,000 a month that goes into strictly compliance. That’s 

about one-and-a-half full-time equivalents. Since 2008, we—we 

have always had a compliance officer. That used to be a part-time 

job for somebody in a bank our size, then it became a full-time job. 

Now we added a risk manager whose job is not only compliance but 

all the other risks in our bank. So the cost grows just every day 

because, like I said, these 79 regulatory changes in one quarter. It 

requires everyone’s attention to keep up with. So to answer that question, in our case, about $10,000 per 

month. That is consistent with the industry. 

Chairman VITTER. That’s now? 

Mr. KENNEDY. That’s now, yeah. 

Chairman VITTER. And what, roughly, would that figure have 

been before the crisis, before Dodd-Frank? 

Mr. KENNEDY. Probably less than half that. 

Chairman VITTER. So it’s more than doubled. 

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34 

Mr. KENNEDY. I have every confidence in saying it’s more than 

double. And that is consistent throughout the industry. Typical 

bank, 350 million community bank, and they are spending about 

the same amount, $30,000 a quarter is the general figure we are— 

that’s just our experience. 

Chairman VITTER. Now, what really concerns me about that is 

we have a great system in America and pretty unique history of 

having a financial sector with all sorts of size players, including a 

lot of community banks. That’s very different from Europe. That is 

very different from Canada historically. And it seems to me this 

crushing increase of a burden is a burden to everybody, but it’s a 

heck of a lot bigger burden for a community bank because of your 

size compared to a Chase or a Citi. 

And I’ve seen the numbers which are resulting from this, which 

is a big gobbling up of smaller institutions, big consolidation mergers, institutions being bought up. What is your general observation 

of that in Louisiana and how it’s changing the landscape in Louisiana? 

Mr. KENNEDY. Well, you’re absolutely correct. We had, and I 

think Congressman Graves mentioned that in the remarks, how 

many banks we have lost. Just in my career, when I became a 

banker, there were 18,000. Then before Dodd-Frank, I think there 

were—or mid 2000s, around 8,000. And now we are down to less 

than 6,500 and certainly burden of regulation is the biggest driver 

with that because, like you said, it’s harder and harder to keep up 

with. 

And the people who are charged with doing that, they wear out. 

Boards of directors get worn out at community banks. Because the 

regulators come in and say, ‘‘If you don’t do this, you’re going to 

pay civil money penalties. You may even go to jail.’’ And what we 

see on the Too Big to Fail level is they pay a fine and keep on 

going. So that alone, that sense of helplessness is helping to drive 

that consolidation. 

And I have to say it’s not from the predatory bigger banks coming in and saying, ‘‘I want to buy your institution.’’ It’s more from 

the institution saying, ‘‘Who can we sell to? We are tired. We have 

had enough. We want to get out.’’ And that’s just fed up since 

Dodd-Frank. 

So what will that be? In a lot of small towns, there’s only one 

community institution. If you take away that bank that probably 

founded the Chamber of Commerce in that town, probably is the 

President of the Rotary Club, donates to the Little League, they are 

always the go-to institution in that town, you take that away and 

make it a branch of another community bank, well, it’s not their 

community bank and that community loses something. 

The small businesses lose something because that banker used to 

be the guy sitting next to them at PTA meetings, or at church. Certainly not going to do anything that’s not in their best interest because he’s a neighbor. So that opportunity to go to that community 

member for the capital for your business is disappearing. 

We fight to keep that from happening, but in those instances 

where ownership has just had enough and one too many examiners 

come in and said, you know, ‘‘You’re going to go to jail because 

you—you’re not overseeing the Bank Secrecy Act by one of your 

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35 

tellers,’’ you know, they say, ‘‘This is just too much sugar for a 

dime. I’m out of here.’’ 

Chairman VITTER. Well, again, that clear trend really concerns 

me because the small town you’re describing, the rural parish 

you’re describing, is most of Louisiana. And, look, no offense to big 

banks, but you can’t convince me that a branch of Chase has that 

same presence and impact or would have in the future that same 

presence and impact as the community bank founded there, lived 

there that you’re describing, too. So that, I think, is a real worrisome trend directly related to this overregulation. 

Garret. 

Representative GRAVES. Mr. Campbell, getting a little more specific in this case. It’s my recollection that the Department of Labor 

is scheduled to come up with a new overtime regulation in the 

spring. The US Department of Labor will be promulgating a new 

regulation pertaining to overtime. 

Specifically in your industry, as I recall, it has the potential or 

is believed to actually define the duties of a store manager and potentially even salary and other parameters of that job. 

Can you comment from an employer perspective in having the 

Department of Labor that intimately involved in your business 

and, perhaps, an alternative. 

Mr. CAMPBELL. That is one of our very big concerns is the discussion is about changing the definition of the duties and responsibilities of the manager such that if they don’t make a certain wage 

rate or a certain salary rate, they are going to have to be hourly 

and then be paid overtime. This would prohibit some people from 

even making manager status in a lot of retail supermarket business. If you really started making very possibly the bag boy or 

somebody in the store and they elevated themselves to be department manager, then maybe assistant manager to the store, and 

then a manager over all of the store. And when you become a salaried employee, and you have managerial responsibilities, which is 

hiring and firing, it’s very clear that you can be a salaried individual. 

They are talking about changing that and using an artificial dollar amount and saying if they don’t make at least this dollar 

amount, then they can’t be viewed as a salaried employee, they 

have to be an hourly employee, which does change the dynamic as 

it relates to overtime, calculation of overtime. And the problem you 

have with that is not only that, you can’t incentivize an hourly 

worker without this extraordinarily elaborate calculation to put an 

incentive out there for hourly workers. The whole process the Department of Labor is looking at is really designed to control the 

working environment rather than letting the employer control the 

working environment. 

We don’t have sweat shops here in this country. It’s absurd to 

even conclude that. There are other laws and mechanisms in place 

to protect workers and employers in that environment and in that 

relationship. But what they are trying to do is to artificially set 

and determine who can be a manager and who can’t. 

Representative GRAVES. Thank you. 

Chairman VITTER. Okay. We are going to wrap up. First of all, 

I want to thank Congressman Graves for co-hosting this today. 

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36 

Garret, thank you very, very much. And I want to thank our four 

witnesses. They provided exactly what I wanted, which is a real 

life, real world perspective from the small business sector about all 

of these challenges we are talking about of overregulation. So 

thank you all very much for your testimony. 

I also want to thank the city and parish for hosting us here today 

and I want to thank all of you. Your direct participation, starting 

with your comments and questions, was absolutely essential as 

well. So thanks very much for that. We got to as many as we could. 

Obviously, we couldn’t cover everybody’s. If you have follow-up 

questions, concerns, suggestions, please get them to us. 

In my case, you have a handout for today, and on the left-hand 

side of that handout is a blue column with all of my contact information, our website, which has a lot of good information on this 

and other topics. There’s easy e-mail access through the website, 

and all of my state offices, including here in the capital region, 

with our phone numbers. 

So please keep that handy and please use it, use it regularly to 

send me and my staff your comments and suggestions and questions. And we will certainly be following up with a lot of additional 

forums and town hall meetings like this. 

With that, thank you all very, very much. Have a great rest of 

the day. 

[Whereupon, at 11:05 a.m., the hearing was adjourned.] 

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APPENDIX MATERIAL SUBMITTED 

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Insert offset folio 15 here 22202.015

Plan for Prosperity 

Pro-Growth Agenda to Reduce 

Regulatory Burden on Community Banks 

Empower Local Communities 

2015 
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Plan for Prosperity: An Agenda to Reduce the Onerous Regulatory Burden on 

Community Banks and Empower Local Communities 

America's 6.500 community banks are vital to the prosperity of the U.S. economy, pat1icularly in smaller 

towns and rural communities. Providing more than half of all small business loans under Sl million, as 

well as customized mortgage and consumer loans suited to the unique characteristics of their local 

communities, community banks serve a vital role in ensuring the economic recovery is robust and broad 

based, reaching communities of all sizes and in every region of the country. 

In order to reach their full potential as catalysts !(Jr entrepreneurship, economic growth. and job 

creation, community banks must be able to attract capital in a highly competitive environment. An 

end to the exponential growth of onerous regulatory mandates is critical to this objective. Regulation 

is suffocating nearly every aspect of community banking and changing the very nature of the industry 

away from community investment and community building to paperwork, compliance, and 

examination. A fundamentally new approach is needed: Regulation must be calibrated to the size. 

lower-risk profile, and traditional business model of community banks. 

ICBA 's Plan tor Prosperity provides targeted regulatory relief that will allow community banks to 

thrive by doing what they do best serving and growing their communities. By reducing 

unsustainable regulatory burden, the Plan will ensure that scarce capital and labor resources are used 

productively, not sunk into unnecessary compliance costs, allowing community banks to better locus 

on lending and investing that will directly improve the quality of life in our communities. Each 

provision of the Plan was selected with input from community bankers nationwide and cralled to 

preserve and strengthen consumer protections and safety and soundness. 

The Plan is a set of detailed legislative priorities positioned tor advancement in Congress. A subset of 

these priorities is specitically dedicated to strengthening community bank viability by creating new 

options for capital raising and capital preservation. A number of regulatory relief measures would he 

tiered, with different thresholds tor Consumer Financial Protection Bureau rules (generally $10 

billion and under) and safety and soundness regulation (generally $50 billion and under). The 

recommended thresholds arc based on existing levels and statutory provisions, which may vary by 

provision. 

ICBA is committed to advancing and enacting the provisions of the Plan with all due vigilance and 

the aggressive use of every resource at our disposaL The Plan is a llt:xible, living document that can 

be adapted to a rapidly changing regulatory and legislative environment to maximize its intluence 

and likelihood of enactment. Provisions arc described below. 
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ACCESS TO CAPITAL: CREATING NEW OPTIONS FOR THE CREATION ANI> 

PRESERVATION OF COMMUNITY BANK CAPITAL 

ICBA is proposing a set of options to strengthen community bank viability by enhancing access to 

capital. 

Basel Ill Amendments: Restoring the Original Intent of the Rule. Basel Ill was originally 

intended to apply only to large. internationally active banks. ICBA proposes the following 

amendments tor banks with assets of $50 billion or less. 

Exemptionfi·om the capital consenation bl!ffer. The new butTer provisions impose dividend 

restrictions that have a chilling effect on potential investors. This is particularly true for 

Subchapter S banks whose investors rely on dividends to pay their pro-rata share of the 

bank's tax. Exempting community banks Jl·orn the capital conservation bufter would make it 

easier for them to raise capital. 

Full capital recognition C!fallowance.fi!l· credit losses. Provide that the allowance for credit 

losses is included in tier I capital up to 1.25 percent of risk weighted assets with the 

remaining amount rep011ed in tier 2 capital. This change would reverse the punitive treatment 

of the allowance under Basel Ill. The allowance should be captured in the regulatory capital 

tramev,ork since it is the first line of defense in protecting against unforeseen future credit 

losses. 

Amend risk 1reighting to promote economic development. Provide l 00 percent risk weighting 

tor acquisition, development. and construction loans. Under Basel Ill, these loans arc 

classified as high volatility commercial real estate loans and risk weighted at 150 percent. 

ICBA 's proposed change would treat these loans the same as other commercial real estate 

loans and would be consistent with Basel I. 

Additional Capital for Small Bank Holding Companies: Modernizing the Federal Reserve's 

Policv Statement. Require the Federal Reserve to revise the Small Bank Holding Company Policy 

Statement- a set of capital guidelines that have the torce of law. The Policy Statement. "hich makes 

it easier for small bank and thrift holding companies to raise additional capital by issuing debt, would 

be revised to increase the qualifying asset threshold fi·om $1 billion to $5 billion. Qualifying bank 

and thrift holding companies must not have significant outstanding debt or be engaged in nonhanking 

activities that involve significant leverage. 

Relief from Securities and Exchange Commission Rules. ICBA recommends the following 

changes to SEC rules which would allow community banks to commit more resources to their 

communities without putting investors at risk: 

Provide an exemption from internal control attestation requirements for community banks 

with assets of less than $I billion. The current exemption applies to any company with 

market capitalization of$75 million or less. Because community bank internal control 

systems are monitored continually by bank examiners. they should not have to sustain the 

unnecessary annual expense of paying an outside audit flrm for attestation work. This 

provision will substantially lower the regulatory burden and expense tor smalL publicly 

traded community banks without creating more risk for investors. 
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Due to an oversight in the 20 I 2 JOBS Act. thrift holding companies do not have statutory 

authority to take advantage of the increased shareholder threshold bclo" which a bank or 

bank holding company may deregister with the SEC. Congress should correct this oversight 

by allowing thrift holding companies to use the new 1200 shareholder deregistration 

threshold as well as the new 2,000 shareholder registration threshold. 

Regulation D should be reformed so that anyone with a net worth of more than $1 million, 

including the value of their primary residence. would qualify as an ""accredited investor ... The 

number of non-accredited investors that could purchase stock under a private offering should 

be increased from 35 to 70. 

TARGETED REGULATORY RELIEF 

Supporting a Robust Housing Market: Mortgage l{eform for Community Banks. Provide 

community banks relief from certain mortgage regulations, especially for loans held in 

pm1f\.)lio. When a community bank holds a loan in portfolio, it has a direct stake in the loan's 

performance and every incentive to ensure it is properly underwritten, aff(mlable and responsibl! 

serviced. Relief would include: 

Providing "qualitied mmtgage"" safe harbor status tor loans originated and held in portfolio 

by banks with less than $10 billion in assets, including balloon mottgages. 

Exempting banks with assets below $10 billion from escrow requirements tor loans held in 

portfolio. 

An exemption ti·om the higher risk mottgage appraisal requirements lor loans of $250Jl00 or 

less provided they arc held in portfolio by the originator for a period of at least three years. 

New inlormation repotting requirements under the Home Mortgage Disclosure Act should 

not apply to community banks. 

Strengthening Accountabilitv in Bank Exams: A Workable Appeals Process, The trend toward 

oppressive, micromanaged regulatory exams is a concern to community bankers nationwide. An 

independent body would be created to receive. investigate, and resolve material complaints from 

banks in a timely and confidential manner. The goal is to hold examiners accountable and to prevent 

retribution against banks that tile complaints. 

Reforming Bank Oversight ami Examination to Better Target Risk. ICBA makes the following 

recommendations to allow bank examiners to better target their resources at true sources of systemic 

risk: 

A two-year exam cycle for well-rated community banks with up to $2 billion in assets would 

allow examiners to better target their limited resources toward banks that pose systemic risk. 

It would also provide needed relief to bank management for whom exams are a significant 

distraction ti·mn serving their customers and communities. 

Banks with assets of $50 billion or less should be exempt from stress test requirements. 

• Community banks should be allowed to tile a short form call report in the first and third 

quarters of each year. The current, long form call report would be filed in the second and 

fourth quarters. The quarterly call repott now comprises some 80 pages suppmted by almost 

700 pages of instructions. It represents a growing burden on community banks \Vithout being 

an effective supervisory tool. 
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Redundant Privacy Notices: Eliminate Annual Requirement. Eliminate the requirement that 

financial institutions mail annual privacy notices even when no change in policy has occurred. 

Financial institutions would still be required to notify their customers by mail when they change their 

privacy policies, but when no change in policy has occurred, the annual notice provides no usetili 

information to customers and is a needless expense. 

Balanced Consumer Regulation: More Inclusive and Accountable CFPB Governance. The 

following changes would strength CFPB accountability. improve the quality of the agency's 

rulcmaking. and make more effective use of its examination resources: 

Change the governance structure of the CFPB to a five-member commission rather than a 

single Director. Commissioners would be confirmed by the Senate to staggered five-year 

terms with no more than three commissioners afliliated with any one political party. This 

change will strengthen accountability and bring a diversity ofvic"s and professional 

backgrounds to decision-making at the CFPB. 

The Financial Stability Oversight Council's review ofCFPB rules should be strengthened b:; 

changing the vote required to veto a rule Ji·om an unreasonably high two-thirds vote to a 

simple majority, excluding the CFPB Director. 

All banks with assets of$50 billion or less should be exempt li·01n examination and 

enforcement by the CFPB: and CFPB backup (or "ride along'') authority for compliance 

exams performed by a bank's primary regulator should be eliminated. 

Eliminate Arbitrary "Disparate Impact" Fair Lending Suits. Amend the Equal Credit 

Opportunity Act and the rair Housing Act to bar "disparate impact" causes of action. Lenders that 

unilormly apply neutral lending standards should not be subject to ti-ivolous and abusive lawsuits 

based on statistical data alone. Disparate impact forces lenders to consider factors such as race and 

national origin in individual credit decisions, which are specifically precluded by law. 

Ensuring the ViabilitY of Mutual Banks: New Charter Option. The OCC should be allowed to 

chaner mutual national banks to provide flexibility for institutions to choose the charter that best 

suits their needs and the communities they serve. 

Rigorous and Quantitative Justification of New Rules: Cost-Benefit Analysis. Provide that 

1inan~ial regulatory agencies cannot issue notices of proposed rulcmakings unless they first 

determine that quantified costs are less than benefits. The analysis must take into account the impact 

on the smallest banks which arc disproponionately burdened by regulation because they Lh:k the 

scale and the resources to absorb the associated compliance costs. In addition. the agencies would be 

required to identify and assess available alternatives including modifications to existing regulations. 

They would also be required to ensure that proposed regulations arc consistent with existing 

regulations. written in plain English. and easy to interpret. 

Cutting the Red Tape in Small Business Lending: Eliminate Burdensome Data Collection. 

Exclude banks with assets below $10 billion from new small business data collection requirements. 

This provision. which requires the reponing of information regarding every small business loan 

application. falls disproportionately upon community banks that lack scale and compliance resources . 

.j 
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Preserve Communitv Bank Mortoage Servicing. The provisions described below would help 

preserve the important role of community banks in servicing mongages and deter tln1her industr: 

consolidation, which is harmful to borrowers: 

Increase the ''small servicer'' exemption threshold to 20.000 loans (up from 5,000). To put 

this proposed threshold in perspective, the average number of loans serviced by the live 

largest servicers subject to the nationalmor1gagc settlement is 6.8 million. An exemption 

threshold of20,000 would demarcate small servicers from both large and mid-sized scrvicers. 

For banks with assets of $50 billion or less, reverse the punitive Basel Ill capital treatment of 

mongage servicing rights (MSRs) and allow I 00 percent ofMSRs to be included as common 

equity tier I capital. 

Creating a Voice for Communitv Banks: Treasury Assistant Secretarv for Community Banks. 

Economic and banking policies have too often been made without the benefit of community bank 

input. An approach that takes into account the diversity and breadth of the financial services sector 

would significantly improve policy making. Creating an Assistant Secretary for Community Banks 

within the U.S. Treasury Department would ensure that the more than 6,500 community banks across 

the country, including minority banks that lend in underserved markets, arc given appropriate and 

balanced consideration in the policy making process. 

Modernize Subchapter S Constraints. Subchapter S of the tax code should be updated to facilitate 

capital formation for community banks, panicularly in light of higher capital requirements under the 

proposed Basel Ill capital standards. The limit on Subchapter S shareholders should be increased 

from I 00 to 200; Subchapter S corporations should be allowed to issue preferred shares: and 

Subchapter S shares, both common and preferred, should be permitted to be held in individual 

retirement accounts (IRAs). These changes would better allow the nation's 2,200 Subchapter S banks 

to raise capital and increase the flow of credit. 

Five-Year Loss Carrvback Supports Lending During Economic Downturns. Banks with $15 

billion or less in assets should be allowed to use a live-year net operating loss (NOL) carryback. The 

live-year NOL carr)' back is countercyclical and will support community bank capital and lending 

during economic downturns. 

Risk Targeting the Volcker Rule. Exempt banks with assets of$50 billion or less Ji·om the Volcker 

Rule. The Volcker Rule should apply only to the largest, most systemically risky banks. Proposals to 

apply the rule to community banks carry unintended consequences that threaten to destabiliLc 

segments oflhe community banking industry. 

lhe Independent C'ommunily Bankers (~lAmericaK the nation's voict:fbr 6,500 cornmuni!y banks q(a/1 si:es and 

chc.wt.~r "''"''' i:.: dedicated exclusively to representing the interests qlthe cormm:mi;y han!(in!; indw:/ly und 

me1nbe·rship through effective advoca9·, hest-in-c/ass educafion and high-quality producls For more 

iJ?{ormation visit wwwicha.onz