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94–014 PDF 2016

S. HRG. 114–8

REGULATORY RELIEF FOR COMMUNITY BANKS

AND CREDIT UNIONS

HEARING

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED FOURTEENTH CONGRESS

FIRST SESSION

ON

EXAMINING POTENTIAL CHANGES TO THE CURRENT REGULATORY REGIME AND THE IMPACT ON COMMUNITY BANKS AND CREDIT UNIONS

FEBRUARY 12, 2015

Printed for the use of the Committee on Banking, Housing, and Urban Affairs

(

Available at: http://www.fdsys.gov/


BANKI-41578DSA with DISTILLER
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

RICHARD C. SHELBY, Alabama, Chairman

MICHAEL CRAPO, Idaho 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

DEAN HELLER, Nevada 

TIM SCOTT, South Carolina 

BEN SASSE, Nebraska 

TOM COTTON, Arkansas 

MIKE ROUNDS, South Dakota 

JERRY MORAN, Kansas 

SHERROD BROWN, Ohio 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

JOE DONNELLY, Indiana

WILLIAM D. DUHNKE III, Staff Director and Counsel 

MARK POWDEN, Democratic Staff Director

JELENA MCWILLIAMS, Chief Counsel 

BETH ZORC, Senior Counsel 

JACK DUNN III, Professional Staff Member

LAURA SWANSON, Democratic Deputy Staff Director 

GRAHAM STEELE, Democratic Chief Counsel 

JEANETTE QUICK, Democratic Senior Counsel 

ERIN BARRY FUHER, Democratic Professional Staff Member 

PHIL RUDD, Democratic Legislative Assistant

DAWN RATLIFF, Chief Clerk 

TROY CORNELL, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor

(II)


BANKI-41578DSA with DISTILLER
CONTENTS

THURSDAY, FEBRUARY 12, 2015

Page

Opening statement of Chairman Shelby ................................................................ 1

Opening statements, comments, or prepared statements of: 

Senator Brown .................................................................................................. 1

WITNESSES 

R. Daniel Blanton, Chief Executive Officer, Georgia Bank and Trust, and 

Chairman-Elect, American Bankers Association ............................................... 3

Prepared statement .......................................................................................... 37

Wally Murray, President and Chief Executive Officer, Greater Nevada Credit 

Union, on behalf of the Credit Union National Association ............................. 5

Prepared statement .......................................................................................... 43

Responses to written questions of: 

Senator Brown ........................................................................................... 153

Senator Cotton ........................................................................................... 154

John H. Buhrmaster, President and CEO, First National Bank of Scotia, 

and Chairman, Independent Community Bankers of America ........................ 6

Prepared statement .......................................................................................... 93

Responses to written questions of: 

Senator Brown ........................................................................................... 155

Senator Vitter ............................................................................................ 155

Senator Cotton ........................................................................................... 157

Ed Templeton, President and CEO, SRP Federal Credit Union, on behalf 

of the National Association of Federal Credit Unions ...................................... 8

Prepared statement .......................................................................................... 130

Responses to written questions of: 

Senator Brown ........................................................................................... 157

Senator Cotton ........................................................................................... 158

Michael D. Calhoun, President, Center for Responsible Lending ....................... 10

Prepared statement .......................................................................................... 148

Responses to written questions of: 

Senator Brown ........................................................................................... 159

Senator Vitter ............................................................................................ 160

Senator Menendez ..................................................................................... 160

Senator Cotton ........................................................................................... 161

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Prepared statement of the Appraisal Institute ..................................................... 163

(III)


BANKI-41578DSA with DISTILLER

BANKI-41578DSA with DISTILLER
(1)

REGULATORY RELIEF FOR COMMUNITY 

BANKS AND CREDIT UNIONS 

THURSDAY, FEBRUARY 12, 2015

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee met at 10 a.m., in room SD–538, Dirksen Senate 

Office Building, Hon. Richard Shelby, Chairman of the Committee, 

presiding. 

OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY 

Chairman SHELBY. The Committee will come to order. 

This week, the Banking Committee began an examination of potential changes to the current regulatory regime. On Tuesday, we 

heard from the regulators on some ways to mitigate the regulatory 

burden on community banks and credit unions. Today, we will hear 

from those who are subjected to that burden. 

We have asked our witnesses today to share their recommendations to us on ways to provide regulatory relief for smaller financial 

institutions and how the regulators can improve their review of 

outdated, unnecessary, or unduly burdensome regulations to make 

it more comprehensive and meaningful to everybody. 

As the hearing on Tuesday demonstrated, I believe there is some 

bipartisan support here between the Democrats and Republicans, 

understanding that something, something substantive must be 

done to relieve the regulatory burden on institutions that provide 

essential banking functions to communities all across this country. 

I look forward to hearing from our witnesses and I also will continue to work with my Ranking Member, Senator Brown. Senator 

Brown. 

STATEMENT OF SENATOR SHERROD BROWN 

Senator BROWN. Thank you, Mr. Chairman, and thank you to the 

five witnesses that are joining us today. I appreciate that very 

much. I look forward to hearing from you. 

At last September’s meeting, a group of witnesses similar to today’s discussed a variety of regulatory relief proposals. Before the 

end of last year, Congress passed, pretty much everybody on this 

Committee supported, and the President signed into law several of 

those proposals where there was bipartisan consensus. I spelled 

them out at Tuesday’s hearing. I will not repeat that list today. I 

thank a number of the Members of the Committee—Senator Vitter, 

Senator Warner, others—that were very helpful as sponsors of 


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2

some of that legislation that showed we can, indeed, work together 

to improve the regulatory climate for financial institutions. 

If we hope to find consensus on more regulatory relief proposals, 

especially for community banks and credit unions, we will need to 

engage in a process similar to the one that allowed these bills to 

make it across the finish line, consensus among agencies and industry and consumer groups, all of our witnesses earlier in the 

week and our witnesses today, and we were able to do that. 

In my first hearing in 2011 as Chair of the Financial Institutions 

and Consumer Protection Subcommittee, Senator Corker and I 

heard from some of the same organizations that are testifying 

today before this Committee about the opportunities and challenges 

facing community banks. It is notable how far the regulators have 

come since then, in no small part because Members of this Committee have asked them to do more for small institutions. The regulators understand the concerns raised by community banks and 

credit unions. They made it clear in their testimony 2 days ago and 

in their actions over the past several months. They have responded 

by making or considering changes to the supervision and regulation 

of these institutions in a way that lessens regulatory burden while 

at the same time safeguarding safety and soundness and the consumer protections that are in place. 

As this Committee begins a process to determine if there are actions Congress should take to provide additional regulatory relief 

to the smallest financial institutions, I believe we need to do several things. We need to better understand the impact of the regulators’ efforts. We need to determine if there is more the regulators 

should do through the EGRPRA review or other means to reach a 

relieved regulatory burden. We need to vet the proposals being recommended at this week’s hearings, and we need to build stakeholder consensus on these proposals. 

The privacy notice bill which I mentioned on Tuesday has gone 

through this type of process. We know the CFPB has done all it 

can within its authority to address this concern of community 

banks and credit unions. The current proposal, reintroduced by 

Senators Moran and Heitkamp earlier this week, has broad bipartisan consensus, 75 cosponsors last year, and has been vetted. I believe the Committee, as I mentioned to the Chair earlier in the 

week, should take action on this. 

Another bill, to allow privately insured credit unions to become 

members of the Federal Home Loan Bank System, which I introduced last Congress, has begun this process, as well. Senator Donnelly is working on that legislation this year. 

We know that there are no additional actions FHFA can take, 

and I believe that stakeholders are open to changes to the bill to 

reflect concerns raised at the end of last year. This is a successful 

model for our consideration of other regulatory relief proposals. It 

does not mean we will agree with every idea that deserves action. 

I want to reiterate that I am not interested in moving proposals 

that will weaken or roll back Wall Street reform, or undermine 

safety and soundness, or roll back consumer protections. 

But, I think we should act on the proposals upon which we all 

agree, after fair consideration, those proposals that will make a difference for the smallest institutions. That is how this Committee 


BANKI-41578DSA with DISTILLER
3

has worked in the past under Chairs of both parties and we are 

hopeful that is how the Committee—and have every reason to expect Senator Shelby and me to be able to work together and do the 

same thing. 

Chairman SHELBY. Thank you, Senator. 

I would like to remind my colleagues here that the record here 

will be open for the next 7 days for any additional statements and 

any other materials that you might want to submit to our witnesses, and I thank the witnesses for being here today. 

Dan Blanton is the Chief Executive Officer for the Georgia Bank 

and Trust and the Chairman-Elect of the American Bankers Association. 

Mr. Wally Murray is the President and Chief Executive Officer 

for the Greater Nevada Credit Union and is testifying on behalf of 

the Credit Union National Association. 

John Buhrmaster is the President of the First National Bank of 

Scotia and the Chairman of the Independent Community Bankers 

of America. 

Mr. Ed Templeton is the President and CEO of SRP Federal 

Credit Union and is appearing on behalf of the National Association of Federal Credit Unions. 

And, Mr. Michael D. Calhoun is the President of the Center for 

Responsible Lending. 

I welcome all of you to the Committee. Your written statements 

will be included in the record and I wish you would sum up your 

basic statements as quickly—within 5 minutes where we can have 

a question and answer period with you. 

We will start with you, Mr. Blanton. 

STATEMENT OF R. DANIEL BLANTON, CHIEF EXECUTIVE OFFICER, GEORGIA BANK AND TRUST, AND CHAIRMAN-ELECT, 

AMERICAN BANKERS ASSOCIATION 

Mr. BLANTON. Thank you, Chairman Shelby and Ranking Member Brown. My name is Dan Blanton. I am the Chief Executive Officer of the Southeastern Bank Financial Corporation and Georgia 

Bank and Trust in Augusta, Georgia, and I am also the Vice Chairman of the American Bankers Association. I appreciate the opportunity to be here today to discuss ABA’s agenda for America’s 

hometown banks and to convey how the growing volume of bank 

regulation, particularly for community banks, is hurting the ability 

of banks to meet the needs of consumers and communities. 

Community banks are resilient. We have found ways to meet our 

customers’ needs despite the ups and downs of the economy. This 

job has been made much more difficult by the avalanche of new 

rules, guidance, and seemingly ever-changing expectations of our 

regulators. It is this regulatory burden that often pushes small 

banks to sell to banks many times their size. In fact, today, there 

are 1,200 fewer community banks today than there were 5 years 

ago. This trend will continue unless some rational changes are 

made to provide relief to community banks. 

Every bank in this country helps fuel job creation, economic 

growth, and prosperity. The credit cycle that banks facilitate is 

simple. Customers’ deposits provide funds to make taxes—I mean, 

to make loans that allow customers to invest in their hometowns. 


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4

The profits generated by these investments flow bank into the 

banks as deposits, and the credit cycle repeats, creating jobs, tax 

revenue, wealthy individuals, and capital to expand businesses. 

Regulation shapes the way banks do business and can help or 

hinder the smooth function of the credit cycle. Every bank regulator changes—every bank regulation change directly affects the 

cost of providing bank products and services to customers. Every 

small change can reduce credit availability, raise costs, or drive 

consolidation. Everyone who uses bank products and services is impacted by changes in bank regulation. 

Congress must take steps to ensure that the banking industry 

has ability to facilitate jobs creation and economic growth through 

their credit cycle. When a bank disappears, everyone is affected. 

We urge Congress to work together, Senate and House, to pass 

bipartisan legislation that will enhance the ability of community 

banks to serve our communities. In particular, Congress can take 

action to ensure credit flows to communities across the country by 

improving the access to home loans. The mortgage market touches 

the lives of nearly every American household. Banks help individual consumers achieve lifelong goals of ownership by giving 

them access to funds that they need. 

It is painfully clear that new regulations requirements have constrained the mortgage lending and have made it particularly difficult for first-time home buyers to obtain a home loan. Over-regulation of the mortgage market has reduced credit availability to 

bank customers, raising the cost of services and limiting bank products. The result has been a housing market that still struggles to 

gain momentum. 

Congress should ensure that loans held in portfolio are treated 

as qualified mortgages. The Dodd-Frank Act is very restrictive on 

its definition of ability to repay and this is having a detrimental 

impact on the market and consumers with their credit. We support 

legislation that would deem any loan made by a bank and held in 

that lender’s portfolio as showing ability to repay and, therefore, 

compliant with the Qualified Mortgage Act. Loans held in portfolio 

by their very nature demonstrate the ability to repay. Simply put, 

banks would not be staying in business very long if they made and 

held loans on their books that cannot be repaid. This is a common 

sense approach that does not impose additional challenges on borrowers and lenders in the lending process. 

In addition, Congress can help community institutions by expanding the number of banks eligible for the 18-month exam cycle 

for highly rated community banks; providing an independent appeals process for bank examination decisions; by providing flexibility in the definition of rural for qualified mortgage designation 

purposes; and establishing a review and reconciliation process that 

will prevent the duplication of rules and eliminate redundant rules; 

and requiring targeted rulemaking for regulations that focus on the 

purpose of the rule; removing arbitrary regulatory thresholds not 

corresponding to the bank’s risk and business model; approving 

Senator Moran and Senator Heitkamp’s legislation, S. 423, that 

eliminates redundant annual privacy notices; and eliminating unnecessary currency transaction report filings; providing greater acVerDate 0ct 09 2002 14:52 Feb 29, 2016 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 S:\DOCS\94014.TXT SHERYL

BANKI-41578DSA with DISTILLER
5

countability for law enforcement’s use of the Bank Secrecy Act 

data. 

ABA stands ready to help Congress address these important 

issues, and thank you, and I would be happy to answer any questions that you may have. 

Chairman SHELBY. Thank you, Mr. Blanton. 

Mr. Murray. 

STATEMENT OF WALLY MURRAY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, GREATER NEVADA CREDIT UNION, ON 

BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION 

Mr. MURRAY. Chairman Shelby, Ranking Member Brown, thank 

you for the invitation to testify today for the Credit Union National 

Association. I am Wally Murray, President and CEO of Greater Nevada Credit Union and Chairman of the Nevada Credit Union 

League. 

As the economy recovers, America’s credit union members continue to rely on their credit unions for safe and affordable financial 

services delivered by institutions that they own, and we continue 

to provide tremendous benefits in terms of lower interest rate loans 

and lower fee or no fee products and services. Because credit 

unions are actively fulfilling their mission, consumers benefit to the 

tune of $10 billion annually. Yet, there are multiple statutory and 

regulatory barriers that keep us from more fully serving our members and we want to work with the Committee to reduce them. 

Doing so will significantly improve the impact credit unions have 

on consumers and the communities we serve. 

Since the beginning of the financial crisis, credit unions have 

been subjected to more than 190 regulatory changes from nearly 

three dozen Federal agencies totaling nearly 6,000 pages. These 

new rules, usually aimed at curtailing practices that we do not engage in, impact us because we have to analyze the rule and determine how to comply, change internal policies and controls, design 

and print new forms, retrain staff, update computer systems, and 

help our members understand the changes. This costs money and 

time, both of which would be far better spent serving our members. 

Recently, a number of Senators asked about the cost of complying with these rules. Sharing this concern, I am pleased to announce that CUNA is embarking on a major study on the impact 

of the regulatory burden on credit unions, including its costs. We 

are engaging in this effort because we know it is important to Congress to understand the cost impact associated with compliance, 

and, frankly, we have been disappointed with the regulators’ efforts 

to quantify the expense their rules impose on credit unions and our 

members. We hope to have that data to share with the Committee 

later this year. 

In addition, Congress should strongly consider why small institutions are being required to comply with rules more appropriately 

suited for too-big-to-fail banks and abusers of consumers. Policy 

makers universally say credit unions and community banks did not 

solve the problem, but you would not know that based on the hundreds of rules to which we have been subjected since the crisis. If 

you truly believe we are not the problem, please work with us to 


BANKI-41578DSA with DISTILLER
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remove the barriers that keep us from serving our members, your 

constituents, even better. 

My written testimony includes more than two dozen recommendations for statutory changes. A few examples are: The Federal Credit Union Act has not kept up with the rapidly developing 

financial services industry over the last 20 years. The time has 

come to modernize that Act. We urge Congress to look at credit 

union capital requirements, restore full business lending authority, 

streamline field of membership, and grant new powers. In addition, 

we ask that Congress promote a fair examination system by creating an independent ombudsman and appeals process. 

We also encourage Congress to ensure the CFPB uses its exemption authority to a much greater extent than it has to date. Members of this Committee have acknowledged that the Bureau has 

such authority, but we believe it is not being used sufficiently. We 

ask Congress to clarify and strengthen these exemption instructions as they pertain to smaller depository institutions, like credit 

unions. If a new rule results in a credit union doing less to serve 

its members, that rule has failed. A perfect example for credit 

unions is the remittances rule. 

We also look forward to the enactment of legislation modernizing 

privacy notification requirements so that consumers receive meaningful information about how their personal financial data is being 

handled. 

My written testimony also includes two recommendations related 

to the Federal Home Loan Bank System. One would permit more 

credit unions to join the system. The other would extend the Community Financial Institution exemption to include credit unions. 

Finally, we urge the Committee to actively engage in the debate 

over data security. Credit unions and their members are greatly 

impacted by the weak merchant data security practices that have 

allowed several large-scale breaches, including those at Target and 

Home Depot, which have adversely affected my credit union and 

our members. The negligence of those that do not protect their payment information costs us a lot of money and shakes the confidence 

of our members. These breaches would be significantly reduced if 

those that accept payments were subject to the same standards as 

those that provide cards. We implore the Committee to hold hearings and consider legislation that ensures all participants in the 

payment system follow the same securities standards. 

Congress does a lot to remove barriers for credit unions and community banks. It has not gone unnoticed to us that this hearing is 

one of the first that this Committee has held this year. We are 

grateful for this and we are hopeful that it indicates the priority 

of these concerns for the Committee. We look forward to working 

with you and thank you for the opportunity to testify today. 

Chairman SHELBY. Thank you. 

Mr. Buhrmaster. 

STATEMENT OF JOHN H. BUHRMASTER, PRESIDENT AND CEO, 

FIRST NATIONAL BANK OF SCOTIA, AND CHAIRMAN, INDEPENDENT COMMUNITY BANKERS OF AMERICA 

Mr. BUHRMASTER. Chairman Shelby, Ranking Member Brown, 

and Members of the Committee, my name is John Buhrmaster and 


BANKI-41578DSA with DISTILLER
7

I am President and CEO of First National Bank of Scotia, a $425 

million asset bank in Scotia, New York. I am also Chairman of the 

Independent Community Bankers of America and testify today on 

behalf of more than 6,500 community banks nationwide. Thank you 

for convening today’s hearing. 

We are here today to discuss a fundamental question: What is at 

stake for the future of the American banking industry? Do we want 

a system with fewer but much larger banks, more systemic risk, 

less consumer choice, and commodified product offerings? Will we 

allow large expanses of rural and small town America to be deprived of access to essential banking services? This Congress provides a unique opportunity to reflect on this troublesome but very 

real scenario and to enact legislation that will help reverse a dangerous trend. 

Meaningful regulatory relief is needed to preserve the economic 

value community banks bring to our Nation. America is built on 

community bank credit, yet the rich tradition of community banking is at risk today because of regulatory overkill grossly out of proportion to any systemic or consumer risk posed by community 

banks. 

A community bank is not a mega-bank on a small scale. The key 

characteristics of a community bank are a simple capital structure 

and business model, traditional products and services, and most 

importantly, a community-oriented character. It is a time-tested 

business model that built this country and has worked for generations. 

The fundamental policy error of recent years has been applying 

monolithic regulatory mandates to community banks. Community 

banks deserve tiered regulation proportionate with their size and 

risk profile. Such relief is needed in the near term, not medium 

term or the long term. I urge this Committee not to let this opportunity slip. 

ICBA’s Plan for Prosperity is a robust regulatory relief agenda 

with nearly 40 legislative recommendations that will allow Main 

Street to prosper. Each provision of the plan was crafted to preserve and strengthen consumer protection and safety and soundness. A copy is attached to my written statement. 

But, before describing it, I would like to thank the Members of 

this Committee for their leadership in the adoption of H.R. 3329 

at the end of last Congress, which doubled the qualifying asset 

threshold under the Small Bank Holding Company Policy Statement. This Congress, you have already passed legislation to ensure 

community bank representation on the Federal Reserve Board of 

Governors. Both of these provisions are now law. On behalf of my 

bank and all community banks, thank you. These are steps in the 

right direction, but much more can and much more must be done. 

ICBA’s Plan for Prosperity is organized around three broad pillars. The first pillar is mortgage lending. Every aspect of mortgage 

lending is subject to new, complex, and expensive regulations that 

are upending the economics of this line of business. Our recommendations include qualified mortgage status for community 

bank mortgage loans held in portfolio and other critical provisions. 

The second pillar of the plan is improved access to capital to sustain community bank independence. Our recommendations include 


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an exemption from Basel III, which was intended to apply only to 

large internationally active banks; relief from the costly mandates 

of S–Ox 404(b); and reform of Regulation D to ease investment in 

privately owned community banks. 

The third pillar of the plan is reform of bank oversight and examination to better target the true sources of risk. Our recommendations include streamlining the quarterly call report and 

an extended exam cycle for highly rated banks, and reform of the 

bank exam appeals process to improve accountability. 

The Senate bill from last Congress that best represented the 

scope of the Plan for Prosperity was the CLEAR Relief Act sponsored by Senators Moran, Tester, and Kirk. With more than 40 bipartisan cosponsors, the bill was a set of consensus solutions to ensure continued access to credit and other banking services. We are 

grateful to the Members of this Committee who supported the 

CLEAR Act. This Congress, we look forward to a new CLEAR Act 

with even more robust, yet sensible, community bank relief. 

Last Congress, over 20 bills were introduced in the House and 

the Senate embodying Plan for Prosperity provisions. Chairman 

Shelby introduced a bill to require cost-benefit analysis of proposed 

rules. Senators Moran and Heitkamp have reintroduced a bill to 

provide relief from privacy notices. Six bills passed the House and 

many others passed the Financial Services Committee. These bills, 

most of which enjoyed strong bipartisan support, have set the stage 

for action in this Congress. 

We strongly encourage this Committee to complete the work that 

was begun in the last Congress and enact meaningful regulatory 

relief for community banks. We look forward to working with this 

Committee to craft urgently needed legislative solutions. 

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

forward to your questions. 

Chairman SHELBY. Mr. Templeton. 

STATEMENT OF ED TEMPLETON, PRESIDENT AND CEO, SRP 

FEDERAL CREDIT UNION, AND CHAIRMAN, NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS 

Mr. TEMPLETON. Good morning, Chairman Shelby, Ranking 

Member Brown, Members of the Committee. My name is Ed 

Templeton. I am testifying today on behalf of NAFCU, where I 

serve as the Chairman of the Board. I currently am President and 

CEO of SRP Federal Credit Union headquartered in North Augusta, South Carolina. The entire credit union community appreciates the opportunity to come before you today. 

Credit unions have always focused on their members. However, 

the increasing complexity of regulation is taking a toll on the industry. The impact of the growing compliance burden is evident as 

the number of credit unions continues to decline. Since the second 

quarter of 2010, we have lost nearly 1,100 credit unions, 96 percent 

of which were below $100 million in assets. Many institutions simply cannot keep up with the new regulatory tide and have had to 

merge out of business or be taken over. Credit unions need regulatory relief, both from Congress and from the regulators, including 

the NCUA and the CFPB. 


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At SRP, our compliance costs have more than doubled since 

2009, and we are actually adding another compliance officer in 

2015 just to keep up. That is not getting ahead, that is just to keep 

up. Many credit unions find themselves in similar situations. A recent NAFCU survey found that 70 percent of respondents have 

noncompliance staff working on compliance issues, which takes 

time away from the mission of serving the members. Focusing on 

complying with unnecessary regulations keeps credit unions from 

fulfilling our core mission of providing our members with provident 

credit and other financial services. 

My written testimony outlines NAFCU’s updated five-point plan 

for credit union regulatory relief as well as our new top ten list of 

regulations that need to be amended or eliminated. 

One of the greatest challenges the credit unions face today is the 

disconnect between the regulatory agency in Washington and the 

real world that credit unions and community banks operate in. 

While regulators have taken some small steps toward relief, too 

often, arbitrary thresholds do not actually consider the risk or complexities of institutions. Regulation of the system should match the 

risk to the system. 

One example of a burdensome regulation where costs will outweigh the benefits is the NCUA’s new risk-based capital proposal. 

The new proposal is a significant improvement over the initial proposal, but the problem with the regulation remains. The proposed 

rule is extremely costly and NCUA has not demonstrated why it 

needs a broad-brush regulation. Despite NCUA’s estimate that a 

relatively small number of credit unions will be downgraded with 

its risk-based capital proposal, the rule would force most credit 

unions to hold millions of dollars of additional reserves just to 

achieve the same capital levels we currently maintain. These funds 

could otherwise be used to make loans to consumers, to small businesses, or aid in our Nation’s economic recovery. 

We also believe there are serious legal questions concerning the 

ability of NCUA to finalize the proposal as written. Ultimately, we 

believe legislative changes are required to bring about a comprehensive capital reform action allowing credit unions access to 

supplemental capital. 

Next, NAFCU believes the field of membership rules for credit 

unions should be modernized on both the legislative and the regulatory fronts. NAFCU believes that reasonable improvements to 

current field of membership restrictions include streamlining the 

charter changing process, revising the population limits in NCUA’s 

field of membership rules, and making statutory changes to allow 

all credit unions to add underserved communities to their working 

groups. 

Cost and time burden estimates issued by regulators are often 

grossly understated. We believe Congress should require periodic 

reviews of actual regulatory burdens of finalized rules and ensure 

agencies remove or amend those rules that vastly underestimated 

the compliance burden. At SRP, we spend approximately 116 man 

hours to fill out one NCUA call report. NCUA’s 2014 submission 

to the OMB estimated the time to do that at 6.6 hours. Something 

does not add up, 116 versus 6.6. There is a disconnect someplace. 


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All regulations must meet the test of whether the benefits outweigh the costs. We always need to have the end game in mind and 

make sure the regulation matches the true risk. There are a number of additional steps outlined in my written statement, both for 

Congress and the regulators, to provide relief. 

In conclusion, the growing regulatory burden on credit unions is 

the top challenge facing our industry today. It must be addressed 

in order for credit unions to survive and meet the mission of serving their members’ needs. We urge Congress to enact regulatory relief and hold regulators accountable to do the same. 

We thank you for the opportunity to share our thoughts today 

with you and I welcome any questions you may have. 

Chairman SHELBY. Thank you, Mr. Templeton. 

Mr. Calhoun. 

STATEMENT OF MICHAEL D. CALHOUN, PRESIDENT, CENTER 

FOR RESPONSIBLE LENDING 

Mr. CALHOUN. Chairman Shelby, Ranking Member Brown, and 

Members of the Committee, today’s hearing addresses the question 

of how we protect and promote critical community financial institutions while preserving consumer financial protections that are essential for the growth and integrity of our economy. 

The Center for Responsible Lending is the policy affiliate of SelfHelp, a community financial institution with over 30 years’ experience providing banking services that help small businesses and 

families succeed. We have provided over $6 billion of financing for 

small businesses, home loans, and today have tens of thousands of 

families that depend upon us for deposit accounts, credit cards, 

home loans, and other basic financial products. 

Before joining CRL, I spent a large part of my career working in 

those lending programs, and I also served as General Counsel dealing day to day with compliance issues. So, we know well the different business model and activities of traditional community financial institutions. The key is how to advance that effort. 

Four principles apply. First, we must protect the integrity and 

fairness of our financial markets. Not only were community banks 

not the cause of the financial crisis, they were among the most severely impacted victims. While they did not offer the risky home 

loans that drove the crisis, the resulting recession stressed those 

banks and we lost nearly 500 of them in the ensuing years, and 

that occurred before Dodd-Frank rules went into effect. One of the 

most important advances in consumer regulation is, for the first 

time, nonbanks are now required to follow basic rules that banks 

have followed for so long. In providing relief to community institutions, we must continue those protections. 

Second, relief must be directed to traditional community financial institutions. Many of the proposals that have been made would 

primarily or solely benefit larger institutions. Of course, there 

should never be unnecessary regulations for institutions of any 

size. But, where exceptions to otherwise effective provisions are 

being made to accommodate special business model community 

banks, they should be carefully targeted. 

Overly broad provisions undercut basic protections, and also, 

they dilute the benefit of the provision to community banks. At 


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their worst, they create exemptions for nondepository entities, including the very players that pushed reckless lending in the past. 

For example, several of the mortgage proposals would apply to 

lightly supervised nonbanks and open the door again to reckless 

lending. 

Focusing on traditional community banks also means focusing on 

the community lending model. Some of the proposals include exemptions up to $50 billion. Institutions in this category have very 

different business models from traditional community banks. They 

include American Express Bank, E*Trade Bank, GE Bank, and 

Morgan Stanley Bank. While those institutions provide important 

financial services, their markets and activities have little in common with traditional community financial institutions. 

Third, overly broad exceptions undercut basic protections. We 

saw this with the bipartisan Military Lending Act, which protects 

service members from predatory loans. The original rules had several exemptions, and payday lenders and others learned quickly 

how to restructure their business to exploit them. As a result, the 

rules failed and our military bases today are still encircled with 

lenders targeting 400 percent loans at our troops. Congress has directed DOD to go back and rewrite those rules, which they are 

doing in this time. Fortunately, many of the agencies, as we heard 

earlier this week, are addressing how to preserve the community 

bank model and providing relief there. Most recently, the CFPB 

provided substantial revisions to the mortgage rules addressed to 

community banks. 

Fourth, we must distinguish between community financial institution regulatory relief and proposed structural changes, such as to 

the CFPB. Those changes pose the greatest threat to basic financial 

protections. They also undercut efforts to deliver relief to the community banks. For example, we saw in the buildup to the housing 

crisis the budget process was used to hamstring oversight that 

would have countered the uncontrolled lending. When HUD tried 

to put restrictions on risky mortgages and when there were efforts 

to rein in the GSEs’ excessive portfolios, both of those efforts were 

blocked with budget provisions. Similarly, structural changes such 

as commission undercut effective oversight. That is why the Senate 

in 2008 by a broad bipartisan vote explicitly required independent 

funding and a single director for the new regulator of the GSEs. 

In conclusion, thank you for the opportunity to testify today. We 

look forward to working with the Committee, the other community 

financial institutions, and regulators in advancing the role and 

growth of community banking. 

Chairman SHELBY. Thank you, Mr. Calhoun. 

Mr. Blanton, arbitrary thresholds—in your testimony, you recommend removing arbitrary asset thresholds for certain regulations. If you were to remove arbitrary asset thresholds, what would 

you use instead? 

Mr. BLANTON. Yes, I would propose a risk-based model that looks 

at the banks’ risk profile that they are taking and set guidance 

based on that. In my State, Georgia, which has had a pretty tough 

economy, we have lost 87 banks. All of these banks, when you 

looked at their risk profile, were very highly leveraged in certain 

areas, but all of them would have been under a threshold. So, the 


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threshold, to me, does not really properly identify the type of business model these banks are in. 

Chairman SHELBY. I think people know I am a strong believer 

in empirical analysis when it comes to regulations. If a regulation’s 

cost outweighs its benefits, I believe it should be thrown out, or 

never brought forth. On Tuesday, we heard here from the Federal 

Reserve that it is easy to measure regulatory cost basis. Mr. 

Templeton, have the regulators done a good job analyzing costs and 

benefits? 

Mr. TEMPLETON. Sir, the example I gave, I think, in my verbal 

testimony speaks somewhat to that. In our shop, it takes north of 

100 hours just to do the call report. NCUA estimated that it is 6.6. 

If they use that type of data to do the whole industry, you can see 

the magnitude of the misrepresentation of the cost. That is a good 

example, sir. 

Chairman SHELBY. In the area of de novo bank charters, Mr. 

Buhrmaster, it is my understanding that only two de novo Federal 

banking charters have been approved since 1909. On Tuesday, we 

heard from the FDIC that this is due to, quote, ‘‘the economic 

cycle,’’ not, quote, ‘‘legislative barriers or even regulatory barriers.’’ 

Are regulatory barriers, Mr. Buhrmaster, standing in the way of 

new banks being formed? 

Mr. BUHRMASTER. Well, we have seen some economic recovery in 

parts of the country——

Chairman SHELBY. Uh-huh. 

Mr. BUHRMASTER.——much of the country. So, clearly, I do not 

believe it is part of the economics of it. What I do believe—or, the 

national economics. What I do believe is I have got a stack here—

I asked my compliance officer to show me all the regulations she 

has had to look at, that is guidances, changes, and so forth. I had 

to print it in small print so I could actually not over-exceed the 

weight limit on the plane. But, this is 7 years’ of changes these 

folks have had to do. Now, a de novo for the first 7 years is going 

to be subject to all of this. It is a crushing burden on a new business, and, frankly, they are small businesses. Would you open a 

small business if you had to deal with this amount of regulatory 

burden? 

Chairman SHELBY. It would not happen, would it? 

Mr. BUHRMASTER. It would not happen. 

Chairman SHELBY. I will direct this question to the credit union. 

A lot of us are concerned when regulations limit choices, increase 

costs for consumers, or perhaps cause institutions to stop offering 

products altogether. Mr. Murray, have any regulations increased 

the cost of products or services that you offer your members or 

caused you to stop offering them altogether? 

Mr. MURRAY. A great example of that in our shop is the remittances rule that was put forth by CFPB. That forced us to raise the 

prices of that service for our members after we first had to make 

a choice about whether or not to continue with that service at all. 

That is a choice that many credit unions, they opted out of that 

service simply because of the cost of that regulation and found it 

too burdensome to continue to offer. Again, the cost-benefit just 

was not—it did not stack up. So, that is a great example of one 


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where we have had to raise our price by 10 percent or more just 

to stay up with that——

Chairman SHELBY. That is where you need some relief, is it not? 

Mr. MURRAY. We would love some relief in that area. 

Chairman SHELBY. Risk-based capital proposal—last month, the 

National Credit Union Administration issued a revised proposal regarding the capital standards for credit unions. Mr. Templeton and 

Mr. Murray, what are your views on the revised proposal, and has 

the National Credit Union Administration conducted a sufficient 

cost-benefit analysis? 

Mr. TEMPLETON. First, I would say that the current proposal is 

a significant improvement from the first proposal, so I would applaud NCUA for moving in the right direction. But, I think the real 

question still remains, is this a regulation that has a purpose for 

being in existence? 

When we take the regulation as proposed and roll it back over 

the last 9 years—and the calculations are not crystal clear, you 

have to make a few assumptions, so let me just be clear on that—

but, when we take the regulation, apply it retrospectively, 95 percent of the credit unions that would have been problematic under 

the regulation came through the last 9 years and are healthy and 

alive today. Very few credit unions would not have made it 

through. What the proposal would have done is it would have made 

it extremely hard or intensified the pressure on all credit unions 

to raise additional capital that would have been called for under 

the regulation. 

Now, does that mean it is not necessary? I think it is a good indication it is not necessary and it has not been thoroughly analyzed, 

and particularly with the benefit of looking back. We can look back 

right now and really see if, in a hard time, this rule would make 

a difference. So, that is where I think we are on that, sir. 

Chairman SHELBY. Thank you. 

Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. 

I want to dig a little more deeply on the issue of costs and benefits of these regulations. That seems to be the primary purpose of 

this hearing, to discuss that. Mr. Calhoun, I would like to ask you, 

we heard in today’s—I am sorry, in Tuesday’s hearing that the regulators already conduct significant impact analysis of their rules, 

both during the rulemaking stage as well as retrospectively, in addition to the EGRPRA rule. Several agencies noted on Tuesday 

that they conduct ongoing reviews of their rules more frequently 

and voluntarily. The regulator of credit unions, the Consumer Bureau, they do those without being required to by Federal law. Witnesses pointed to the inherent difficulty in assessing the benefits 

of a rule, especially sort of the societal-wide benefits, since preventing another financial crisis or ensuring that consumers have 

protections before subject to predatory lending may not be easily 

quantifiable beforehand. 

Several recent bills offered by some Members of this Committee 

and others have proposed that we should require agencies to undertake more cost-benefit analysis as they proceed. Tell us your 

opinion of these bills, many of which have broad applications across 

more than just financial services through the Government, but parVerDate 0ct 09 2002 14:52 Feb 29, 2016 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 S:\DOCS\94014.TXT SHERYL

BANKI-41578DSA with DISTILLER
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ticularly impact financial regulators. Give us your thoughts about 

some of these requirements. 

Mr. CALHOUN. Well, certainly, agencies must consider the burden 

of their regulations, both when they are considering them in the 

first place, and they need to go back and look at them again. I 

mean, for example, the CFPB has a requirement that they have to 

go back and reevaluate every regulation after a 5-year period in addition to their evaluation at the outset. 

But, many of these cost-benefit analyses are very challenging, 

and let me just give one example. A proposal which most of the 

members here strongly supported was the reform of our credit card 

market, but at the time that that was proposed—it initially was 

proposed by the Federal Reserve using their rulemaking authority—there were predictions from industry that it would not only destroy the credit card market, but pose systemic risks to the whole 

banking system because of the stress on the credit card banks. 

And, if the agency had to cost that out, I mean, those are very difficult projections, and understandably, and we have seen this ourselves, when you have to comply with the regulations, you look at 

them from a different viewpoint, often, than when you are writing 

them. 

But, if you impose a burden like that, particularly with the ability to block all regulations by legal challenges, I think we throw the 

baby out with the bath water there and we end up with just gumming up the whole system. Again, clearly, the burden has to be assessed on initial and ongoing basis, but these proposals, I think, 

again, would throw the baby out with the bath water. 

Senator BROWN. Thank you. 

Give me a brief answer on this. Are costs easier to—costs to the 

banks and the credit unions, and then Wall Street, too—are costs 

easier to quantify than benefits? 

Mr. CALHOUN. They are, but they are often exaggerated. If you 

look in the consumer product world, another example was when it 

was proposed that lawnmowers have a cutoff device, it was projected by industry that that would add $500 or so to the cost of 

every lawnmower. Well, now you can still go buy a lawnmower 

with a cutoff device for under $200 at Walmart. I mean, it is very 

hard to know—there is as much art as science in projecting both 

the costs and even more so the benefits. 

Senator BROWN. Let me pursue one more question——

Mr. CALHOUN. Yes. 

Senator BROWN.——Mr. Chairman—Mr. Calhoun, on costs. 

Today and in Tuesday’s hearing, several questions were asked 

about the increasing costs of compliance to community banks and 

credit unions after the passage of Dodd-Frank. What has been your 

experience with compliance costs? 

Mr. CALHOUN. I think our experience, and we are a—we have 

Federal and State credit union charters and go through the call reports and everything that everybody else gets to have the fun 

with—a lot of that came as a natural reaction to the financial crisis, that you did have lots of institutions failing, again, mainly due 

to the macro effects, but that led regulators to more carefully scrutinize all financial institutions. And, so, that has been, from our 

view, the biggest driver of it. 


BANKI-41578DSA with DISTILLER
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We do think there needs to be review and concern about overlapping regulations. We applauded the regulators, for example, for 

uniting the QM and QRM rule. That would have been a whole another layer of mortgage regulation, that I think the regulators 

heard the call to say, simplify that and make them the same. So, 

we think that we are getting some response from the regulators. 

Clearly, efforts like today help highlight these issues in a very beneficial way. 

Senator BROWN. Thank you, Mr. Chairman. 

Chairman SHELBY. Senator Corker. 

Senator CORKER. Thank you, Mr. Chairman, and thank you for 

having this hearing, you and the Ranking Member, and I want to 

thank all of you for your testimony. 

I am going to ask all of my questions to Mr. Blanton, but I just 

want to say this. I have seen nothing like Dodd-Frank to alleviate 

the tensions between the credit unions and the banks——

[Laughter.] 

Senator CORKER.——and, I will say, it is a welcome reprieve for 

all of us who have had to have to deal with that tension. 

But, to Mr. Blanton, as we look at encouraging private capital 

back into the mortgage market, it seems one of the easiest things 

we can do is deem loans held in a lender’s portfolio as compliant 

with the QM standard for the purpose of a borrower’s ability to 

pay. I understand that the CFPB partially addressed this issue 

through its Notice of Proposed Rulemaking. Last Congress, legislation was introduced in the House, H.R. 2673, that would provide 

broader and more permanent relief for any depository institutions 

that make loans and hold them on portfolio. 

Why is this relief provided—why is the relief provided by the 

CFPB insufficient, and why would the legislation introduced last 

Congress be such an improvement, and what do you say to those 

who suggest relief like this would lead to the proliferation of some 

of the predatory products we saw leading up to the crisis? 

Mr. BLANTON. Thank you. Survival is a real driver for cooperation, so——

[Laughter.] 

Mr. BLANTON. With the QM rule—you know, my whole career, I 

have been making a loan to where the father would call me and 

say, ‘‘My son is getting married. He and his wife really do not qualify, but we have got to get them in a house.’’ I would say, ‘‘Fine. 

We will take care of it.’’ I have made hundreds of those loans. Now, 

under the definition now, I know from day one they do not qualify. 

I cannot put my bank in the position of making that loan where 

I have put more people in fresh and new homes, new couples for 

that scenario—and that is what community banks do, is we have 

this relationship with these borrowers, and we have the father call 

us and say, ‘‘Please help my son or my daughter.’’ With this definition now, if I cannot deem that QM from day one and put it on my 

books, I have now put my institution at risk. And, so, these are the 

things that we need to see legislation passed to allow us to continue to make this relationship loan that we have always made and 

help this young couple into a house. 

Senator CORKER. And, I was not actually going to do this, but 

Mr. Calhoun, if you could briefly respond. It seems to me that that 


BANKI-41578DSA with DISTILLER
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is a legitimate thing, that the three Cs—character, character, and 

knowing the people you are dealing with—has been a fundamental 

part of our banking industry for years. Would you have any opposition to that type of thing? 

Mr. CALHOUN. So, we have very strongly supported the expansion of QM status for community bank loans on portfolio, but it is 

a different business model. I would note, even in the crisis, WaMu 

and Wachovia, for example, two institutions that both went under 

largely due to unsustainable loans on their portfolio, and when you 

are looking at a refinancing, it is the borrower’s equity in the 

house—and the majority of loans still today are refinances—it is 

the equity in the house that is providing the cover. 

But, we are strong supporters, again, for community financial institutions. His lending model is very different from a large bank 

where it is much more routinized and impersonal, so——

Senator CORKER. So I have a consensus on this point? 

Mr. CALHOUN. I think there is a large amount of consensus on 

this point. 

Senator CORKER. My second question. If you think back to the 

terms of the underlying reasons behind the Volcker Rule, I think 

you would be hard pressed to find anyone that thought it was needed because of the activities of community banks. Yet, according to 

the letter of the law, banks must be in compliance. On Tuesday, 

Mr. Bland of the OCC said that the compliance effort to make that 

determination seems costly compared to the actual activities that 

smaller banks have. What does it mean for smaller banks that 

never engaged in proprietary lending but still need to be in compliance for the Volcker Rule? 

Mr. BLANTON. Well, we first saw we do have to do an analysis 

to even determine where that qualifies, and most community 

banks, the only part that they are involved in is maybe the deposit 

accounts of local municipalities and all. And, so, for us, it is just 

a very expensive process to make that determination and then 

have to deal with that. 

Senator CORKER. And, Mr. Calhoun, briefly, do you have any 

issue with that type of proposal? 

Mr. CALHOUN. So, the Volcker Rule requires community banks to 

still document that they are not covered. There seems to be room 

there for relief to make that certainly easier and less burdensome 

than it is now, again, for community banks. 

Senator CORKER. Yes. Well, it seems like we are making a lot of 

progress here. 

[Laughter.] 

Senator CORKER. I would say that—my last point, and I know 

there will not be time to answer unless the Chairman gives me a 

second, but the Bipartisan Policy Center suggested creating a pilot 

program for a consolidated examination force for institutions subject to supervision by all three of the Federal prudential regulators. 

Such a program would force coordination between agencies and 

minimize the costs associated in examination for banks. It appears 

that the Federal Financial Institutions Examinations Council 

would provide the vehicle to run the pilot program. Just briefly, 

Mr. Blanton, do you think this is something that would be a good 

idea? 


BANKI-41578DSA with DISTILLER
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Mr. BLANTON. I think it is something that needs to be explored. 

I do not—I think more information needs to be looked at, but I 

think it certainly ought to be explored and might very well have 

good credibility to it. 

Senator CORKER. Thank you all for being here and for what you 

do in your communities around the country. I do not know why we 

have two institutions separated by the Savannah River here at one 

place, but we are glad to have you. 

[Laughter.] 

Senator CORKER. Thank you very much. 

Chairman SHELBY. Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman, and thank all the 

witnesses for their testimony. 

You know, banking is a regulated industry, and with good reason. One need to look no further than the financial crisis, when 

millions of Americans lost their homes, jobs, and retirement savings, and businesses across the country had to close their doors and 

let their employees go, and taxpayers had to bail out some of the 

worst offenders just to prevent an even bigger meltdown. But, I 

also believe that regulation is not a one-size-fits-all exercise. A 

community bank or credit union that makes loans to small businesses and home buyers poses different risks and should be treated 

differently from an integrated mega-bank with multinational scope 

and sophisticated trading operations. 

So, I am eager to work with my colleagues on both sides of the 

aisle on targeted consensus measures that help small institutions 

better serve their communities and compete in the marketplace 

and to reduce unnecessary burdens for institutions of any size. 

However, in the desire to do that—and I have often said that community banks were not the cause of our financial crisis in the preceding years—I would, however, caution that those who would seek 

to use regulatory relief for small institutions as a pretext for other 

goals, such as gutting important consumer protections or financial 

reforms, will face a challenge by many of us. 

I believe that regulatory relief is compatible with protecting consumers, investors, and taxpayers, but I would have serious concerns about attempts to hijack the process and undermine these 

goals, for example, by creating overly broad carve-outs or imposing 

a rigged version of cost-benefit analysis that would block almost 

any regulatory action and invite frivolous legal challenges at taxpayers’ expense. 

So, I think that regulatory relief, at least as I envision it, to 

make and help community banks and credit unions and others be 

able to function effectively in the marketplace and help consumers 

is a shared bipartisan interest, but I hope it is not the opportunity 

in which some will look to slay the very provisions that ultimately 

have brought us further and further back away from the systemic 

risk that created not a systemic risk just for those institutions, but 

for the entire Nation. I do not want to relive that again. But, I do 

want to work with all of you to create greater abilities to be able 

to function and function effectively and, of course, with the appropriate oversight. 

So, let me ask all of you, I have heard from some community 

banks in my State that when a dispute comes up in the context of 


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an examination, they do not always feel that there is a sufficient 

process available for fairly resolving the dispute. And, I would add 

that these are not cases where the bank is looking for an opportunity to challenge or appeal every decision that goes against them. 

They just want to know that the mechanism exists where their concerns can be fairly heard and appropriately responded to in a timely manner. 

For any of the witnesses, to the extent that this has been an 

issue for you or your institution or members of your association, 

can you discuss what type of improvements you think can be made 

in that regard. For example, are there changes that you would 

make to the ombudsman’s office of your respective regulators? Mr. 

Buhrmaster. 

Mr. BUHRMASTER. Well, first, let me just respond to your first 

comments that if a proposal that we have before you to reduce regulatory burden affects safety and soundness or consumer protection, it goes against everything that the community bank is for, 

and that is not something we could support. So, please be assured 

that what we are asking for is to allow us to deliver better service 

to our consumers and to help promote entrepreneurship among 

small businesses. 

So, that said, an examination process—I had an exam a couple 

of years ago where we had one examiner who really did not look 

at the entire packet of information he was given, and we received 

a warning on that information. We did not feel that was right. We 

felt the examiner did not do his job properly. We moved up the 

channel. Fortunately, we have—in our area, we had an examiner 

in charge of the regional office that listened and worked with us 

and worked through that issue. 

But, as I travel the country talking to different community bankers across the Nation, it depends on what agency and it depends 

on your regional administrator or the food chain up on whether or 

not those type of things can get removed. I remember earlier in my 

career we had a similar issue. It ended up going to D.C. and we 

did not prevail. We did not go to the ombudsman, because, frankly, 

it is scary to report an individual examiner to an ombudsman. You 

just do not know. That guy is going to come back into your bank 

sometime. 

So, I think there needs to be more transparency. In our Plan for 

Prosperity, we do have a proposal there that deals with this, and 

I would hope that this Committee would take a look at that proposal and enact some changes. 

Mr. BLANTON. You know, I completely agree with John’s comments. Our whole mission is to take care of our communities and 

protect them. We would never support any legislation that would 

in any way try and harm our borrowers or harm our businesses. 

I mean, that is what we do. We look after our communities. 

As far as the proposal for an independent ombudsman or regulatory review process, as I cross the country, I have the same stories of people, one, that are scared to use the ombudsman within 

the existing agency. I understand that. They are paid by that agency. They work for that agency. And, there is a tendency to kind of 

shy away from using that. An independent agency would have the 


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ability to review, and you have a proper place to present your challenges to the exam. 

Exams do vary all over, depending on the scope and the experience of the examiner. Our exam teams have been very well, and 

Georgia has had a lot of activity with our exams and, by and large, 

have been handled very well. But, there are—as any large agency 

throughout the country, there are different levels of expertise down 

through the ranks. And, so, I can see some real value in being able 

to have an independent place to be able to come and discuss the 

findings of an exam. So, we do support that. 

Senator MENENDEZ. Thank you, Mr. Chairman. 

Chairman SHELBY. Senator Crapo. 

Senator CRAPO. Thank you very much, Mr. Chairman. I appreciate your holding these hearings. This is not the first time that 

you and I and this Committee have worked together to put together a package for reform of our regulatory system for financial 

institutions and I appreciate the focus on community banks and 

credit unions in this hearing. 

The first thing I would like to do with the witnesses is—and I 

am not going to ask you to answer this question right now. I am 

going to ask you if you will please send me a written response to 

this question. But, the question is, can you identify some of your 

top priorities for the kinds of reforms that we need, the kinds of 

regulatory reform that this Committee should look at as we prepare for legislative or regulatory oversight. Do you think all of you 

could come up with a list of two or three or four or five, or I do 

not want to limit it, five or ten top reforms? 

[Witnesses nodding.] 

Senator CRAPO. I see everybody shaking their head in the affirmative. So, please, if you would, send those to the Committee. 

Now, with some—and you can refine this list before you send it 

to the Committee. But, do you all have some ideas in your mind 

right now that came to your mind as I asked whether you had 

some top priorities? I would like to ask you, and you can probably 

answer these questions just by raising your hand, if it fits. Do some 

of those top priority reforms that you think the Committee should 

consider fall under CFPB jurisdiction? 

[Witnesses raising hands.] 

Senator CRAPO. Four of the five hands went up, Mr. Chairman. 

Do some of them fall under Dodd-Frank rules and regulations? 

[Witnesses raising hands.] 

Senator CRAPO. I think all the hands went up on that. 

Do some of them fall under money laundering legislation or regulation? 

[Witnesses raising hands.] 

Senator CRAPO. Five of the five hands went up. 

The reason I am asking this question is because each of those 

categories that I just listed to you, I understand to be exempted by 

the EGRPRA process from our regulators from review. In the testimony before this Committee yesterday, the regulators told us that 

they were not looking at Dodd-Frank regulations in their EGRPRA 

review process. In the footnotes to the EGRPRA process that has 

now been started, it says, as the law says, that CFPB regulations 

are not—or, the CFPB is not required to participate in EGRPRA, 


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and money laundering provisions are not going to be considered, 

again, because the law does not require it. 

So, my question to you is, if we are having the Federal agencies 

review the burden of regulations on the financial institutions and 

our effort there is to try to identify outdated, unnecessary, and unduly burdensome regulations, and each of you say that some of 

your top priorities fall in the very area that our regulators tell us 

is not going to be reviewed, do we need to reform the EGRPRA 

process? And, again, I would just like to see by raise of hand if you 

would agree with that. 

[Witnesses raising hands.] 

Senator CRAPO. I see three or four or five—in fact, maybe, I 

think, five hands went up. 

I do believe that this Committee will not be limited by the restrictions that the regulators have claimed they are following with 

regard to the EGRPRA process. I have previously in hearings with 

the regulators encouraged them not to self-limit themselves in this 

review, and I, frankly, would encourage you in your comments and 

participation in that process to continue to bring up these kinds of 

issues, even though the agencies may tell you they will not listen 

to you, because I believe that this Committee is going to do its part 

through oversight to try to get those agencies, whether it is in the 

EGRPRA process or otherwise, to look at these issues. 

Just from the testimony that we have had here today—the QM 

example has been brought up—I do not think that the agencies 

would have looked at QM under EGRPRA. The Volcker Rule has 

been brought up. I do not think the agencies will look at the 

Volcker Rule under EGRPRA, under their current approach to it. 

And, so, my point is, I think that we have got to expand the focus 

of our Federal agencies who are looking at this issue. I appreciate 

again, Mr. Chairman, your willingness to have this broader review, 

and I hope that through the input received from those like our witnesses today, as well as from the oversight that this Committee 

provides, that we can help our Federal agencies to also—our regulatory agencies to also expand their view about how we should approach helping the community banks and the credit unions and 

other financial institutions in this country. Thank you. 

Chairman SHELBY. Thank you, Senator Crapo. 

Senator Donnelly. 

Senator DONNELLY. Thank you, Mr. Chairman, and I want to 

thank all of you for being here. 

I had the privilege of serving on the Financial Services Committee during some of the most difficult times over in the House 

of Representatives, and one of the things that was most heartbreaking was so many of our small businesses in Indiana having 

their credit lines ended because it was such a challenge for the 

banks, as well, at that time, and to see them not being able to get 

inventory lending, floor plan lending, all of those things that affected our small businesses. I wanted to make sure that we never 

had to do that again, and that is why we worked to ensure the 

safety and soundness of our financial system, and so that is, like, 

the cornerstone of everything we do. 

But, then I sit with my community bankers and credit unions 

and they go, you know, number one, we were not the folks who did 


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it, and we all understand that. But, number two is, those are our 

goals, to make sure those businesses continue to be able to get 

those loans and the credit lines, but here are some things that we 

are now dealing with that have made it tougher for us to maybe 

not sell at the end of the year or to make it more challenging. 

So, if you each had one or two things that when you look at, you 

go, hey, the safety and the soundness of the system will be protected, but this does not do anything but make our lives more difficult, if you could just give me one each——

Mr. BLANTON. Well, I mean, I go back to the mortgage process 

now. My bank does originate a quite good number of mortgages. In 

the process, where just a few years ago you would sit down with 

an originator and make an inquiry, you would just simply, you 

know, what is the mortgage market, what are the rates and all 

now, that is now an application, so, now I go through a very rigorous process of logging in this application, all this tracking, that 

just a few years ago was nothing but a polite conversation between 

an originator and a borrower. And, so, now I have got all this log 

I have got to do, all this tracking, and I have to do it in a zerotolerance environment with humans involved. I am sorry. That is 

very difficult. We have the best intentions, but it just does not always translate when you get it onto paper. 

And, the amount of work now that my mortgage department is 

doing tracking this, it has quadrupled, quote, our ‘‘applications.’’ It 

has quadrupled not only that, you now have to send them a decline 

letter. Just because it is now considered an application, you have 

to send them a decline letter. They get a letter and go, they did 

not even apply as far as they were concerned. They were just doing 

an inquiry, just kind of what is going on, and seeing now you have 

declined me? And, so, they are insulted. I have sat here and given 

them a decline letter. 

So, that is just one example with my bank of the amount of expense I have to do in a zero-tolerance environment, and there 

again, I say, that is really hard with humans. 

Senator DONNELLY. Mr. Murray. 

Mr. MURRAY. I would agree that the mortgage side is a big, big 

challenge. You know, when the QM rules came out and we started 

having to have the conversations internally about, OK, what kind 

of borrowers will not qualify for this, I mean, that is just kind of 

going back to the period that you were referring to, about when we 

were making decisions to save the institution at the detriment of 

consumers. We are having those same kind of conversations when 

it comes to QM. 

So, we have taken a conservative approach. We have said we are 

not going to do any non-QM loans right now. We are going to take 

a wait and see and see how it all plays out. That is not the way 

to serve our communities effectively, and so I beseech you to look 

at that and understand the true impacts of that on the communities that it is affecting. 

Senator DONNELLY. Sir. 

Mr. BUHRMASTER. Yes. First of all, we never did a better business in small credit lines as we did when all those large banks 

were canceling our customers and they were coming in to us saying, ‘‘How do I get my inventory?’’ That year, we did a bang-up 


BANKI-41578DSA with DISTILLER
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business on small lines of credit, and we have kept those customers. 

Things in the regulations that are harming small businesses, especially—that was the focus of your question, I believe—the equity 

in someone’s home is the greatest source of capital for a startup 

business, and granting home equity loans or first lien mortgages on 

a house that someone wants to mortgage to put the money into 

their business has become so difficult because of the high-cost 

mortgage and the ability to repay part of the QM. If loans held in 

portfolio by community banks, by these institutions, were exempt 

from that rule, we would be able to provide more capital to businesses because we would not have to be restricted. 

The hardest loan to make right now is to a small business, a self- employed individual. I had an individual, he wanted $30,000 on a 

first mortgage, and I only got the call after he had given up and 

gone and found money somewhere else. The guy had been with us 

for 20 years. He has done this a couple times before. We had to 

make him jump through hoops to provide us with all this documentation to prove he had the ability to repay, because our recognition of his character was not enough. That is what is harming 

businesses, QM. 

And, then, the fact that on Basel III, we are losing the ability 

to—we are losing capital when we write a development loan. I 

want to help develop commercial properties, yet it costs me more 

in capital to do those loans now. 

Senator DONNELLY. My time is up, but——

Mr. TEMPLETON. To carry that tide on down the table, QM is just 

really changing the whole atmosphere for the small lender in our 

marketplace. When QM first rolled out, we automatically got to the 

conclusion we were not going to do nonqualified because the risks 

were just too great. As we dug and dug and dug, we determined 

that we could not back away from that market, because if we did, 

it was going to be a substantial portion of our business. 

But, what we did have to do is we had to lop off, for lack of a 

better phrase, the outliers, the people that were on the fringe that, 

up until then, we would take the risk on them, and up until then, 

our track record had been near perfect over 25 years. I think in 25 

years, we lost maybe two times on a loan like that. The track 

record indicated those people are going to work with us because we 

work with them. 

But now, all of a sudden, they have got a brand on the mortgage 

that says ‘‘nonqualified.’’ It is a target in the event of any type of 

catastrophic event in that person’s life, and the outlier presents 

just too much of a risk today, where 10 years ago, that was bread 

and butter to us. They loved us because we were able to do something for them that a person on the street called a loan shark or 

a finance company was willing to do for 35 or 40 or 50 percent and 

we would do it for 8 or 9 percent. 

Senator DONNELLY. OK. 

Mr. TEMPLETON. And, those days are gone now. 

Senator DONNELLY. Thank you, Mr. Chairman. 

Chairman SHELBY. Senator Scott. 

Senator SCOTT. Thank you, Mr. Chairman, and thank you for 

providing the opportunity to have this conversation today. I think 


BANKI-41578DSA with DISTILLER
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it is a very important conversation and one I will continue along 

the lines of Senator Donnelly. 

I will just tell you a very quick story. As a kid growing up in the 

insurance business, I had an opportunity to start a business, a 

small Allstate Insurance franchise with a 1990 240–SX with 

253,000 miles. I went to a big bank and said, ‘‘This is my asset.’’ 

They all—looking at your faces, they all laughed, too. 

[Laughter.] 

Senator SCOTT. I got used to that, very comfortable four or five 

banks into it. But, I went back to the bank where I had the longest 

relationship and shared my business plan and had a conversation 

and the banker said, ‘‘I can do something called a relationship loan, 

a character loan.’’ I cannot imagine in the current environment—

though you had nothing to do with the failure of our economy—that 

you would be in the position to take that risk, because if I understand the rules and the regulations fairly, that any unacceptable 

risk on your books brings attention in waves that would be disconcerting and challenging for you to overcome that threshold. 

Is that an accurate statement, that today’s environment would 

not allow you to provide a kid like me—a kid like me several years 

ago—an opportunity to move forward and starting my own business? Is that accurate, Mr. Buhrmaster? 

Mr. BUHRMASTER. I believe that is accurate. I think that for 

someone starting—we have done State Farm loans. We have——

Senator SCOTT. Allstate. 

Mr. BUHRMASTER. I am sorry, Allstate——

Senator SCOTT. Please. Please. 

[Laughter.] 

Mr. BUHRMASTER. OK. 

Senator SCOTT. There are some things that cannot be allowed on 

the Banking Committee. 

[Laughter.] 

Mr. BUHRMASTER. I actually have an Allstate loan. 

[Laughter.] 

Mr. BUHRMASTER. I do believe in good hands. Let us just get this 

right. So, we have done Allstate, as well——

Senator SCOTT. Good. 

Mr. BUHRMASTER. We have done those, too. You are passing 

generational businesses or you are picking up a new business——

Senator SCOTT. Absolutely. 

Mr. BUHRMASTER.——and those are character loans. That is 

what our economy is based on. And, yes, we can do some of those. 

They are harder to do right now, much harder. But, again, it is 

that source of equity. What really puts the brakes on it right now 

is if you are using a home for any part of that financing of that 

project, it kills it. It is very difficult. 

Senator SCOTT. Let me take that question—because you just created a segue into Mr. Blanton’s earlier conversation about the QMs 

and the ability to create access to capital and/or to a home to folks 

that you have had a long-term relationship with not only the borrower, but their family. And, so, if you could put into context for 

us that actual process and how challenging it is today compared to 

speaking to how challenging it was. And, in the context of safety 

and soundness, could you and would you be able to create a narVerDate 0ct 09 2002 14:52 Feb 29, 2016 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 S:\DOCS\94014.TXT SHERYL

BANKI-41578DSA with DISTILLER
24

rative that makes sense to your board of directors and to your institution but not to the regulators? 

Mr. BLANTON. It is really hard to document to your regulators, 

but as far as safety and soundness, those loans that we can make 

and we keep on our books are some of the safest loans we make 

because we have that relationship with that family and have had 

it for generations. 

I know a lot of my rural colleagues in Georgia, some of their 

prime loans may be five acres and a double-wide——

Senator SCOTT. Yes. 

Mr. BLANTON.——and they have done it year after year after 

year. What the regulators do not seem to understand in that environment is if you force to where I cannot make that loan anymore 

and I cannot put it on my books, that family does not have the luxury of saying, ‘‘Well, we will just do without the money.’’ They are 

going to get the money. They have no choice. So, now, where are 

they? Down the street at a much higher interest rate environment 

that is not constrained by all the constraints that we have because 

they had no choice. They had to generate $5,000 or $10,000 or 

whatever the amount was. Well, these people in a lot of cases are 

self-employed. Trying to fit them into an ability to repay definition 

is virtually impossible. 

Senator SCOTT. Yes, very difficult. And, I will tell you, according 

to a Harvard Kennedy School working paper authored by Marshall 

Lux, one of the unintended consequences of Dodd-Frank is that 

community bank small business lending has declined by about 11 

percent, and small business banks, a billion dollars or less in assets, their share of banking assets have also declined by 19 percent, as if too-big-to-fail is more likely today than it has been before 

the regulatory environment was created. 

Let me just ask my final question, with my time running out, to 

Mr. Templeton. As you know, sir, I served for about 7 years on a 

credit union board, back when I had an afro. Let me just ask you 

a question, though. Looking at the current environment, what is 

the impact on your ability to loan? How many folks are you employing today who are involved in the regulatory responsibilities of 

the credit union versus the lending part of the credit union? And, 

what does that look like for the future of credit unions if what we 

have seen so far gets worse? 

Mr. TEMPLETON. Today, we have two people employed full-time. 

We are in the process of adding a third person full-time. But, that 

is only the beginning of the compliance costs. Those are people who 

are dedicated 8 hours a day to doing nothing but compliance. Every 

time we have a new product, every time we have a feature change, 

we have to reach down into the functional departments and involve 

those people in the compliance aspects of how are we going to be 

compliant on this new modification. So, those numbers exponentially go up. 

To maybe answer your question another way, the loan that you 

talked about that used to could be done in many local banks and 

credit unions was a 5-minute loan in many cases back then. Yeah. 

I know you. I have known you forever. I trust you. Let us get the 

paperwork done. Today, that loan may turn into 15 or 20 or 30 

hours. That is a regulatory compliance burden. That is an overhead 


BANKI-41578DSA with DISTILLER
25

cost that is not measured in all the assessments of the risk and reward. 

If you talked to me today about that loan, I would say, well, let 

me get back to you. So, I go and I talk to the financial analyst and 

I say, what do you think? I go and talk to this person. I go and 

talk to that person. And, the process goes on and on and on. 

Senator SCOTT. Thank you. 

Mr. CALHOUN. And, if I may add, Senator, just to make sure it 

is clear for the record, the CFPB proposal, which I think most people here have supported and I know ICBA has praised, would allow 

unlimited portfolio loans for community banks to qualify for QM 

status. Another area where we can have clarification, we do a lot 

of small business lending. We can have more clarification that the 

QM standards should only apply to consumer loans and business 

loans are generally taken outside of that, but we can get more clarity on that, I think that would be a specific thing that could help. 

Senator SCOTT. Thank you, sir. Thank you, Mr. Chairman. 

Chairman SHELBY. Senator Heitkamp. 

Senator HEITKAMP. Thank you, Mr. Chairman. 

I grew up in a town of 90 people. You can imagine, my family 

had a relationship with a community bank. Whether it was financing a home that you could never get an appraisal on, right, because 

where are you going to find a comparable sale, right? Whether it 

was helping my father finance his business and cash-flow his business, or looking at a farm that needed a quick operating loan because of some tragedy. 

I think the great irony of this is, in spite of all that relationship 

banking and that character banking that you do, you were not the 

institutions that failed because you were banking every day on the 

American people and your relationship with the American people. 

And, we want to get back there. And, I think what you see here 

is a real bipartisan interest in getting this done. 

I know you probably hear, here we go again, right? We are going 

to testify and we are going to tell our story and nothing happens. 

You have 75 cosponsors on the privacy bill last year and we did not 

get it done. 

I am here to tell you that I think with the leadership here of 

Senator Shelby and Senator Brown and the commitment of this 

Committee, we are going to get this done for you. So, it is critically 

important that we know what your priorities are, and I applaud—

I think Senator Corker took you through a couple that he sees and 

hears about, we all hear about, and I think Senator Crapo said, 

OK, here it is, and I hope that you share that document with all 

of us because we want to get this right. 

So, with that—that was kind of my first line of questioning. 

What two or three things are the highest priority, will take the 

most amount of burden, give you the biggest bang for the buck, 

that we know we can do without creating an environment of systemic failure or without unraveling necessary controls to make sure 

that we do not have a repeat of 2008. 

So, I am going to ask you a little different question. We hear all 

the time about trickle-down of best practices, right. So, all of a sudden, someone comes in and says, well, we just examined Wells and 

Wells is doing it this way, so we want you to do it this way. So, 


BANKI-41578DSA with DISTILLER
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that examiner piece, that fear of the heart attack letter, or as you 

explained, what happens when you do not have someone who can 

be a monitor or adjust what a maybe overzealous examiner would 

do, that is also something, and that is a little tougher for us to get 

at. And, so, I would like to examine that a little bit more, on what 

you think would be—you obviously did not like the ombudsman 

suggestion, so I am looking for alternatives to deal with the examination issues that you have, and we can start with you, Mr. 

Blanton. 

Mr. BLANTON. You know, you are right. That is a very, very difficult question to ask because there are so many—with so many examiners at this, so many different approaches on each exam. But, 

we do come into areas such as, in my bank, are you stress testing 

your loan portfolio? Well, I am not required to do that, but, they 

say, well, yeah, but you really need to. And, I understand where 

they are coming from, but there are just some things—my bank 

does not represent a risk to anything. I mean, I am sorry. If I go 

away, there is nothing in this economy that has changed. And, I 

think, therefore, I need to be regulated and examined in that same 

way. 

Senator HEITKAMP. But, your community will change. 

Mr. BLANTON. My community will change, yes, ma’am. It most 

certainly will. But, I think I need to be regulated that way and I 

need to be examined that way, to where it meets my risk profile. 

Senator HEITKAMP. Some kind of change that we can make here 

is what I am after, where you would feel comfortable that you had 

a legitimate second look from an examiner. 

Mr. MURRAY. Yes. We believe that an independent process is 

highly needed for the examination process. We do not really feel 

like in the credit union world we have an effective appeals process 

right now. We do not have an ombudsman that we feel we can go 

to. Our appeals process is up the food chain of the examiner that 

oversees us. So, it does not work, it is not effective, and, therefore, 

it is not utilized. 

And, you are absolutely right about the best practices trickledown effect. It is very real and it is very influential, and it happens 

from all levels. You know, one of the things we are dealing with 

in the credit union world right now is some perceived notion that 

interest rates are going to explode in the very near future, and so 

we are being asked to shock test our balance sheets for incredibly 

high interest rate shocks, well beyond what is called for in any regulation. That request is coming from examiners who are getting it 

from higher up in the agency. That is unreasonable, it is illogical, 

and it costs a lot of time and money. And, we can receive a nice 

ding on our examination if we either do not do it or if those results 

do not come out favorably. 

Mr. BUHRMASTER. Best practices is real. It happens. We get 

asked to do reports, not because they are required by regulatory 

reasons, but they are required by one examiner, and then that report stays with you and that—it is like snowflakes. I mean, you are 

from North Dakota. You understand this. You walked out this 

morning and it was beautiful. It was snowing. There was light. 

But, then you go out to Buffalo, New York——

Chairman SHELBY. Go to North Dakota. 


BANKI-41578DSA with DISTILLER
27

Mr. BUHRMASTER. For me. But, you go out to Buffalo where they 

have six feet of snow, and that is not, and that is what we have 

got here, is the cumulative effect. 

Now, it is the cumulative effect at these examinations where 

they are constantly—they are in your house. It is not every 12 

months or 18 months. They are there all the time. I get a quarterly 

call from my examiner. I am submitting paperwork every quarter 

to them. They are with us. If you move that exam cycle—this is 

something that you can do—move that exam cycle to 24 months for 

one and two banks, one and two CAMELS-rated banks, that is 

going to provide us some relief. That is going to give us greater 

time to work with the regulators, work through this process. We 

will not have to jump to the ombudsman so fast because we have 

got another exam coming up. 

Mr. TEMPLETON. I concur with Mr. Buhrmaster’s suggestion to 

increase the exam schedule timeframe. That gives us more time to 

do things, more time to move the ship. 

In terms of the ombudsman, I think the ombudsman could be a 

good thing just because it is somebody independent watching, OK, 

and sometimes knowing there is somebody watching makes you do 

things slightly different. And, it is always a relief valve. In my institution, in 40-plus years, I have only had one or two examiners 

that I have had difficulty communicating with, and even though, 

I would not have needed to go to an ombudsman, because it was 

not that severe. 

So, I think one of the first things in the examination process 

needs to be to try to establish a meaningful dialogue between the 

examiner and the institution. Sit down and talk about, what are 

we trying to accomplish here? What are you looking for? What do 

you want? Let me know when you have headaches. Let me know 

when you have problems. And, a lot of that can go a long way for 

easing pains. 

Now, there is always a rogue financial institution who does not 

want to talk to an examiner, sees them as their enemy. You have 

got a rogue examiner on the other side. So, it is not a perfect world, 

but communication starts it toward the right place. An ombudsman 

is just that little safety net hanging there, just in case. 

Mr. CALHOUN. I think the real key is where we started here, and 

it is targeting this relief to community financial institutions. They 

do have a different model, and that can call for different approaches. But, once these things get blurred and say, you know, we 

are going to change the system for everybody, even if they are $100 

billion, $500 billion, that is a different banking model. It is not the 

relationship lending. It is not the community focus. And, so, these 

need to be targeted. I mean, 90 percent of community financial institutions are a billion dollars or less. That is very different from 

whence people were talking $50 billion or $100 billion, as sometimes gets tossed around. 

Chairman SHELBY. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. 

Folks in Massachusetts are really sensitive about snow analogies 

right now. 

[Laughter.] 


BANKI-41578DSA with DISTILLER
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Senator WARREN. Where it is 77 inches and it is supposed to 

start snowing again this afternoon, so——

We have heard a lot today about how smaller banks are being 

smothered by unnecessary regulation, supposedly because of DoddFrank rules like the new mortgage rules that went into effect in 

the first quarter of 2014. Now, I have been looking for some hard 

data to support that claim. According to the latest report from the 

FDIC, the banking industry as a whole posted earnings of nearly 

$40 billion in the third quarter of 2014. That was a 7.3 percent increase relative to the third quarter of 2013. In other words, the 

banking industry did substantially better after the mortgage rules 

took effect in January of 2014. 

And, here is the kicker. Community banks did even better than 

the industry as a whole. According to the FDIC, year over year 

community bank earnings up were nearly 11 percent compared 

with 7 percent for the industry as a whole. 

So, Mr. Blanton, if, as you claim, community banks were particularly hard hit by Dodd-Frank’s new rules, why are they making 

more money since the rules went into effect and doing better than 

the big banks? 

Mr. BLANTON. Well, I do not really think there is necessarily a 

direct correlation between the mortgage rule passing and the profits of a bank. 

Senator WARREN. Well, I thought that was exactly what your testimony was, as I read it, and that is that the rules were tangling 

up the community banks so that the community banks could not 

do business, and yet their profitability seems to suggest they are 

doing better than ever after the regulations went into effect. 

Mr. BLANTON. Well, there again, I do not think that it is because 

of the regulation that the banks are doing better. I mean, it is tangling up our process to do mortgages. It is making it much more 

difficult. It is costing us quite a lot. Your statistics on the profits 

of our industry are right. We have done very well. But, if you go 

back and average over the last 10 years, it has been a very difficult 

process, and just now, we are beginning to get some efficiencies 

and come back into the market and be successful and we see these 

as constraints for us to where we are having a hard time continuing to have that momentum. 

Senator WARREN. Well, you know, I appreciate that, but like I 

said, the numbers show you are really doing pretty well after these 

regulations. We know that all of the big bank lobbyists love to come 

into our offices and talk about how community banks are being 

crushed and they need our help, but a lot of the times, the legal 

changes that they are asking for are not really about helping community banks, and here is an example. 

Mr. Blanton, in your testimony, the ABA’s very first request in 

the name of community bank regulatory relief is a bill that would 

allow an insured depository institution of any size to satisfy the 

QM rule as long as they held the loan in portfolio. As you know, 

under the current rule, banks with under $2 billion in assets that 

issue fewer than 500 mortgages a year can already satisfy the QM 

rule for any loan that they hold on portfolio. The CFPB just proposed raising that threshold to 2,000 loans a year. That is going 

to cover the vast majority of community bank mortgages. 


BANKI-41578DSA with DISTILLER
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So, just give me a sense here, Mr. Blanton, if Congress passed 

this bill that the American Bankers Association wants, how many 

community bank mortgages would become eligible for QM that are 

not currently eligible, or under the CFPB rules would be eligible, 

and how does that stack up against the number of mortgages held 

by Wells Fargo, Citibank, JPMorgan, and the other giants that 

would become eligible under this change in the rules? 

Mr. BLANTON. Well, I think, in the change in the rule that we 

are currently supporting, I would go back to the argument that if 

I am holding that loan or they are holding that loan on their books, 

they are taking all the risks. 

Senator WARREN. I am not asking you the question about whether or not you think it is a good rule. I am asking you the question 

about the impact. I am asking you how many mortgages currently 

are held or are being issued by community banks that are not—

do not have an exemption right now and that would be affected by 

this rule versus the number of mortgages that are held by Wells 

Fargo, JPMorgan, and other large financial institutions. 

Mr. BLANTON. Well, for a community bank, we would certainly—

if they raise that threshold, it will certainly exempt a whole lot of 

our mortgages that we are holding. 

Senator WARREN. You have a whole lot of mortgages outside the 

CFPB’s proposed 2,000 mortgage threshold? 

Mr. BLANTON. No, ma’am, but we would add—we would be able 

to make those loans, then, if they are——

Senator WARREN. And how many for the banking giants? 

Mr. BLANTON. Umm——

Senator WARREN. They are part of your organization. Maybe you 

could just get back to me——

Mr. BLANTON. Yes, ma’am. 

Senator WARREN.——on that one. That would be helpful. 

You know, the financial performance of the community banks 

shows that Congress and the regulators, I think, have done a pretty good job of tailoring the rules to protect community banks. We 

should be very skeptical of regulatory relief bills that are promoted 

as helping small banks but that are pushed by ABA lobbyists for 

the big banks. 

If we really want to help the community banks, let us start by 

getting rid of the $85 billion a year too-big-to-fail subsidy that we 

give to the biggest banks year after year. Small banks are not getting that. Or, let us start by holding big bank executives accountable for committing fraud, like we do with small bank executives 

for committing fraud. Those are the kinds of changes that would 

help level the playing field for our community banks. 

Thank you, Mr. Chairman. 

Chairman SHELBY. Mr. Calhoun, I believe you stated earlier that 

the CFPB has to review, quote, ‘‘every single regulation every 5 

years.’’ I do not believe that is correct. What the statute actually 

says is that the CFPB has to review each significant rule every 5 

years, not every rule. 

Mr. CALHOUN. I stand corrected. 

Chairman SHELBY. OK. 


BANKI-41578DSA with DISTILLER
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Mr. CALHOUN. I think they broadly interpret the word ‘‘significant,’’ though, and it would apply to the vast bulk of their rulemaking. 

Chairman SHELBY. Just for the record. 

Along these same lines, it is my understanding that the Federal 

Reserve, and I am reading this, the Federal Reserve System and 

the Conference of State Bank Supervisors, CSBS, reported earlier 

in 2014 that many—many—community banks found qualified 

mortgage and ability to repay rules to be particularly burdensome. 

In fact, according to the CSBS survey in this study, 15 percent of 

active mortgage lenders noted 80 percent or more of their one- to 

four-family mortgage loans would not meet qualified mortgage, 

QM, requirements. 

If a loan is performing and you know the customer—and you 

know the customers—you would not exist as banks, and you know 

them—you should be able to make that loan. Otherwise, you are 

driving that people, as has been pointed out, into areas where they 

are going to be extorted and everything else. We need to give you 

some relief. I really believe this. 

Mr. CALHOUN. Mr. Chairman, if I could clarify for the record, 

also——

Chairman SHELBY. Yes. 

Mr. CALHOUN.——on the QM proposal that CFPB has currently 

put out, it actually is to allow an unlimited number of portfolio 

loans by community banks to qualify for QM status. The 2,000 

threshold is they can make 2,000 nonportfolio loans. But, that does 

not apply to the limitation of how many portfolio loans would qualify for QM status. So, that rule really goes very, very far in providing flexibility to community banks——

Chairman SHELBY. Mr. Buhrmaster, you are in the banking business. You know every day what comes and goes. 

Mr. BUHRMASTER. Yes. 

Chairman SHELBY. Go ahead and comment. 

Mr. BUHRMASTER. Mr. Chairman, if the QM rules were revised 

to allow portfolio loans to be counted as QM, that is consumer protection from what you said. We have got people that are not meeting those QM standards, the ability to repay, that are being forced 

to go to other places that do not follow the proper rules——

Chairman SHELBY. And never will. 

Mr. BUHRMASTER.——and never will. And, to the point of the 

2,000 limit, you know, I have visited two banks that are over 

that—I am sorry, the $2 billion limit. I visited a bank in Montana, 

a bank in Nebraska that have rural offices that sometimes are the 

only offices in those towns, and they write these nonconforming 

loans. And, it has become more difficult for those banks to hold 

those on their books if they are not QM. So, we believe that exemption should be higher. 

Again, it is consumer protection. You want people coming with 

the community banks who have their own money on the table when 

a loan fails. 

Chairman SHELBY. Thank you. 

Senator Brown. 


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Senator BROWN. Thank you, Mr. Chairman. A very good hearing. 

I appreciate, again, your calling it, and all five of the witnesses 

have contributed a great deal today, all five of you. Thank you. 

I mention Mr. Blanton’s comments about the son or daughter of 

a longtime customer friend, community leader, whatever, and that 

those loans, you just are not likely to make those loans anymore. 

I think the discussion that a number of you have had about the 

QM rule providing legal liability protection shifts the burden to the 

borrower to show that a lender knew they could not pay back the 

loan. 

One of the things you said was the son or daughter does not really qualify for the loan, which is a pretty telling statement for a 

banker to make, understanding, though, that you can go ahead and 

make that loan. You just do not have the legal liability protection 

afforded to you by the QM. So, nobody is saying—putting aside 

even the expansion of the rule from 500 to 2,000, nobody is stopping you from doing that loan. You just do not do—you know, the 

hand of big Government is not telling you you cannot do it. It is 

just saying you do not get the legal protection afforded by QM. 

I think it is important to note that, and I think your comments, 

other comments that several of you have made point to the issue 

of the Consumer Bureau raising the number from 500 to 2,000. 

And, I think we all like that. I mean, I like the idea that even—

your bank, I understand, Mr. Blanton, is one billion and—what 

size? 

Mr. BLANTON. One-point-eight billion. 

Senator BROWN. One-point-eight billion, and you make—you 

make, typically, how many loans a year? 

Mr. BLANTON. Total loans or mortgage loans? 

Senator BROWN. Mortgage loans. I am sorry. 

Mr. BLANTON. Mortgage loans, about 300. 

Senator BROWN. OK. So you are already really under the consumer level. So, understanding—I mean, I know a lot of community 

bankers in my State, dozens and dozens, and pretty much all of 

them would fall under the QM portfolio standards of 2,000, and 

most of them already under the 500. 

But if, Mr. Calhoun, you would briefly describe, what are the 

dangers of overall QM—understanding the ABA, when Mr. Blanton 

is here speaking for the small banks and sort of echoing the words 

of Mr. Buhrmaster, that is one thing, but if he is here representing 

the largest, particularly Wells Fargo and those that are doing huge 

numbers of mortgage loans, it is a different story. What is the danger of the largest six or eight banks in the country, or even some 

of the more mid-size but larger on that edge, on that end, banks 

doing sort of unlimited QM protection if they keep it in portfolio? 

Mr. CALHOUN. As we saw in the crisis, a number of the very 

large banks had business models where they made very risky 

loans, the loans with no doc, no income, no assets, and also loans 

with big teaser payments that jumped up dramatically and the 

only way you would stay in the loan is refinancing if house prices 

went up. Two examples of those were Washington Mutual and 

Wachovia, and their portfolio lending was the major factor in taking down both those companies, presenting systemic risk, and also 

lots of borrowers lost their homes there. And, so, there is a real——


BANKI-41578DSA with DISTILLER
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Senator BROWN. So, you like the number 2,000? Is that a good 

number that we all can agree on? 

Mr. CALHOUN. So, again, to be clear, the CFPB rule is even much 

larger than that. It says you can make 2,000 loans that you sell 

to the market plus unlimited number, no cap at all on the number 

that you put on your portfolio. 

I would, if I could, just raise one point that is very concerning, 

is a number of the legislative proposals and even the CFPB rule 

and their expanded proposal apply to nondepositories equally. 

Treat them exactly the same, the folks down the street that we are 

worried about people going to instead of the community banks, get 

the same relief under some of these proposals, and that is a key 

change that needs to be made as this goes forward, because it is 

a very different world for these loans to be made by supervised depository institutions versus made by many of the people who did 

the reckless lending that started the whole financial crisis. 

Senator BROWN. OK. Mr. Buhrmaster, I am going to ask you a 

question. Another story broke this week of alleged misconduct with 

one of the world’s largest banks. The Governor of the Bank of England in a recent speech said the scale of misconduct at some financial institutions has risen to a level—again, not talking at all about 

any of you—has risen to a level that has the potential to create systemic risks, unquote. Pretty troubling statement. He went on to 

say—Mark Carney is his name—it threatens to undermine trust in 

financial institutions and markets, eliminating some of the hardwon benefits of the initial reforms. 

Mr. Buhrmaster, does the continued misconduct by some of the 

largest banks in this country on Wall Street and some of the largest banks in the world, do they have a negative impact on community banks and your customers? 

Mr. BUHRMASTER. It certainly does. When—I mean, I am from 

New York and I get compared to the Wall Street banks. I mean, 

people get confused, upstate, downstate. So, naturally, it rubs off 

on us. 

Senator BROWN. Nobody confuses upstate New York——

[Laughter.] 

Mr. BUHRMASTER. Thank you. 

Senator BROWN. Nobody where I come from. Maybe they do if 

you live in Rochester, I do not know. 

[Laughter.] 

Mr. BUHRMASTER. But, the misconduct of some of the largest 

banks, when you look at that business model, defines that they 

have to pay where they purposely choose to break the law or violate regulations. It is a budget item for them and it does affect us 

because it results in these type of regulations we are here trying 

to get overturned. And, if they continue to have this kind of misconduct, and if they continue not to be held personally responsible—I mean, when a crime is committed, it is not an institution. 

It is somebody there that is making a decision. But, yet, none of 

the largest banks have been held accountable. 

When the FDIC is suing small banks’ directors for certain things 

but they will not sue the largest six banks for the same type of 

things, it says there is a different set of rules for different players 

and it is affecting us. We need the regulatory relief that has come 


BANKI-41578DSA with DISTILLER
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from that misbehavior. It has fallen on us. That is why it affects 

us. And, every time there is a headline, it makes it harder to get 

this regulatory reform through. 

Senator BROWN. I could not agree more. 

Last question, and thank you for your indulgence, Mr. Chairman. 

Mr. Murray, you state in your testimony that changing the structure of the Consumer Bureau, the CFPB, by stripping its independence, changing its leadership from a director to a board, would reduce burden for small institutions. I would like to ask each of the 

five of you—start with Mr. Murray, then Mr. Blanton, and then 

work across, and then finally Mr. Calhoun—how does changing the 

structure—I am confused. I do not quite see that. How does changing the structure reduce the burden that, in your case credit 

unions, in the others, if you agree with that, at the banks. 

Mr. MURRAY. Sure. We just believe that it creates an environment for more sensible rulemaking, for collaboration, much like 

among this Committee, from different minds, whereas when you 

have one person in charge of the entire Bureau, who sets that 

agenda? One person, essentially. And, so, we just feel like it is a 

more common sense approach to coming up with common sense 

regulation, and so——

Senator BROWN. Do you have any specifics? Any of you, do you 

have any specifics on why that would be, I mean, what you would 

get—what you would get different coming out of there? 

Mr. MURRAY. CFPB was originally set up, obviously, by DoddFrank, and given a very specific set of marching orders in DoddFrank. But, then, after that, after that all goes away, what does 

CFPB do after that and who sets that agenda? Where does that 

come from? And, that is our concern, and so we feel like a 

board——

Senator BROWN. Do you suggest changes in the Department of 

Labor, instead of having one Cabinet Secretary, or the Department 

of Health and Human Services, or, for that matter, the President 

of the United States? I mean, should we have—I mean, does that 

structure make more sense to run our country? 

Mr. MURRAY. Well, you know, our Government is set up on a series of checks and balances and that is what——

Senator BROWN. Well, I would say the Consumer Bureau has 

been hauled in front of the House Financial Institutions Committee 

about every month or two for oversight, and there are many in 

this—that we got that—a lot of you working together got some rule 

changes out of them. 

OK. Mr. Blanton, your thoughts, and then Mr. Buhrmaster, Mr. 

Templeton, and Mr. Calhoun. 

Mr. BLANTON. OK. First, I wanted to make one correction. When 

I said the number of loans I originated, I was thinking of the dollar 

value. We originated about 1,200 to 1,400 loans a year, so——

Senator BROWN. OK. So, you will still be under the 2,000——

Mr. BLANTON. Still be under it, but I did want to make that clarification. 

Senator BROWN. And you are larger than most community 

banks——

Mr. BLANTON. Yes, I am. 

Senator BROWN.——by a lot. 


BANKI-41578DSA with DISTILLER
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Mr. BLANTON. Yes, I am. 

We support a system such as the FDIC Board of Governors. It 

has worked very well for the FDIC as far as the—we think that 

that would be a much better system to govern such an important 

agency as the CFPB, and with that set of different Governors, you 

get different views and opinions and you get to see a consensus 

work as opposed to one particular person’s direction or whim as to 

how they want something done. So, we operate well under the 

FDIC and we think that system works very well as——

Senator BROWN. Do you like the independent funding of FDIC? 

Mr. BLANTON. Pardon? 

Senator BROWN. Do you like it that FDIC has independent funding, not coming through Congress? 

Mr. BLANTON. Umm, no, I do not. I think the way the current 

system works with the FDIC is correct. 

Senator BROWN. Oh, OK. So——

Mr. BLANTON. But, I like the way the Board of Governors works 

and the way that it oversees that——

Senator BROWN. So, independent funding is OK for the Consumer Bureau. You just want a board with the Consumer Bureau. 

Mr. BLANTON. Well, no, I do not agree. I am sorry. I do not agree 

with the funding of——

Senator BROWN. The funding is OK with FDIC that way, but you 

want to change the Consumer Bureau to a different funding. 

Mr. BLANTON. Yes. 

Senator BROWN. OK. 

Mr. BLANTON. A more accountable funding. 

Senator BROWN. But, why not change the FDIC to more accountable funding, then? 

Mr. BLANTON. I guess because the system is working. We are 

pleased with that system. 

Senator BROWN. OK. Mr. Buhrmaster. 

Mr. BUHRMASTER. When you are setting a system up, you are not 

setting it for an individual, an individual personality. You are setting it up for the long term. And, we have had a wonderful relationship with Director Cordray. He has been very receptive to community banks’ needs. But, a good example is an interview he just 

gave in the American Banker recently—in fact, I believe it was this 

week—where he talked about the difficulty of the process he had 

in dealing with the exemptions that were just granted on QM. It 

was his influence that helped bring a different point of view to the 

table. We may have a different director some day, and having different views at the table when you are dealing with consumer protection items, it keeps the pendulum from swinging too far. 

You know, that five-member panel on the FDIC, a lot of what 

FDIC did in the past was types of consumer protection, whether it 

is regulating the banks in order to keep the consumers safe or 

going directly for those regs. Having that—having those different 

views helps keep things centered and keeps things reasonable. 

Senator BROWN. Mr. Templeton. 

Mr. TEMPLETON. To echo what Mr. Buhrmaster said, from the 

conceptual stage, and again, you have to divorce concept and reality. But, conceptually, three or five people coming together to 

achieve a goal are going to bring different perspectives, different 


BANKI-41578DSA with DISTILLER
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ideas. There is going to be compromise. There is going to be discussion. There is going to be all sorts of dialogue as you move toward 

an end result. If you have one person, it just is an agenda. That 

person may seek input from outside, but it still becomes one person’s agenda. So, multiple heads bring greater wisdom. 

Another thing that it possibly would bring, and not that you 

could not do it with a single individual, but it would cause a formal 

agenda to be released so that, ahead of time, people would know 

what is going on. Now, that could conceivably be done, but with the 

board structure, you would need an agenda, and I think the light 

of day begins shining in. People get time to be prepared and develop concepts and ideas. 

Senator BROWN. Fair enough. 

Mr. Calhoun, before you respond—and keep it as brief as you 

can, I apologize—because you made a statement earlier that I just 

wanted to give you a chance—I have heard you testify a lot, and 

I have never heard you say something that was kind of not correct, 

and I want to make sure you get a chance to kind of clarify. You 

said the CFPB every 5 years is required to review its major regulation. It is—what I think you meant to say, and give you a chance 

to correct, is 5 years after a new regulation. It is not every 5 years. 

It is that one time, just to clear the record. Is that your understanding? 

Mr. CALHOUN. Yes. 

Senator BROWN. OK. OK. That is my—now, answer that other 

question, and then I will turn it back. Again, thank you for the 

Chair’s indulgence. 

Chairman SHELBY. Thank you, Senator Brown. 

Senator BROWN. Well, I am sorry, and give him the——

Chairman SHELBY. Yes. 

Mr. CALHOUN. So, very quickly, we strongly support the single 

director. It was the failure, in fact, of the Federal Home Loan Bank 

Board that led to having a single director being one of the primary 

reforms for FHFA. And, we believe strongly that the single director 

will be far more responsive to community financial institution concerns. As we have seen with almost every commission, they become 

very quickly big bank-centric. If there are five nominees for a commission, the CFPB, there are not going to be four of them that are 

going to be representing consumer financial institutions, maybe 

one. We just had to fight to get one on the Fed out of seven spots. 

And, there has just been a natural tendency, as we have heard 

from testimony today, that the commissions focus on the biggest institutions and have less receptivity to community financial institutions. So, that is one of the reasons that we strongly support the 

current structure. We also note it has the FSOC oversight and the 

required consultation with other prudential regulators. 

Senator BROWN. Thank you, and again, Mr. Chairman, thank 

you for allowing me to go over my time. 

Chairman SHELBY. Thank you. I thank all of you. I think we 

have had a very good hearing and I appreciate your willingness to 

be here, to be forthright with us, because that is what we need. 

I am going to invite you to supply in writing for this Committee 

any additional thoughts or information that you may have for our 

record that will help us to formulate the right thing here. 


BANKI-41578DSA with DISTILLER
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I also invite the members of your respective organizations to contact us directly here at the Committee with any concerns or ideas 

that they may have for reform. You are out there in the marketplace. The Members of this Committee, I think, would welcome 

input from individual financial institutions from all over this country as we consider comprehensive regulatory relief. If you have a 

concern, we want to hear it. 

Thank you again for your appearance here. We are going to try 

to be responsible here. 

The Committee is adjourned. 

[Whereupon, at 11:46 a.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 


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PREPARED STATEMENT OF R. DANIEL BLANTON

CHIEF EXECUTIVE OFFICER, GEORGIA BANK AND TRUST

ON BEHALF OF THE AMERICAN BANKERS ASSOCIATION

FEBRUARY 12, 2015

Chairman Shelby, Ranking Member Brown, my name is Daniel Blanton, Chief 

Executive Officer of Southeastern Bank Financial Corporation and Georgia Bank & 

Trust, in Augusta Georgia. I am also the Vice Chairman of the American Bankers 

Association (ABA). I appreciate the opportunity to be here to present the views of 

the ABA regarding regulatory relief for small financial institutions. The ABA is the 

voice of the Nation’s $14 trillion banking industry, which is composed of small, midsize, regional and large banks that together employ more than 2 million people, 

safeguard $11 trillion in deposits and extend more than $8 trillion in loans. 

Georgia Bank and Trust is a $1.8 billion community bank established in 1989. We 

have 12 branches serving the Augusta area and extend $975 million in loans to our 

local communities. 

ABA appreciates the opportunity to be here today to talk about how the growing 

volume of bank regulation—particularly for community banks—is negatively impacting the ability of banks throughout the Nation to meet our customers’ and communities’ needs. This is not a new subject, yet the imperative to do something grows 

every day. Community banks are resilient. We have found ways to meet our customers’ needs in spite of the ups and downs of the economy. But that job has become 

much more difficult by the avalanche of new rules, guidances and seemingly everchanging expectations of the regulators. This—not the local economic conditions—

is often the tipping point that drives small banks to merge with banks typically 

many times larger. The fact remains that there are 1,200 fewer community banks 

today than there were 5 years ago—a trend that will continue until some rational 

changes are made that will provide some relief to America’s hometown banks. 

Each and every bank in this country helps fuel our economic system. Each has 

a direct impact on job creation, economic growth and prosperity. The credit cycle 

that banks facilitate is simple: customer deposits provide funding to make loans. 

These loans allow customers of all kinds—businesses, individuals, governments and 

nonprofits—to invest in their hometown and across the globe. The profits generated 

by this investment flow back into banks as deposits and the cycle repeats—creating 

jobs, wealth for individuals and capital to expand businesses. As those businesses 

grow, they, their employees and their customers come to banks for a variety of other 

key financial services such as cash management, liquidity, wealth management, 

trust and custodial services. For individuals, bank loans and services can significantly increase their purchasing power and improve their quality of life, helping 

them attain their goals and realize their dreams. 

This credit cycle does not exist in a vacuum. Regulation shapes the way banks 

do business and can help or hinder the smooth functioning of the credit cycle. Bank 

regulatory changes—through each and every law and regulation, court case and 

legal settlement—directly affect the cost of providing banking products and services 

to customers. Even small changes can have a big impact on bank customers by reducing credit availability, raising costs and driving consolidation in the industry. 

Everyone who uses banking products or services is touched by changes in bank regulation. 

The onslaught of regulatory changes has already had an impact. For example, 58 

percent of banks have held off or canceled the launch of new products—designed to 

meet customer demand—due to expected increases in regulatory costs or regulatory 

risks. Additionally, 44 percent of banks have been forced to reduce existing consumer products or services due to compliance or regulatory burden. 

It is imperative that Congress take steps to ensure and enhance the banking industry’s ability to facilitate job creation and economic growth through the credit 

cycle. The time to address these issues is now before it becomes impossible to reverse the negative impacts. When a bank disappears everyone is affected. We urge 

Congress to work together—Senate and House—to pass bipartisan legislation that 

will enhance the ability of community banks to serve our customers. 

In particular, Congress can take action to ensure credit flows to communities 

across the country by (1) improving access to home loans, (2) removing impediments 

to serving customers, and (3) by eliminating distortions by Government in the marketplace. In the remainder of my testimony, I will highlight some specific actions 

under each of these that would help begin the process of providing meaningful relief 

to help community banks and help bank customers. 


BANKI-41578DSA with DISTILLER
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I. Improve Access to Home Loans 

The mortgage market touches the lives of nearly every American household. 

Banks help individual consumers achieve lifelong goals of homeownership by giving 

them access to the funding they need. Without home loans most Americans would 

not be able to purchase a home. Banks are a major source of mortgage loans—holding more than $2 trillion in oneto-four family home loans on their books and originating others under Government 

guarantees. In addition, banks support the housing industry with construction and 

development loans, and homeowners with home equity lines of credit. Housing construction and development, as well as the transactional activities of buying, selling 

and furnishing homes, generate both direct and indirect benefits for the economy. 

These critical services of banks results in more income and jobs in communities, 

along with a larger tax base for local governments. According to the National Association of Home Builders, the construction of 100 single-family homes will result in 

$21.1 million in income, $2.2 million in taxes and other revenue to local governments, and 324 local jobs. 

It is painfully clear that new regulatory requirements have restrained mortgage 

lending and have made it particularly difficult for first-time home buyers to obtain 

a home loan. The complex and liability-laden maze of compliance has made home 

loan origination more difficult, especially for borrowers with little or weak credit 

history. Over-regulation of the mortgage market has reduced credit available to 

bank customers, raised the cost of services, and limited bank products. The result 

has been a housing market still struggling to gain momentum. 

Congress can help reduce needless impediments to mortgage lending that have 

constrained the banking industry’s ability to help first-time home buyers and dampened the growth of prosperity across the Nation’s communities. For example, Congress should:

Treat Loans Held in Portfolio as Qualified Mortgages:

The Dodd Frank Act (DFA) is very restrictive in its definition of ‘‘ability to 

repay’’ and this is having a detrimental impact on the market and consumer access to credit. In fact, the Consumer Financial Protection Bureau 

(CFPB) has been forced to delay implementation of some aspects of the rule 

which would eliminate balloon loans. These loans, which are in virtually all 

cases held in portfolio, are a useful and in-demand product for many customers, particularly those in rural areas seeking smaller dollar loans and 

those that do not meet secondary market eligibility requirements. It helps 

bank manage interest rate risk and without tools like this some borrowers 

would not have access to mortgage loans at all. While the bureau has recently proposed expanded exemptions for smaller lenders serving rural and 

underserved areas, more relief is needed for lenders and borrowers in all 

areas of the country.

ABA supports legislation (similar to H.R. 2673 in the 113th Congress) that 

would deem any loan made by an insured depository and held in that lender’s portfolio as compliant with the Qualified Mortgage rule under the DFA 

(so long as the loan is not sold). The Qualified Mortgage or QM label is 

given to loans which can be shown to meet the qualifications of the Ability 

to Repay provisions of DFA. Loans held in portfolio are, by their very nature, loans which can be repaid; otherwise they would present safety and 

soundness concerns and would not be allowed by a lender’s prudential regulators.

Simply put, banks would not stay in business very long if they made and 

held loans on their books that cannot be repaid; they hold all the risk that 

a loan might default. This is a common sense approach to showing that a 

loan has been properly underwritten and meets the QM and ability to repay 

requirements of the DFA without imposing additional challenges to borrowers and lenders in the lending process.

Eliminate the Excessively High Life-of-Loan Liability:

Not only are the rules complex and liability-laden, the level of liability is 

both high and often extends for the life of the loan. A liability with such 

a long life will give any lender pause when considering any but the lowestrisk borrowers. Why should ability to repay liabilities hang over a lender’s 

business for 20 years or more into the life of a 30-year loan? Common sense 

suggests that any mortgage loan that has remained current for a number 

of years has certainly demonstrated the borrower’s ability to repay. Congress should replace the ATR life of loan liability with a more reasonable 


BANKI-41578DSA with DISTILLER
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term so that liability ends after a loan has performed for a reasonable number of years.

Establish an Effective Appeals Process to the Definition of a Rural 

Area:

The definition of rural and underserved is critical and can dramatically affect banks and the communities they serve. The CFPB has already recognized this and has used its DFA discretionary authority to exempt certain 

loans from the qualified mortgage rule. This has been very important to accommodate community banks that make short-term balloon loans as a 

means of hedging against interest rate risk. However, the exemption applies only if, during the preceding calendar year, the creditor extended more 

than 50 percent of its total covered transactions that provide for balloon 

payments in one or more counties designated by the Bureau as ‘‘rural’’ or 

‘‘underserved.’’ Thus, the definitions used can be limiting and hurt mortgage customers that are inevitably in counties that may have been inappropriate excluded.

ABA supports legislation (like S. 1916 introduced last Congress by Majority 

Leader McConnell) that would direct the CFPB to establish an application 

process to have an area designated as a rural area if it has not already 

been designated as such by the Bureau. An appropriate exemption process 

is critical to a bank’s ability to meet their community’s needs since it would 

help to assure that whatever definition of rural is ultimately used by the 

CFPB, there would be an avenue to apply to the Bureau to extend the definition of rural in those inevitable cases where a county may have been inappropriately excluded.

Mandate a Study of the Basel III Capital Requirements Impact on 

Mortgage Servicing Assets:

Implementation of Basel III is disrupting the market for mortgage servicing 

rights by imposing punitive capital requirements that are causing many 

banks to sell these assets, usually to nonbank mortgage servicing firms that 

have little connection with the original borrowers. ABA supports legislation 

which requires the banking regulators to study the overall impact of these 

requirements on the safety and soundness of the banking system, including 

the impact on the value of such assets as sales are required; the financial 

stability of nonbank purchasers of mortgage servicing assets; and the risks 

posed by shifting servicing duties from the banking industry to nonbank entities. The regulators should be required to report to the committees of jurisdiction within 1 year on recommendations for legislative and/or regulatory changes to address concerns identified by the study, and steps to implement the provisions should be halted until Congress has the opportunity 

to review the study and act.

Encourage the Federal Housing Finance Agency to Reconsider its 

FHLB Membership Rule:

For more than 80 years Congress has maintained eligibility requirements 

for lenders to join the Federal Home Loan Banking system. On several occasions, including in recent years, Congress has even taken actions to expand eligibility for members in certain ways. Currently, the FHFA has proposed restrictions which might limit the ability of banks of all sizes, including community banks, from retaining this critical source of liquidity. The 

ABA does not object to a consideration of the best way to regulate new business structures among Home Loan Bank system members that might otherwise impose risks on the system. However, the system should retain what 

is essentially a self-enforcing discipline that Congress created when it first 

established the system. The simple matter is members cannot borrow from 

the Federal Home Loan Bank system unless they have eligible collateral 

that is contemplated by the statue. ABA will continue to work with Members of Congress to ensure that the Federal Housing Finance Agency follows congressional intent and does not unnecessarily restrict access to vital 

liquidity provided by the Federal Home Loan Banks. 

II. Remove Impediments to Serving Customers 

Rules and requirements surround every bank activity. When it works well, bank 

regulation helps ensure the safety and soundness of the overall banking system. 

When it does not, it constricts the natural cycle of facilitating credit, job growth and 

economic expansion. Finding the right balance is key to encouraging growth and 


BANKI-41578DSA with DISTILLER
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prosperity as unnecessary regulatory requirements lead to inefficiencies and higher 

expenses which reduce resources devoted to lending and investment. 

The key to changing this consolidation trend is to stop treating all banks as if 

they were the largest and most complex institutions. Financial regulation and examination should not be one-size-fits-all. All too often, regulation intended for the largest institutions become the standard that is applied to every bank-Basel III being 

the most egregious. Such an approach only layers on unnecessary requirements that 

add little to improve safety and soundness, but add much to the cost of providing 

services—a cost which customers ultimately bear. Instead, ABA has urged for years 

that a better approach to regulation is to tailor bank supervision to take into account the charter, business model, and scope of each bank’s operations. This would 

ensure that regulations and the exam process add value for banks of all sizes and 

types. 

By eliminating unnecessary impediments to the natural credit cycle, Congress can 

help stem the tide of community bank consolidation driven by these unnecessary impediments which negatively impacts every community across the United States. For 

example, Congress can:

Reduce unnecessary and redundant paperwork:

Congress should require a review and reconciliation of existing regulations 

that may be in conflict with or duplicative of new rules being promulgated 

by the banking agencies, or which in their application badly fit the variety 

of institutions that make up the banking industry. This would help to eliminate conflicts among different regulations, thereby eliminating additional 

and unnecessary compliance burdens. It would also result in more effective 

policies. Congress should also (among other things):

• Eliminate unnecessary currency transaction report filings;

• Provide greater accountability for law enforcement’s use of the Bank Secrecy 

Act data; and

• Eliminate redundant annual privacy policy notices by passing S. 423

Create a more balanced, transparent approach to bank examination 

and regulation:

Congress should expand the number of banks eligible for an 18-month exam 

cycle for highly rated community banks. This would reduce significantly the 

resources required to deal with yearly examinations by the regulators. The 

Comptroller of the Currency, Thomas Curry, publicly stated such a change 

would reduce burden on well-managed community institutions and would 

also allow the agencies to focus their efforts on institutions that may 

present supervisory concerns.

Congress should also:

• Provide an independent appeals process for bank examination decisions resulting in better accountability;

• Require the Securities and Exchange Commission and the Bank Regulators 

to perform cost-benefit analyses before issuing new rules; and

• Revise the cost-benefit test for rules proposed by the Commodity Futures 

Trading Commission.

Limit burdensome trickle-down of complex bank regulations:

Congress should support legislation that prevents the ‘‘trickle-down’’ of complex bank regulation onto smaller and mid-sized banks. For example, Congress should:

• Require targeted rulemaking by regulators that focus on the purpose of the 

rule, appropriately adjusted to the risk footprints of banks;

• Remove arbitrary regulatory thresholds not corresponding to a bank’s risk 

and business model;

• Exempt small banks from Commodity Futures Trading Commission clearing 

requirements which would improve their ability to manage risk within the 

firm;

• Eliminate unnecessary public stress test disclosures for mid-sized banks; and

• Ensure capital rules designed for systemically important financial institutions 

are applied only to banks that are truly SIFIs, based on multifactor assessments of systemic risk, not merely asset size. 


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III. Eliminate Distortions by Government in the Marketplace 

The banking industry’s ability to serve customers is affected by many forces, including regulatory or tax-advantaged nonbank competition and unreasonable legal 

risks. These forces restrain the credit cycle, add risk and distortions, and impede 

the banking industry’s ability to encourage growth and prosperity within communities. 

Nonbank financial institutions offer identical products and services but do so 

without the same regulatory oversight, consumer compliance or tax treatment. As 

bank regulations become increasingly restrictive, products migrate from the safety 

and soundness of the banking system to the under-regulated or unregulated market. 

This magnifies risk for all who use financial services. 

Furthermore, some nonbanks benefit from special tax privileges which have created economic distortions that shift resources and banking activity from taxpaying 

banks to the tax-privileged sectors. Credit unions and the Farm Credit System are 

prime examples. Such marketplace tax distortions are neither good public policy nor 

fiscally responsible. 

In addition, unreasonable legal risks faced by banks have restrained the credit 

cycle. For example, uncertainties surrounding the interpretation of fair lending 

rules have raised the risks of costly litigation and forced financial institutions to 

limit mortgage lending operations. Similarly, unjustified and abusive patent litigation and licensing fee demands have drained funds available for lending. These legal 

risks create no benefit for local communities. Congress should eliminate unreasonable legal risks so that the banking industry can return to the business of banking. 

Another potential and serious distortion involves innovations within the payment 

system by nonbanks. Banks have always protected the integrity of the payments 

system. As new innovations come forward it is critical that they are within a secure 

regulatory system that promotes consumer protection and system integrity. Equal 

access and equivalent regulation are key principles to ensure this.

Congress should:

Support legislation that eliminates Government distortions in the 

private market by:

• Eliminating the Credit Union industry’s special tax treatment

• Ending the Farm Credit System’s unjustified tax privileges

• Ensuring agencies do not impose price controls, directly or indirectly

Support legislation to eliminate unreasonable legal risks and impediments 

by:

• Enacting patent troll reform to reduce the threat of patent abuse

• Removing uncertainties in fair lending rules, such as penalties where there 

is no intent to engage in unlawful discrimination

Support Taxpaying Bank Charters by:

• Conforming savings and loan holding company thresholds and registration 

rules with those of banks

• Supporting charter flexibility for mutual banks and Federal savings associations

• Encouraging regulators to charter new banks

Protect the Payments System by:

• Ensuring that all participants—banks and nonbanks—are subject to consistent rules and oversight for consumer protection, safety and soundness and 

systemic risk

• Avoiding technology mandates

• Expanding information-sharing between public and private entities to fight 

threats

• Ensuring all parties have consistent accountability to customers before and 

after breaches

• Holding breached parties responsible for costs of breaches 

Conclusion 

Community banks have been the backbone of hometowns across America. Our 

presence in small towns and large cities everywhere means we have a personal 

stake in the economic growth, health, and vitality of nearly every community. A 

bank’s presence is a symbol of hope, a vote of confidence in a town’s future. When 


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a bank sets down roots, communities thrive. We urge Congress to act now to help 

turn the tide of community bank consolidation and protect communities from losing 

a key partner supporting economic growth.


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PREPARED STATEMENT OF ED TEMPLETON

PRESIDENT AND CEO, SRP FEDERAL CREDIT UNION

ON BEHALF OF THE NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS

FEBRUARY 12, 2015

Introduction 

Good Morning, Chairman Shelby, Ranking Member Brown and Members of the 

Committee. My name is Ed Templeton and I am testifying today on behalf of the 

National Association of Federal Credit Unions (NAFCU). I serve as the President 

and CEO of SRP Federal Credit Union, headquartered in North Augusta, South 

Carolina. I have over 42 years of financial industry experience, including the last 

27 years as President and CEO of SRP FCU. SRP FCU is a community credit union 

serving over 104,000 members in several counties in South Carolina along the Georgia border with nearly $700 million in assets. 

I currently serve as a Director-at-large and Chairman of NAFCU’s Board of Directors. I have served in a number of roles with the Association while on the Board, 

including as Vice-Chairman and a member of the Legislative Committee. I received 

my BBA from Augusta College, graduated from the Georgia School of Banking and 

the BAI School of Bank Administration at the University of Wisconsin. 

As you are aware, NAFCU is the only national organization exclusively representing the interests of the Nation’s federally chartered credit unions. NAFCUmember credit unions collectively account for approximately 69 percent of the assets 

of all federally chartered credit unions. NAFCU and the entire credit union community appreciate the opportunity to participate in today’s hearing regarding regulatory relief for credit unions. 

Historically, credit unions have served a unique function in the delivery of essential financial services to American consumers. Established by an Act of Congress in 

1934, the Federal credit union system was created, and has been recognized, as a 

way to promote thrift and to make financial services available to all Americans, 

many of whom may otherwise have limited access to financial services. Congress established credit unions as an alternative to banks and to meet a precise public 

need—a niche that credit unions still fill today. 

Every credit union, regardless of size, is a cooperative institution organized ‘‘for 

the purpose of promoting thrift among its members and creating a source of credit 

for provident or productive purposes.’’ (12 USC 1752(1)). While over 80 years have 

passed since the Federal Credit Union Act (FCUA) was signed into law, two fundamental principles regarding the operation of credit unions remain every bit as important today as in 1934:

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

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

These principles apply for all credit unions, regardless of their size. When compared with the Nation’s ‘‘Too Big To Fail’’ financial institutions, all credit unions 

are ‘‘small’’ institutions. It is with this fact in mind that NAFCU believes that there 

should not be artificial or arbitrary asset thresholds established for which size credit 

unions should receive regulatory relief. The challenges facing the industry impact, 

or stand to impact, all credit unions and all ultimately need relief. 

Today’s hearing is an important one and the entire credit union community appreciates the opportunity to expand on the topic of regulatory relief. In my testimony 

I will cover several main points, including:

• Increased regulatory burden and how it is impacting credit unions;

• The importance of legitimate cost-benefit analysis at the regulatory 

agencies from the onset;

• Understanding risk in the financial system and the potential of regulating credit unions out of existence with one-size fits all regulatory solutions;

• How Congress can provide regulatory relief; and

• How the regulatory agencies can provide regulatory relief.

I. Increased Regulatory Burden has Impacted Credit Unions 

Credit unions have a long track record of helping the economy grow and making 

loans when other lenders have left various markets. This was evidenced during the 

recent financial crisis when credit unions kept making auto loans, home loans, and 


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small business loans when other lenders cut back. Still, credit unions have always 

been some of the most highly regulated of all financial institutions, facing restrictions on who they can serve and their ability to raise capital. 

Credit union lending continues to grow at a solid pace today, up about 18 percent 

as of June 2014, as compared to 2009. Although credit unions continue to focus on 

their members, the increasing complexity of the regulatory environment is taking 

a toll on the credit union industry. While NAFCU and its member credit unions 

take safety and soundness extremely seriously, the regulatory pendulum post-crisis 

has swung too far toward an environment of over regulation that threatens to stifle 

economic growth. As the National Credit Union Administration (NCUA) and the 

Consumer Financial Protection Bureau (CFPB) work to prevent the next financial 

crisis, even the most well intended regulations have the potential to regulate our 

industry out of business. 

During the consideration of financial reform, NAFCU was concerned about the 

possibility of over regulation of good actors such as credit unions, and this is why 

NAFCU was the only credit union trade association to oppose the CFPB having 

rulemaking authority over credit unions. Unfortunately, many of our concerns about 

the increased regulatory burdens that credit unions would face under the CFPB 

have proven true. While there may be credible arguments to be made for the existence of a CFPB, its primary focus should be on regulating the unregulated bad actors, not adding new regulatory burdens to good actors like credit unions that already fall under a prudential regulator. As expected, the breadth and pace of CFPB 

rulemaking is troublesome, and the unprecedented new compliance burden placed 

on credit unions has been immense. While it is true that credit unions under $10 

billion are exempt from the examination and enforcement from the CFPB, all credit 

unions are subject to the rulemakings of the agency and they are feeling this burden. While the CFPB has the authority to exempt certain institutions, such as credit 

unions, from agency rules, they have been lax to use this authority to provide relief. 

The impact of this growing compliance burden is evident as the number of credit 

unions continues to decline, dropping by 22 percent (more than 1,700) institutions 

since 2007. A main reason for the decline is the increasing cost and complexity of 

complying with the ever-increasing onslaught of regulations. Since the 2nd quarter 

of 2010, we have lost 1,100 federally insured credit unions, 96 percent of which were 

smaller institutions below $100 million in assets. Many smaller institutions simply 

cannot keep up with the new regulatory tide and have had to merge out of business 

or be taken over. Credit unions need regulatory relief, both from Congress and their 

regulators. 

This growing demand on credit unions is demonstrated by a 2011 NAFCU survey 

of our membership that found that nearly 97 percent of respondents were spending 

more time on regulatory compliance issues than they did in 2009. A 2012 NAFCU 

survey of our membership found that 94 percent of respondents had seen their compliance burdens increase since the passage of the Dodd-Frank Act in 2010. At SRP 

FCU our compliance costs have more than doubled since 2009 and we are adding 

another compliance officer in 2015 just to keep up. Many credit unions find themselves in the same situation, as a March, 2013, survey of NAFCU members found 

that nearly 27 percent had increased their full-time equivalents (FTEs) for compliance personnel in 2013, as compared to 2012. That same survey found that over 70 

percent of respondents have had noncompliance staff members take on compliancerelated duties due to the increasing regulatory burden. This highlights the fact that 

many noncompliance staff are being forced to take time away from serving members 

to spend time on compliance issues. 

At SRP FCU we have felt the pain of these burdens as well. There are costs incurred each time a rule is changed and most costs of compliance do not vary by size, 

therefore it is a greater burden on credit unions like mine. We are required to update our forms and disclosures, reprogram our data processing systems and retrain 

our staff each time there is a change, just as large institutions are. Unfortunately, 

lending regulation revisions never seem to occur all at once. If all of the changes 

were coordinated and were implemented at one time, these costs would have been 

significantly reduced and a considerable amount of our resources that were utilized 

to comply could have been used to benefit our members instead. 

If Congress and the regulators will not act to provide regulatory relief to credit 

unions, the industry may look vastly different a decade from now. 

II. Credit Unions Need Regulatory Relief 

Regulatory burden is the top challenge facing all credit unions. While smaller 

credit unions continue to disappear from the growing burden, all credit unions are 

finding the current environment challenging. Finding ways to cut-down on burdensome and unnecessary regulatory compliance costs is the only way for credit unions 


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to thrive and continue to provide their member-owners with basic financial services 

and the exemplary service they need and deserve. It is also a top goal of NAFCU. 

Ongoing discussions with NAFCU member credit unions led to the unveiling of 

NAFCU’s initial ‘‘Five Point Plan for Regulatory Relief’’ in February, 2013, and a 

call for Congress to enact meaningful legislative reforms that would provide much 

needed assistance to our Nation’s credit unions. The need for regulatory relief is 

even stronger in 2015, which is why we are releasing an updated version of the plan 

for the 114th Congress. 

The 2015 plan calls for relief in five key areas: (1) Capital Reforms for Credit 

Unions, (2) Field of Membership Improvements for Credit Unions, (3) Reducing 

CFPB Burdens on Credit Unions, (4) Operational Improvements for Credit Unions, 

and (5) 21st Century Data Security Standards. 

Recognizing that there are a number of outdated regulations and requirements 

that no longer make sense and need to be modernized or eliminated, NAFCU also 

compiled and released a document entitled ‘‘NAFCU’S Dirty Dozen’’ list of regulations to remove or amend in December of 2013 that outlined 12 key regulatory 

issues credit unions face that should be eliminated or amended. While some slight 

progress was made on several of these recommendations, we have updated that list 

for 2015 to outline the ‘‘Top Ten’’ regulations that regulators can and should act on 

now to provide relief. This list includes:

1. Improving the process for credit unions seeking changes to their field of membership;

2. Providing More Meaningful Exemptions for Small Institutions;

3. Expanding credit union investment authority;

4. Increasing the number of Reg D transfers allowed;

5. Additional regulatory flexibility for credit unions that offer member business 

loans;

6. Updating the requirement to disclose account numbers to protect the privacy 

of members;

7. Updating advertising requirements for loan products and share accounts;

8. Improvements to the Central Liquidity Facility (CLF);

9. Granting of waivers by NCUA to a Federal credit union to follow a state law; 

and

10. Updating, simplifying and making improvements to regulations governing 

check processing and fund availability.

In my statement today, we will highlight a number of key issues where these regulatory burdens and proposals are posing immediate threats to the ability of credit 

unions to serve their members and give them the financial products that they want 

and need. Perhaps one of the greatest challenges credit unions face is the often 

times grossly distorted time and cost estimates provided to them by the regulatory 

agencies in the proposal stages of rulemaking. As will be further discussed in my 

testimony below, regardless of whether or not the estimates are put forward in good 

faith, there continues to be a major disconnect between the regulatory agencies in 

Washington, D.C., and credit unions across the country in terms of how time consuming, costly, and problematic it can be to implement various proposals. Additionally, there isn’t always a great amount of thought given to the actual operational 

aspects of many proposals including how they will interact with existing regulations 

and how they would address risk in the system without layering needless regulation 

upon needless regulation. 

III. Recent Actions to Provide Relief 

NAFCU and the entire credit union community would like to thank the Members 

of this Committee and your staffs for all of your work on the passage of H.R. 3468, 

the Credit Union Share Insurance Fund Parity Act in the 113th Congress. As you 

are aware, this legislation allows NCUA to provide pass-through share insurance 

coverage on Interest on Lawyers Trust Accounts (IOLTAs) and other similar accounts, similar to what the Federal Deposit Insurance Corporation (FDIC) provides. 

We also appreciate the passage of the American Savings Promotion Act.

NAFCU also recognizes that there has been effort by regulators, such as NCUA 

and CFPB to provide relief via the regulatory process. While there have been some 

small steps taken, too often regulators set arbitrary asset thresholds for relief and 

don’t actually consider the risk or complexities of institutions. Regulation of the system should match the risk to the system. As previously noted, when compared with 

the Nation’s ‘‘Too Big To Fail’’ financial institutions, all credit unions are ‘‘small’’ 

institutions and not very complex. There should not be artificial or arbitrary asset 


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thresholds established for which size credit unions should receive regulatory relief. 

The challenges facing the industry impact, or stand to impact, all credit unions and 

all ultimately need relief. 

More needs to be done. In particular, NAFCU is also concerned that regulators 

sometimes try to frame new costly and burdensome proposals as ‘‘regulatory relief’’ 

when the end result for credit unions is higher costs for little relief. One example 

is NCUA’s request for additional third-party vendor examination authority for credit 

unions which they have called ‘‘regulatory relief.’’

NAFCU does not support spending credit union resources to expand NCUA’s examination authority into noncredit union third parties. While NCUA contends that 

examination and enforcement authority over third-party vendors will provide regulatory relief for the industry, NAFCU and our members firmly believe that such authority is unnecessary and will require considerable expenditure of the agency’s resources and time. NAFCU disagrees with the assertion that third-party vendor examination and enforcement authority will provide any significant improvement to 

credit union safety and soundness. The key to success with appropriate management of vendors is due diligence on behalf of the credit union. NAFCU supports 

credit unions being able to do this due diligence and NCUA already offers due diligence guidance to credit unions. Giving NCUA additional authority will require an 

additional outlay of agency resources, which will in turn necessitate higher costs to 

credit unions. 

Another prime example of a proposal NCUA has called relief, but is in fact a new 

heavy burden on the industry, is the agency’s current proposal for a risk-based capital system for credit unions. 

IV. NCUA’s 2nd Risk-Based Capital Proposal: Still a Solution in Search of 

a Problem 

On January 15, 2015, the National Credit Union Administration (NCUA) Board, 

in a 2–1 vote, issued a revised risk-based capital proposed rule for credit unions. 

NAFCU has just begun to analyze the proposal and will be providing NCUA with 

detailed comments and concerns from our membership as part of the agency’s request for comment before the April 27, 2015, deadline. We are encouraged to see 

that the revised version of this proposal addresses some changes sought by our 

membership. However, NAFCU maintains that this costly proposal is unnecessary 

and will ultimately unduly burden credit unions and the communities they serve. 

A Costly Experiment for Credit Unions 

NAFCU and its member credit unions remain deeply concerned about the cost of 

this proposal. NAFCU’s analysis estimates that credit unions’ capital cushions (a 

practice encouraged by NCUA’s own examiners) will suffer over a $470 million hit 

if NCUA promulgates separate risk-based capital threshold for well capitalized and 

adequately capitalized credit unions (a ‘‘two-tier’’ approach). Specifically, in order to 

satisfy the proposal’s ‘‘well-capitalized’’ thresholds, today’s credit unions would need 

to hold at least an additional $729 million. On the other hand, to satisfy the proposal’s ‘‘adequately capitalized’’ thresholds, today’s credit unions would need to hold 

at least an additional $260 million. Despite NCUA’s assertion that only a limited 

number of credit unions will be impacted, this proposal would force credit unions 

to hold hundreds of millions of dollars in additional reserves to achieve the same 

capital cushion levels that they currently maintain. These are funds that could otherwise be used to make loans to consumers or small businesses and aid in our Nation’s economic recovery. In addition, NCUA’s own direct cost estimate approximates that is will cost $3.75 

million for the agency to adjust the Call Report, update its examination systems and 

train internal staff to implement the proposed requirements. NCUA also estimates 

credit unions would incur an ongoing $1.1 million expense to complete the adjusted 

Call Report fields. NCUA’s conservative estimate states that it will only take a meager 40 hours to completely review the 450-page proposal against a credit union’s 

current policies at a cost of over $5.1 million. We expect that the true costs will be 

much higher when credit unions have to comply. 

Impact Analysis 

NCUA estimates that 19 credit unions would be downgraded if the new risk-based 

proposal were in place today. NAFCU believes the real impact is best illustrated 

with a look at its implications during a financial downturn. Under the new proposal, 

the number of credit unions downgraded more than doubles during a downturn in 

the business cycle. Because the nature of the proposal is such that, in many cases, 

assets that would receive varying risk weights under the proposal are grouped into 

the same category on NCUA call reports, numerous assumptions must be made to 

estimate impact. 


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Under our most recent analysis, NAFCU believes 45 credit unions would have 

been downgraded during the financial crisis under this proposal. Of those 45, 41 of 

credit unions would be well-capitalized today. To have avoided downgrade, the institutions would have had to increase capital by $145 million, or an average $3.2 million per institution. As the chart on the next page demonstrates, almost all of the 

credit unions that would have been downgraded—95 percent—are well capitalized 

or adequately capitalized today without NCUA’s risk-based capital proposal being 

needed.

Legal Authority 

NAFCU strongly believes that NCUA lacks the statutory authority to prescribe 

a separate risk-based capital threshold for well capitalized and adequately capitalized credit unions. NCUA Board Member J. Mark McWatters, the dissenting vote 

on the proposal, called NCUA’s lack of legal authority the most ‘‘fundamental issue 

presented before the Board.’’ The Federal Credit Union (FCU) Act expressly provides that NCUA shall implement a risk-based net worth requirement that ‘‘take[s] 

account of any material risk against which the net worth ratio required for an insured credit union to be adequately capitalized may not provide adequate protection.’’ 12 U.S.C. § 1790d(d). The FCU Act does not provide NCUA the express authority to implement a separate risk-based net worth threshold for the ‘‘well capitalized’’ net worth category. Simply put, Congress has not expressly authorized the 

Board to adopt a two-tier risk-based net worth standard. 

Further, it has been disclosed that NCUA authorized the expenditure of $150,000 

to seek an outside legal opinion over the legality of the risk-based proposal. It is 

worth noting that NCUA continued forward with this proposal despite the neutrality of the outside opinion which recognized the questionable legal standing of the 

proposal by noting only that a court ‘‘could’’ conclude that NCUA had the statutory 

authority to offer a two-tier system. 

Legislative Change 

Ultimately, NAFCU believes legislative changes are necessary to bring about comprehensive capital reform for credit unions such as allowing credit unions to have 

access to supplemental capital sources, and making the statutory changes necessary 

to design a true risk-based capital system for credit unions that gives greater statutory flexibility in determining corresponding leverage ratio standards. 

V. Credit Unions Need Field of Membership Help 

In addition to the legislative changes needed on the capital front for credit unions, 

field of membership (FOM) rules for credit unions need to be modernized, both on 

the legislative front and by NCUA. 

NAFCU believes reasonable improvements to current field-of-membership restrictions include: (1) streamlining the process for converting from one charter type to 

another; (2) updating and revising population limits in NCUA’s field of membership 

rules; and, (3) making statutory changes to make it easier for all credit unions to 

add ‘‘underserved’’ areas within their field of membership or continuing serving 

their current select employee groups (SEGs) when they change charters. Additionally, NAFCU believes that NCUA should have a ‘‘reverse wild card’’ authority where 

Federal credit unions can request a waiver from the agency that allows them to follow a State rule for credit unions if it allows them to serve their members better. 


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Charter Conversions 

NAFCU continues to hear from our members that NCUA’s Rules and Regulations 

governing charter conversions for credit unions that seek to convert from one type 

of Federal charter to another are unnecessarily cumbersome. We ask that NCUA 

review its rules on conversions and initiate a rulemaking for changes, with particular focus on conversions to a community charter. 

NAFCU and our members strongly oppose the agency’s chartering rule that prevents a single- or multi-associational chartered Federal credit union (FCU) from 

continuing to serve its existing field of membership when it converts to a community 

charter, unless the field of membership is entirely within the new community. The 

effect of this limitation has been that FCUs are dissuaded from offering their services to more people, a result that we do not believe is desirable. 

Definition of ‘‘Rural District’’

Under NCUA’s Rules and Regulations, a ‘‘rural district’’ is defined as (1) a district 

that has well-defined, contiguous geographic boundaries; (2) more than 50 percent 

of the district’s population resides in census blocks or other geographic areas that 

are designated as rural by the United States Census Bureau; and (3) does not exceed certain other population thresholds. The district’s population cannot exceed either (a) the greater of 250,000 or 3 percent of the population of the State in which 

the majority of the district is located, or (b) if the district has well-defined contiguous geographic boundaries, it does not have a population density in excess of 100 

people per square mile, and the total population of the district does not exceed the 

greater of 250,000 or 3 percent of the population of the State in which the majority 

of the district is located. 

The current definition of ‘‘rural district’’ was revised in February, 2013. As 

NAFCU has expressed many times to NCUA, it is important that the definition not 

be overly restrictive and consequently deprive many Americans the opportunity to 

receive high quality financial services from a credit union. 

While NAFCU welcomed NCUA’s efforts to enable more credit unions to obtain 

a community charter under the ‘‘rural district’’ designation, we continue to hear 

from our members that the final rule has had only a limited effect. We urge the 

agency to reconsider the definition of ‘‘rural district’’ so as to provide greater flexibility for credit unions that would like to serve rural areas of our Nation. A more 

flexible definition of ‘‘rural district’’ would increase credit availability to those who 

might otherwise not have ready access to financial services. 

NAFCU notes that under the ‘‘three percent option’’ only those credit unions that 

seek to serve in rural areas in the 13 most populated States in the country have 

been affected by the final rule. Those credit unions that would like to serve persons 

who live in rural areas in the remaining 37 States and U.S. Territories remain subject to an arbitrary 250,000 population limit. 

NAFCU is also concerned with the final rule’s 250,000 population limit. In prior 

communications with the agency, we urged NCUA to, at the very least increase this 

limit to the pre-2010 level of 500,000, which was reduced without explanation. With 

the 2010 changes, the agency effectively decided that a ‘‘rural district’’ is actually 

60 percent smaller in population than it previously thought. This fact, in and of 

itself, is troubling. NAFCU believes the 250,000 limit is arbitrary and does not pass 

even a cursory review of our Nation’s makeup. We urge the agency to reconsider 

this threshold. 

Further, NAFCU believes NCUA should either remove or greatly increase the 100 

person per square mile limit, as this population density threshold is far too low. 

NAFCU does not believe a person-per-square mile limitation should be part of the 

analysis for determining whether a credit union should be granted a community 

charter with ‘‘rural district’’ designation. 

Statutory Changes are Needed 

Congress can provide FOM relief by removing outdated restrictions that credit 

unions face such as expanding the criteria for defining ‘‘urban’’ and ‘‘rural’’ and allowing voluntary mergers involving multiple common bond credit unions and allowing credit unions that convert to community charters to retain their current select 

employee groups (SEGs). 

Furthermore, Congress should clarify that all credit unions, regardless of charter 

type, should be allowed to add underserved areas to their field of membership. This 

is an important issue for SRP FCU, as our membership includes Allendale and 

Barnwell counties which are some of the most rural in South Carolina. They are 

also some of the poorest, with large percentages living below the poverty level. SRP 

FCU has a strong presence in these counties, with a significant amount of the adult 

populations in those counties being members. We would like to take our success in 


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these counties and help other underserved communities. However, as a community 

charter, we cannot add underserved areas to our field of membership. 

VI. Regulators Must Be Held Accountable for Cost and Compliance Burden 

Estimates 

Cost and time burden estimates issued by regulators such as NCUA and CFPB 

are often grossly understated. Unfortunately, there often is never any effort to go 

back and review these estimates for accuracy once a proposal is final. We believe 

Congress should require periodic reviews of ‘‘actual’’ regulatory burdens of finalized 

rules and ensure agencies remove or amend those rules that vastly underestimated 

the compliance burden. A March, 2013, survey of NAFCU’s membership found that 

over 55 percent of credit unions believe compliance cost estimates from NCUA and 

the CFPB are lower than they are when the credit union actual has to implement 

the proposal. 

We believe Congress should use their oversight authority to require regulators to 

provide specific details on how they determined their assumptions in their cost estimates when submitting those estimates to OMB and publishing them in proposed 

rules. It is important that regulators be held to a standard that recognizes burden 

at a financial institution goes well beyond additional recordkeeping. At SRP FCU, 

we spend approximately 116 employee hours to fill out one NCUA Call Report. 

NCUA’s 2014 submission to OMB estimates the time to complete the Call Report 

to be 6.6 hours per reporting cycle. Something is amiss. That’s 109 hours of regulatory burden that are not being recognized on just one form. With the requirements 

of the new proposed risk-based capital proposal, this burden is likely to get worse. 

More needs to be done to force regulators to justify that the benefits of a proposal 

outweigh its costs. 

VII. Revisiting Legislation from the 113th Congress to Provide Relief 

There were a number of measures introduced in either the House or Senate in 

the 113th Congress to provide credit unions with regulatory relief. Unfortunately, 

many of these measures stalled at various points in the legislative process. Still, we 

hope that these measures gain traction in the 114th Congress: 

Regulatory Relief for Credit Unions Act of 2013

The Regulatory Relief for Credit Unions Act of 2013 (H.R. 2572) reflected several 

provisions important to NAFCU. The legislation would:

• establish a risk-based capital system for credit unions;

• allow NCUA to grant Federal credit unions a waiver to follow a State rule instead of a Federal one in certain situations;

• authorize NCUA to step in where appropriate to modify a CFPB rule affecting 

credit unions;

• require that NCUA and CFPB revisit cost/benefit analyses of rules after 3 years 

so they have a true sense of the compliance costs for credit unions;

• require NCUA to conduct a study of the Central Liquidity Facility and make 

legislative recommendations for its modernization;

• give credit unions better control over their investment decisions and portfolio 

risk. 

Member Business Lending Improvements 

Senators Mark Udall and Rand Paul introduced S. 968, the Small Business Lending Enhancement Act of 2013, and Representatives Royce and McCarthy introduced 

H.R. 688, the Credit Union Small Business Jobs Creation Act. Both bills would raise 

the arbitrary cap on credit union member business loans from 12.25 percent to 27.5 

percent of total assets for credit unions meeting strict eligibility requirements. 

Additionally, NAFCU supported legislation (H.R. 4226) to exclude loans made to 

non-owner occupied 1- to 4-family dwelling from the definition of a member business 

loan and legislation (H.R. 5061) to exempt loans made to our Nation’s veterans from 

the definition of a member business loan. 

Furthermore, NAFCU also supports exempting from the member business lending 

cap loans made to nonprofit religious organizations, businesses with fewer than 20 

employees, and businesses in ‘‘underserved areas.’’

Supplemental Capital for Credit Unions 

Allowing eligible credit unions access to supplemental capital, in addition to retained earning sources, will help ensure healthy credit unions can achieve manageable asset growth and continue to serve their member-owners efficiently as the 

country recovers from the financial crisis. 


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During the last Congress Representatives King and Sherman introduced H.R. 

719, the Capital Access for Small Businesses and Jobs Act, a bill that would authorize NCUA to allow Federal credit unions to receive payments on uninsured, 

nonshare capital accounts, provided the accounts do not alter the cooperative nature 

of the credit union. The need for supplemental capital is even greater today as the 

NCUA pushes ahead with their stringent risk-based capital proposal. 

Reforms to the definition of ‘‘Points and Fees’’

Senators Manchin, Johanns, Toomey, Kirk, Stabenow and Levin introduced S. 

1577, The Mortgage Choice Act, a bipartisan bill that would exclude affiliated title 

charges from the ‘‘points and fees’’ definition, and clarify that escrow charges should 

be excluded from any calculation of ‘‘points and fees.’’ These important changes 

would greatly improve the definition of ‘‘points and fees’’ used to determine whether 

a loan meets the QM test, and would ensure that those with low and moderate 

means would continue to be able to obtain their mortgages from their credit union 

at a reasonable price. We appreciate the leadership of the sponsors of this legislation and urge the Senate to advance this issue as soon as possible. Similar legislation (H.R. 685) was just reintroduced in the House last week. 

Privacy Notices 

Earlier this week Senators Moran and Heitkamp reintroduced bipartisan legislation (S. 423) that would remove the requirement that financial institutions send redundant paper annual privacy notices if they do not share information and their 

policies have not changed, provided that they remain accessible elsewhere. These 

duplicative notices are costly for the financial institution and often confusing for the 

consumer as well. In the 113th Congress, this legislation had over 70 cosponsors in 

the Senate. We appreciate the continued leadership on this important issue. Similar 

legislation has been introduced in the House this Congress as H.R. 601. 

Examination Fairness 

Credit unions face more examiner scrutiny than ever, as the examination cycles 

for credit unions have gone from 18 months to 12 months since the onset of the financial crisis even though credit union financial conditions continue to improve. Additional exams mean additional staff time and resources to prepare and respond to 

examiner needs. NAFCU has concerns about the continued use of Documents of Resolution (DOR) when they are not necessary or are used in place of open and honest 

conversations about examiner concerns. A survey of NAFCU members last year 

found that nearly 40 percent of credit unions that received DORs during their last 

exam felt it was unjustified and nearly 15 percent of credit unions said their examiners appeared less competent than in the past. NAFCU supports effective exams 

that are focused on safety and soundness and flow out of clear regulatory directives 

and later in my testimony we will outline areas where we think NCUA can do more. 

NAFCU strongly supported legislation introduced (S. 727) by Senators Manchin 

and Moran last Congress that would have helped to ensure timeliness, clear guidance and an independent appeal process free of examiner retaliation. Identical legislation (H.R. 1553) was introduced in the House and NAFCU is hopeful that both 

chambers take this issue up during the 114th Congress. 

Relief From the Consumer Financial Protection Bureau 

NAFCU has consistently supported measures in both chambers to bring greater 

accountability and transparency to the Consumer Financial Protection Bureau 

(CFPB) including replacing the director with a board akin to other Federal financial 

regulators, bringing the CFPB under the congressional appropriations process, and 

giving the Financial Stability Oversight Council additional tools to challenge CFPB 

rulemaking. NAFCU appreciates the leadership of Senators Fischer, Scott, Barrasso, 

Chambliss, Collins, Inhofe, Johnson and Roberts for spearheading these efforts. 

Additionally, we appreciate the work of Senators Toomey and Donnelly for introducing S. 2732, the CFPB Examination and Reporting Threshold Act, to address the 

arbitrary $10 billion threshold for examination of depository institutions by the 

CFPB. NAFCU believes that all credit unions, as good actors during the financial 

crisis, should be exempt from being subject to the CFPB and would support adding 

language to the legislation exempting all credit unions in place of the proposed $50 

billion threshold. 

Relief From Operation Choke Point 

The Operation Choke Point initiative was launched in an effort to fight consumer 

fraud by denying fraudulent businesses access to banking services and holding financial institutions and third-party processors accountable if they continue to serve 

a client operating in a fraudulent manner. NAFCU, with many others in the finanVerDate 0ct 09 2002 14:52 Feb 29, 2016 Jkt 000000 PO 00000 Frm 00141 Fmt 6621 Sfmt 6621 S:\DOCS\94014.TXT SHERYL

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cial services industry, has noted concerns that this program ‘‘could seriously deter 

the natural growth and development of e-commerce and stifle future economic 

growth.’’

In the House, Representative Leutkemeyer introduced H.R. 4986, the End Operation Choke Point Act, a bill that would create a legal safe harbor for financial institutions, including credit unions that meet qualifying criteria. Luetkemeyer also introduced H.R. 5758, the Financial Institution Customer Protection Act, a bill that 

would rein in the Justice Department’s ‘‘Operation Choke Point’’ initiative by restricting its ability to order the termination of accounts in financial institutions by 

requiring Federal banking regulators, to provide material reason beyond 

reputational risk for ordering a financial institutions to terminate a banking relationship. It would also require regulators to put any order to terminate a customer’s 

account into writing. The latter bill was reintroduced last week in substantially 

similar form and under the same title as H.R. 766. 

Helping Expand Lending Practices in Rural Communities Act 

Introduced by Leader McConnell (S. 1916), this bill would be helpful to small 

creditors, including credit unions, as they deal with the CFPB’s definition ‘‘rural 

area’’ particularly as it relates to the ability-to-repay rule. Representative Andy 

Barr (H.R. 2672) had a similar bill in the House and NAFCU hopes these bicameral 

efforts continue this Congress. As I outline in my testimony below, NAFCU also has 

concerns with how NCUA defines ‘‘rural.’’

Community Bank Mortgage Servicing Asset Capital Requirements Study Act 

Introduced by Representatives Luetkemeyer and Perlmutter as H.R. 4042 in the 

last Congress, this bill would delay the implementation of Basel III regulations on 

mortgage servicing assets until an impact study is conducted and alternatives are 

explored. Given the circumstances credit unions find themselves in with the riskbased capital proposal, NAFCU believes this is an appropriate vehicle to include a 

similar analysis be done by the NCUA pertaining to their risk-based capital proposal. 

SAFE Act Confidentiality and Privilege Enhancement Act 

Introduced by Chairman Capito as H.R. 4626 in the House last Congress, the bill 

would clarify the confidentiality of information shared between State and Federal 

financial service regulators under the S.A.F.E. Mortgage Licensing Act. This commonsense technical fix is welcomed by credit unions as it applies to the Nationwide 

Mortgage Licensing System & Registry established as an oversight mechanism to 

collect information from Mortgage Loan Originators. Senator Capito just reintroduced this last week and we applaud her efforts. 

VIII. Areas Where Regulators Can Provide Relief to Credit Unions 

While my testimony has outlined important issues impacting credit unions and 

highlighted steps that Congress can take to help, there are additional steps that the 

NCUA, CFPB, FHFA, the Federal Reserve and others can currently take to provide 

relief without congressional action and we would encourage them to do so. 

NCUA 

We are pleased that the National Credit Union Administration has been willing 

to take some small steps recently to provide credit unions relief. A prime example 

of this is the agency’s proposed fixed-asset rule. This is a topic that was previously 

on NAFCU’s ‘‘Dirty Dozen’’ and we are hopeful that the agency will continue moving 

forward and finalize this proposal. 

We are also glad to see NCUA’s voluntary participation in review of its regulations pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 

1996 (EGRPRA). This review provides an important opportunity for credit unions 

to voice their concerns about outdated, unnecessary or unduly burdensome requirements of NCUA’s Rules and Regulations. 

While these small steps by NCUA are positive, NAFCU believes that a big part 

of the problem is the cumulative impact of numerous regulations. While NCUA is 

not required to follow the President’s Executive Order 13563—Improving Regulation 

and Regulatory Review, we believe that the agency should adhere to the spirit of 

it during the rulemaking process, such as taking into account the costs of cumulative costs of its regulations on the credit union industry. As noted earlier, NAFCU 

believes all credit unions need relief and regulators such as NCUA should not solely 

rely on an arbitrary asset-size threshold when providing relief. 

While my testimony has already outlined key areas such as field of membership, 

risk-based capital and compliance burden estimates, there are a number of areas 

where we would like to see NCUA action to provide relief. 


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Member Business Lending 

A major area where we think NCUA can use its authority to provide relief is with 

member business lending. The Member Business Lending (MBL) regulation, as 

NAFCU and our members have consistently maintained, is far too restrictive and 

cumbersome. 

As NAFCU outlined in both its March 5, 2014, letter to NCUA Board and our 

‘‘Top Ten’’ list of regulations to eliminate or amend, there are several aspects of the 

MBL requirements which should be improved, including: changes to the waiver requirements and waiver process to make it more efficient and easier to obtain individual and blanket waivers; expanding opportunities to obtain waivers; and removing the 5 year relationship requirement to obtain a personal guarantee waiver. Additionally, NCUA should use its authority granted in the FCU Act to provide an exception to the limitations on member business loans (the MBL cap) for those credit 

unions that have a history of making MBLs to their members for a period of time. 

Section 1757a of the FCU Act contains the limitations on MBLs. Under Part 723 

of NCUA’s Rules and Regulations, the aggregate MBL limit for a credit union is limited to the lesser of 1.75 times the credit union’s net worth or 12.25 percent of the 

credit union’s total assets. However, the FCU Act also contains exceptions to the 

MBL cap. In particular, it provides exception authority from the MBL cap for ‘‘an 

insured credit union chartered for the purpose of making, or that has a history of 

primarily making, member business loans to its members, as determined by the 

Board.’’ See, 12 U.S.C. § 1757a(b)(1). 

Traditionally, this provision in § 1757a has been construed narrowly by NCUA. 

Section 723.17(c) of NCUA’s Rules and Regulations currently defines credit unions 

that have a history of primarily making member business loans as credit unions 

that have either 25 percent of their outstanding loans in member business loans or 

member business loans comprise the largest portion of their loan portfolios, as evidenced by any Call Report or other document filed between 1995 and 1998. NAFCU 

continues to hear from our members that this definition is overly restrictive and 

often prevents them from extending sound loans to their small business members, 

many of whom have been abandoned by other financial institutions due to their 

smaller size. 

NAFCU has urged NCUA to take a broader interpretation of the history of primarily making MBLs provision of the FCU Act. This can be done by NCUA utilizing 

its statutory authority to create an exception from the MBL cap for all credit unions 

that have a history of making MBLs for an extended period of time. NAFCU and 

our members believe that a credit union that has had a successful MBL program 

in place for a period of 5 years or greater would be a reasonable basis to satisfy 

this statutory authority. 

NCUA has explained that the current definition ‘‘focuses on a credit union’s historical behavior during the years leading up to the enactment of the Credit Union 

Membership Access Act (CUMAA).’’ NAFCU and our members believe this focus is 

unnecessarily restrictive, and we have urged the agency to expand the scope of the 

definition. NAFCU contends that it would be more appropriate for NCUA to consider a credit union’s history of making MBLs in general, rather than restricting 

its focus solely to a credit union’s behavior from 1995 through 1998. In particular, 

we believe the agency should define credit unions that have had a successful MBL 

program in place for at least 5 years as having a ‘‘history of primarily making 

MBLs.’’ NAFCU has encouraged the NCUA Board to set this standard and make 

the exception available to all credit unions. 

NCUA expanding the opportunities for credit unions to obtain waivers is another 

area where they could help. In February 2013, NCUA issued supervisory letter 13–

01 to credit unions attempting to shed light on the criteria and processes for obtaining MBL waivers. While this guidance was useful to credit unions, NAFCU continues to hear from its members that the waiver process is complicated, slow moving, and inefficient. As a result, many credit unions have been unable to extend 

sound loans to their small business members, loans which may have been lost to 

competitors, or worse, never extended at all. 

While waivers should not be used so frequently that they are the norm, the process to obtain one should not be so excessively difficult as to prevent credit unions 

from serving their membership effectively. Healthy, well-run credit unions with 

risk-focused MBL programs that maintain appropriate policies and procedures and 

that perform adequate due diligence on their member borrowers should be able to 

apply for and obtain blanket waivers which would help their membership. 

Furthermore, the MBL regulations should be amended to expand a credit union’s 

ability to obtain an individual or blanket waiver. Credit unions, because of their 

fundamental nature, are in a great position to extend credit to small businesses 

which will help fuel our Nation’s economic recovery. Expansion of the waiver capaVerDate 0ct 09 2002 14:52 Feb 29, 2016 Jkt 000000 PO 00000 Frm 00143 Fmt 6621 Sfmt 6621 S:\DOCS\94014.TXT SHERYL

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bilities would enable well run credit unions to extend loans to their small business 

members. 

As noted above, the FCU Act contains the limitations on and exceptions to MBLs. 

However, the FCU Act does not prescribe limitations on the waivers that NCUA can 

put in place with regard to the regulations it imposes for MBLs that are not statutory requirements. 

Section 723.10 of NCUA’s Rules and Regulations contains an enumerated list of 

MBL-related requirements for which a credit union can apply for a waiver. NAFCU 

believes that this enumerated list of available waivers should be replaced with a 

more flexible waiver provision that would allow a credit union to apply for, and obtain, a waiver from a nonstatutorily required MBL regulatory requirement. The use 

of an enumerated list necessarily restricts a credit union from obtaining a waiver 

of a requirement which is not listed, even where such a waiver would not pose a 

safety and soundness concern to the credit union. NAFCU encourages NCUA to 

amend Section 723.10 to provide a more flexible waiver provision. 

NCUA could issue appropriate guidance for the types of waivers that a credit 

union could obtain using a more flexible standard, which could include enumerated 

lists and appropriate examples. Section 723.11 of NCUA’s Rules and Regulations 

contains the procedural requirements for a credit union to obtain a waiver, and it 

requires a credit union to submit a waiver request accompanied by a great deal of 

information related to the credit union’s member business loan program. Under a 

more flexible provision, and taking into account safety and soundness considerations, NCUA should be able to determine from the information required to be provided pursuant to Section 723.11 whether a waiver is appropriate for a credit union. 

This approach would enhance a credit union’s ability to provide MBLs to its members without compromising the safety and soundness of the credit union. 

Budget Transparency 

NCUA is funded by the credit unions it supervises. Each year, credit unions are 

assessed a different operating fee based on asset size. NCUA then pools the monies 

it receives from credit unions and uses those funds to create and manage an examination program. The monies that NCUA collects, however, have significantly increased over the past 6 years to cover a $109.7 million increase in the agency’s 

budget during that period. 

NAFCU supports the agency’s efforts to accurately calculate the appropriate overhead transfer rate and urges NCUA to maintain a rate that is equitable to FCUs 

given they are funding the remaining agency expenses through operating fees. 

NAFCU encourages NCUA to continue to look for ways to decrease costs in order 

to reduce fees FCUs pay to the agency. In connection with this, NAFCU believes 

that credit unions deserve clearer disclosures of how the fees they pay the agency 

are managed. 

As NAFCU has stated in previous communications to the agency, NCUA is 

charged by Congress to oversee and manage the National Credit Union Share Insurance Fund (NCUSIF), the Temporary Corporate Credit Union Stabilization Fund, 

the Central Liquidity Fund, and its annual operating budget. These funds are comprised of monies paid by credit unions. NCUA is charged with protecting these 

funds and using its operating budget to advance the safety and soundness of credit 

unions. 

Because these funds are fully supported by credit union assets, NAFCU and our 

members strongly believe that credit unions are entitled to know how each fund is 

being managed. Currently, NCUA publicly releases general financial statements and 

aggregated balance sheets for each fund. However, the agency does not provide nonaggregated breakdowns of the components that go into the expenditures from the 

funds, such as the overhead transfer rate. Although NCUA releases a plethora of 

public information on the general financial condition of the funds, NAFCU urges the 

agency to fully disclose the amounts disbursed and allocated for each fund. For example, NAFCU and our members believe that NCUA should be transparent about 

how the monies transferred from the NCUSIF through the overhead transfer rate 

are allocated to the NCUA Operating Budget. 

NCUA Board Member McWatters has urged greater transparency in NCUA’s 

budget process, including an industry hearing on the budget. He has also outlined 

a series of recommendations for the agency to take to provide great budget transparency:

1. Additional detail regarding each of the following expenditures: Employee Pay 

and Benefits, Travel, Rent/Communications/Utilities, Administrative, and Contracted Services;


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2. A detailed analysis of how NCUA may reduce the expenditures noted in item 

1 above;

3. The submission of the methodology employed by NCUA in calculating the OTR 

for public comment, and a detailed description of the methodology adopted by 

NCUA following a thoughtful analysis of the comments received;

4. A detailed analysis of expenditures among NCUA, the National Credit Union 

Share Insurance Fund, the Temporary Corporate Credit Union Stabilization 

Fund, and the Central Liquidity Facility;

5. A detailed analysis of why NCUA’s budget has increased by over 50-percent 

in the past 5 years, as well as a year-by-year analysis of all such increases;

6. A detailed analysis of all cost savings programs implemented by NCUA over 

the past 5 years;

7. A detailed analysis of all expenditures incurred by NCUA to support the Financial Stability Oversight Council (FSOC);

8. A detailed analysis of all expenditures incurred by NCUA in implementing the 

Sensitive Compartmented Information Facility (SCIF);

9. A detailed analysis of all expenditures that NCUA anticipates to incur with respect to the proposed risk based net worth rule, as well as all other proposed 

rules;

10. A formal cost-benefit analysis with respect to each rule or regulation proposed 

by NCUA, as well as a detailed description of the methodology employed by 

NCUA in conducting such analysis; and

11. A detailed reconciliation of how NCUA plans to allocate budget expenditures 

to achieve its strategic goals.

Many of these recommendations align with NAFCU’s concerns and we would urge 

the Committee to call on the agency to implement these recommendations. 

Advertising 

Another area where NCUA could provide relief would be to amend its Rules and 

Regulations to accommodate for the rise of social media and mobile banking. Regulations governing advertising, such as 12 CFR 740.5, for example, contain requirements that are impossible to apply to social media and mobile banking, especially 

mediums that are interactive. A survey earlier this year of NAFCU members found 

that nearly one-in-four have a hard time advertising online or on mobile devices because of these rules. We believe these rules should be amended with the use of social media and mobile banking in mind to include more flexibility as opposed to the 

rigidity of the current rules. Credit unions have fared very well in safely adopting 

the use of such technology, and they take actions necessary to ensure their policies 

and procedures provide oversight and controls with regard to the risk associated by 

social media activities. A modernization of these rules by NCUA would clear up ambiguity and help credit unions use new technologies to better meet the needs of their 

members. 

Examination Issues 

While I have already outlined our support for the Financial Institutions Examination Fairness and Reform Act that was introduced in the last Congress, NAFCU believes that NCUA could take action now to vastly improve the examination process 

for credit unions. 

NAFCU supports effective exams that are focused on safety and soundness and 

flow out of clear regulatory directives. However, the examination process, by its very 

nature, can be inconsistent. Regulatory agencies in Washington try to interpret the 

will of Congress, examiners in the field try to interpret the will of their agency, and 

financial institutions often become caught in the middle as they try to interpret all 

three as they run their institution. Unfortunately, the messages are not always consistent. 

Exam Modernization 

As part of its Regulatory Modernization Initiative, NCUA recently issued its Letter to Credit Unions (Letter No. 13–CU–09). It streamlined the examination report 

and clarifies for credit unions the difference between a Document of Resolution 

(DOR) and an Examiner’s Findings Report. Full implementation of these new documents began with exams that started on or after January 1, 2014. 

NAFCU has concerns about the continued use of Documents of Resolution (DOR) 

when they are not necessary or are used in place of open and honest conversations 

about examiner concerns. Examiner Findings Reports should be used in place of 

DORs for less urgent issues. That would allow management may use its own discreVerDate 0ct 09 2002 14:52 Feb 29, 2016 Jkt 000000 PO 00000 Frm 00145 Fmt 6621 Sfmt 6621 S:\DOCS\94014.TXT SHERYL

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tion to determine the timeframe and approach for correcting those less urgent problems. 

Finally, NAFCU believes NCUA should update its exam manual and provide credit unions with the updates so that they may better understand the examination 

process. 

Consistency 

One of the most troublesome complaints we hear is that NCUA examinations continue to apply regulations inconsistently. While we fully recognize that examiners 

must have a certain degree of discretion, as we have previously communicated to 

the agency, inconsistent examinations and application of regulations create unnecessary confusion and are costly. 

Additionally, regulators should ensure that their regulations are consistently applied from one examiner to another. Inconsistent application of laws and regulations 

among examiners increases uncertainty. This increased uncertainty adds another 

unnecessary layer of difficulty for credit unions to maintain the highest levels of 

compliance. 

More importantly, it is also unclear how an examiner will evaluate compliance. 

In addition to actual regulations, NCUA also routinely provides ‘‘guidance’’ in any 

one of a number of different forms. Some examiners treat the guidance as just that; 

a tool to be used for credit unions to comply with regulations or implement best 

practices. Some examiners, however, treat the ‘‘guidance’’ as if it were part of the 

regulation itself, and consider failure to comply with the guidance as something 

roughly equal to failing to comply with the regulation. More should be done to ensure that all examiners treat both regulations and guidance consistently and for the 

purpose each was issued. 

Unfortunately, if examinations are not conducted consistently, compliance with 

the ever-growing number of regulations will be ever more difficult. As a significant 

percent of examiners are new and with a large number retiring, NCUA will no 

doubt be continuing to hire new examiners. Thus, we believe that this is a critical 

juncture, as well as a great opportunity, for the agency to appropriately train and 

educate examiners so that examinations are conducted consistently. With this goal 

in mind, NCUA should take any and all measures it deems appropriate to achieve 

this goal. 

Examination Appeal Process 

NAFCU understands that some of our concerns cannot be addressed by regulators. Generally, NCUA and its examiners do a satisfactory job, but every inconsistency that forces credit unions to divert more resources to compliance reduces their 

ability to better serve their members. This ultimately translates to lower interest 

rates on savings, higher interest rates on loans, and in some cases, the inability to 

extend credit to a member that would receive credit otherwise. 

NAFCU urges reforms to establish an appeals process that should provide an opportunity to identify inconsistencies and serve as a quality assurance check. The existing appeal process does not promote either. Under the existing process, if an examiner makes a determination to take action against the credit union, the credit 

union must first address the issues with the examiner. The second step is to contact 

the supervisory examiner, who evaluates the facts and reviews the analysis. If the 

issue is still not resolved, the credit union may send a letter to the regional director. 

After the previous steps have been taken, a credit union may then appeal to the 

NCUA Board for review of the decisions below. 

The appeal process has a number of inherent flaws, not the least of which is the 

exclusion (in most instances) of a review by an independent third-party at any level 

of the process. Under these circumstances it is almost impossible to avoid conflicts 

of interest and approach each situation objectively. 

CFPB 

We would also like to acknowledge efforts by the CFPB to provide relief, such as 

seeking to act on the privacy notice issue in the absence of any final congressional 

action and efforts to revisit some of the concerns raised about points and fees under 

the new QM rule. While we believe that legislative action is still necessary in both 

regards, the Bureau deserves credit for taking steps in the absence of Congressional 

action. Still, NAFCU has consistently maintained that the tidal wave of the Bureau’s new regulations, taken individually, and more so in their cumulative effect, 

have significantly altered the lending market in unintended ways. In particular, the 

ability-to-repay, qualified mortgage, and mortgage servicing rules have required 

credit unions of various sizes and complexities to make major investments, and 

incur significant expenses. Taken all together, these regulations have made credit 


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unions rework nearly every aspect of their mortgage origination and servicing operations. 

Exemption Authority 

One area where the CFPB could be the most helpful to credit unions would be 

to use its legal authority to exempt credit unions from various rulemakings. Given 

the unique member-owner nature of credit unions and the fact that credit unions 

did not participate in many of the questionable practices that led to the financial 

crisis and the creation of the CFPB, subjecting credit unions to rules aimed at large 

bad actors only hampers their ability to serve their members. While the rules of the 

CFPB may be well-intentioned, many credit unions do not have the economies of 

scale that large for-profit institutions have and may opt to end a product line or 

service rather than face the hurdles of complying with new regulation. While the 

CFPB has taken steps, such as their small creditor exemption, more needs to be 

done to exempt all credit unions. 

Credit unions are also further hampered by the fact that the CFPB does not have 

one consistent definition of ‘‘small entities’’ from rule to rule. We are pleased that 

the CFPB makes an effort to meet its obligations under the Small Business Regulatory Enforcement Fairness Act (SBREFA). However, we believe that the Bureau 

must do more to address the concerns of smaller financial institutions in its final 

rulemaking, so that new rules do not unduly burden credit unions. 

Under SBREFA, the CFPB is required to consider three specific factors during the 

rulemaking process. First, the agency is to consider ‘‘any projected increase in the 

cost of credit for small entities.’’ Second, the CFPB is required to examine ‘‘significant alternatives to the proposed rule which accomplish the stated objective of applicable statutes and which minimize any increase in the cost of credit for small entities.’’ Third, the CFPB is to consider the ‘‘advice and recommendations’’ from small 

entities. 5 U.S.C. § 603(d). This directive serves an important function. When Congress passed the Dodd-Frank Act, it expected the newly established CFPB to be a 

proactive regulatory body. NAFCU believes the decision to subject the CFPB to 

SBREFA was a conscious decision to help ensure that regulations, promulgated with 

large entities in mind, do not disproportionately impact small financial institutions 

that were not responsible for the financial crisis. 

Regulation E 

As NAFCU outlined in our ‘‘Top Ten’’ list of regulations to eliminate or amend 

in order to better serve credit union customers, the requirement to disclose account 

numbers on periodic statements should be amended in order to protect the privacy 

and security of consumers. Under Regulation E, credit unions are currently required 

to list a member’s full account number on every periodic statement sent to the member for their share accounts. Placing both the consumer’s full name and full account 

number on the same document puts a consumer at great risk for possible fraud or 

identity theft. 

NAFCU has encouraged the CFPB to amend Regulation E § 205.9(b)(2) to allow 

financial institutions to truncate account numbers on periodic statements. This 

modification is consistent with 12 C.F.R. § 205.9(a)(4), which allows for truncated 

account numbers to be used on a receipt for an electronic fund transfer at an electronic terminal. This change is also consistent with § 605(g) of the Fair Credit Reporting Act that states, ‘‘no person that accepts credit cards or debit cards for the 

transaction of business shall print more than the last 5 digits of the card number 

or the expiration date upon any receipt.’’ NAFCU believes that by adopting this 

change, the CFPB will allow financial institutions to better protect the security and 

confidentiality of consumer information. 

Compromised accounts are not only dangerous for consumers, but can be extremely costly for credit unions. In the past year alone data breaches have cost the 

credit union industry millions of dollars. According to feedback from our member 

credit unions, in 2013 each credit union on average experienced $152,000 in loses 

related to data breaches. The majority of these costs were related to fraud losses, 

investigations, reissuing cards, and monitoring member accounts. As the recent 

high-profile data breaches at some of our Nation’s largest retailers have highlighted, 

criminals are willing to go to great extremes to obtain consumer’s sensitive financial 

information. Credit unions understand the importance of steadfastly protecting their 

member’s confidential account information, which is why we strongly suggest this 

regulatory update. 

Until Congress passes new legislation to ensure other third parties, such as merchants, who have access to consumer’s financial information, have effective safeguards in place to protect consumer information, the CFPB should consider this 

minor modification to Regulation E. This change would go a long way in keeping 


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sensitive financial information out of the hands of criminals and reduce the increasing fraud costs borne by credit unions and other financial institutions. 

Remittances 

The Dodd-Frank Act added new requirements involving remittance transfers 

under the Electronic Fund Transfer Act (EFTA) and directed the CFPB to issue 

final rules amending Regulation E to reflect these additions. Under this mandate, 

the Bureau, released a series of final rules concerning remittances, all of which became effective on October 28, 2013. 

In February 2012, the CFPB issued its first set of final rules on remittances. 

These rules required, among other things, remittance service providers, including 

credit unions, to provide a pre-payment disclosure to a sender containing detailed 

information about the transfer requested by the sender, and a written receipt on 

completion of the payment. Following the release of the February 2012, final rule, 

the CFPB issued on August 20, 2012, a supplemental final that provided a safe harbor for determining whether a credit union is subject to the remittance transfer regulations. Specifically, a credit union that conducts 100 or fewer remittances in the 

previous and current calendar years would not be subject to the rules. 

In May 2013, the Bureau modified the final rules previously issued in 2012, to 

address substantive issues on international remittance transfers. This final rule 

eliminated the requirement to disclose certain third-party fees and taxes not imposed by the remittance transfer provider and established new disclaimers related 

to the fees and taxes for which the servicer was no longer required to disclose. 

Under the rule, providers may choose, however, to provide an estimate of the fees 

and taxes they no longer must disclose. In addition, the rule created two new exceptions to the definition of error: situations in which the amount disclosed differs from 

the amount received due to imposition of certain taxes and fees, and situations in 

which the sender provided the provider with incorrect or incomplete information. 

NAFCU opposed the transaction size-based threshold for the final rule’s safe harbor. The CFPB relied on an institution size-based threshold, rather than a transaction size-based threshold, in its recently released mortgage rules, and NAFCU 

urged the Bureau to adopt a similar approach for differentiating between remittance 

transfer providers. Additionally, NAFCU raised concerns with the final rule’s requirement of immediate compliance if an entity exceeds the safe harbor’s 100 transaction threshold. It encouraged the CFPB to allow entities who exceed the safe harbor threshold a realistic period in which to meet the standards of the final rule. 

NAFCU continues to raise concerns that the regulatory burden imposed by the 

final rule leads to a significant reduction in consumers’ access to remittance transfer 

services. NAFCU has heard from a number of its members that, because of the final 

rule’s enormous compliance burden, they have been forced to discontinue, or will be 

forced to discontinue, their remittance programs. A 2013, NAFCU survey of our 

members found that over one-quarter of those that offered remittance services before the rule have now stopped offering that service to members and even more are 

considering dropping. Those that continue to offer remittances have been forced to 

significantly increase their members’ fees. NAFCU encourages the CFPB to expand 

the threshold for the safe harbor from the definition of ‘‘remittance transfer provider’’ in order to ensure that a meaningful safe harbor is established. 

HMDA Changes Going Beyond the Dodd-Frank Act 

The Dodd-Frank Act transferred Home Mortgage Disclosure Act (HMDA) rulemaking authority to the CFPB and directed the Bureau to expand the HMDA 

dataset to include additional loan information that would help in spotting troublesome trends. Specifically, Dodd-Frank requires the Bureau to update HMDA regulations by having lenders report the length of the loan, total points and fees, the 

length of any teaser or introductory interest rates, and the applicant or borrower’s 

age and credit score. However, in its proposal, the Bureau is also contemplating 

adding additional items of information to the HMDA dataset. NAFCU has urged the 

CFPB to limit the changes to the HMDA dataset to those mandated by Dodd-Frank. 

HMDA was originally intended to ensure mortgage originators did not ‘‘redline’’ 

to avoid lending in certain geographical areas. The HMDA dataset should be used 

to collect and provide reasonable data for a specific reason. The Bureau contends 

that it is going beyond Dodd-Frank’s mandated changes to get ‘‘new information 

that could alert regulators to potential problems in the marketplace’’ and ‘‘give regulators a better view of developments in all segments of the housing market.’’ These 

open-ended statements could be applied to virtually any type of data collection, and 

do not further the original intent of HMDA. NAFCU urged the CFPB to amend the 

dataset to advance the original purpose of HMDA, rather than using it as a vehicle 

to ‘‘police’’ its recent Qualified Mortgage rules. 


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The various mortgage-related regulations promulgated by the CFPB have exponentially increased credit unions’ regulatory burden and compliance costs. Any additions to the HMDA dataset will create even more operational expenses for credit 

unions. Credit unions that collect and report HMDA data through an automated 

system will have to work with their staffs and vendors to update their processes 

and software. Those without automated systems will experience particularly significant implementation costs. The CFPB should eliminate unnecessary regulatory burden and compliance costs by limiting the changes to the HMDA dataset to those 

mandated by Dodd-Frank. 

TILA/RESPA 

Dodd-Frank directed the CFPB to combine the mortgage disclosures under the 

Truth in Lending Act and Real Estate Settlement Procedures Act. Under this mandate, the Bureau, in November 2013, released the integrated disclosures rule. This 

1900-page rule requires a complete overhaul of the systems, disclosures, and processes currently in place for a consumer to obtain a mortgage. For example, the rule 

mandates the use of two disclosures: the three-page Loan Estimate (which replaces 

the Good Faith Estimate and initial Truth in Lending Disclosure); and the five-page 

Closing Disclosure (which replaces the HUD–1 and final Truth in Lending disclosure). There are also a number of stringent timing requirements and other substantive changes lenders must follow. The rule is effective August 2015, but lenders 

are still feeling pressure to be compliant on time. The sheer magnitude of this rule, 

read in conjunction with the totality of the other mortgage rules, has created a very 

burdensome regulatory environment and many credit unions are finding it difficult 

to continue lending. Credit unions must comply with the current disclosure requirements, which are extensive, and they must prepare their compliance solutions for 

the upcoming ones effective in August 2015, further exacerbating costs. 

Qualified Mortgages 

NAFCU continues to have serious concerns about the ‘‘Qualified Mortgage’’ (QM) 

standard. In short, given the unique member-relationship credit unions have, many 

make good loans that work for their members that don’t fit into all of the parameters of the QM box and fall into the ‘‘nonqualified mortgage’’ category. NAFCU 

would support the changes below to the QM standard to make it more consistent 

with the quality loans credit unions are already making. Further, credit unions 

should have the freedom to decide whether to make loans within or outside of the 

standard without pressure from regulators. 

Points and Fees 

NAFCU strongly supports bipartisan legislation to alter the definition of ‘‘points 

and fees’’ under the ‘‘ability-to-repay’’ rule. NAFCU has taken advantage of every 

opportunity available to educate and discuss with the CFPB on aspects of the ability-to-repay rule that are likely to be problematic for credit unions and their members. While credit unions understand the intention of the rule and importance of 

hindering unscrupulous mortgage lenders from entering the marketplace, it is time 

for Congress to address unfair and unnecessarily restrictive aspects of this CFPB 

rule. 

NAFCU supports exempting from the QM cap on points and fees: (1) affiliated 

title charges, (2) double counting of loan officer compensation, (3) escrow charges for 

taxes and insurance, (4) lender-paid compensation to a correspondent bank, credit 

union or mortgage brokerage firm, and (5) loan level price adjustments which is an 

upfront fee that the Enterprises charge to offset loan-specific risk factors such as 

a borrower’s credit score and the loan-to-value ratio. 

Making important exclusions from the cap on points and fees will go a long way 

toward ensuring many affiliated loans, particularly those made to low- and moderate-income borrowers, attain QM status and therefore are still made in the future. 

Loans Held in Portfolio 

NAFCU supports exempting mortgage loans held in portfolio from the QM definition as the lender, via its balance sheet, already assumes risk associated with the 

borrower’s ability-to-repay. 

40-year Loan Product 

Credit unions offer the 40-year product their members often demand. To ensure 

that consumers can access a variety of mortgage products, NAFCU supports mortgages of duration of 40 years or less being considered a QM. 


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Debt-to-Income Ratio 

NAFCU supports Congress directing the CFPB to revise aspects of the ‘ability-torepay’ rule that dictates a consumer have a total debt-to-income (DTI) ratio that is 

less than or equal to 43 percent in order for that loan to be considered a QM. This 

arbitrary threshold will prevent otherwise healthy borrowers from obtaining mortgage loans and will have a particularly serious impact in rural and underserved 

areas where consumers have a limited number of options. The CFPB should either 

remove or increase the DTI requirement on QMs. 

Legal Opinion Letters 

In attempting to understand ambiguous sections of CFPB rules, NAFCU and 

many of its members have reached out to the CFPB to obtain legal opinion letters 

as to the agencies interpretation if it’s regulations. While legal opinion letters don’t 

carry the weight of law, they do provide guidance on ambiguous section of regulations. Many other financial agencies such as NCUA, FTC, FDIC and others issue 

legal opinion letters so as to help institutions and other agencies understand otherwise ambiguously written rules. The CFPB has declined to do so. What they have 

done is set up a help line where financial institutions can call for guidance from 

the agency. While this is helpful, there are reports of conflicting guidance being 

given depending on who answers the phone. This is not just unhelpful, but confusing when NCUA examines credit unions for compliance with CFPB regulations. 

Federal Reserve Board 

NAFCU has long encouraged the Federal Reserve to update Regulation D. This 

issue is also on NAFCU’s ‘‘Dirty Dozen’’ and ‘‘Top Ten’’ list. Regulation D generally 

imposes reserve requirements on depository institutions with transaction accounts 

or nonpersonal time deposits, and requires reporting to the Federal Reserve. The 

regulation aims to facilitate monetary policy and ensure sufficient liquidity in the 

financial system. It requires credit unions to reserve against transaction accounts, 

but not against savings accounts and time deposits. 

NAFCU believes the Federal Reserve Board should revisit the transaction limitation requirements for savings deposits. The six-transaction limit imposes a significant burden on both credit union members in attempting to access and manage 

their deposits and credit unions in monitoring such activity. Member use of electronic methods to remotely access, review and manage their accounts, as well as the 

contemporary transfer needs of members and consumers at all types of financial institutions, make a monthly transaction limit an obsolete and archaic measure. 

Should the Board decide not to outright remove the transaction limitation requirement for savings deposits, NAFCU has urged the Board to raise the current limitation from six to 12 transactions. If the Board fails to act in this area, we believe 

Congress should be ready to address this issue. We were pleased to see House Financial Services Committee Chairman Jeb Hensarling and Representative Robert 

Pittenger request a GAO study on this issue. 

FHFA 

In September 2014, FHFA released a proposed rule that would establish new 

asset threshold for both FHLB applications and ongoing membership. Specifically, 

FHLB members and applicants would be required to keep 1 percent of assets in 

home mortgage loans. Also, current FHLB members would be required to hold at 

least 10 percent of assets in residential mortgage loans on an ongoing basis—a 

marked change from the current rule, which only requires this 10 percent threshold 

at the application stage. The proposal would also require FHLBs to evaluate member compliance annually and to terminate membership after two consecutive years 

of noncompliance. This proposed rule threatens to severely hamper credit unions’ access to the valuable services the FHLBs provide and must be carefully considered 

for its full impact before moving forward. In 2007, 11.4 percent of credit unions were 

members of an FHLB, representing 61.7 percent of total credit union assets. Today, 

however, 19 percent of all credit unions are members of an FHLB, and these credit 

unions represent 75.8 percent of the total credit union assets and this number continues to grow. This growth of credit union membership in FHLBs only underscores 

the need to ensure that the eligibility requirements for membership in FHLBs are 

set appropriately. Unfortunately, this proposal would disenfranchise over 1 million 

credit union member-owners from receiving the benefits of FHLB resources as their 

institution’s membership would be terminated under the newly proposed requirements. 

While NAFCU appreciates FHFA’s intention of fostering FHLB’s housing finance 

missions, we believe the current regulatory requirements effectively ensure that 

FHLB members demonstrate ongoing commitments to mortgage lending in their 


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communities. For example, when an FHLB member borrows an advance, it must 

provide eligible collateral to secure the advance. Nearly all eligible types of collateral, which are determined by Congress, are related to housing. In addition, current 

members must certify their active support of housing for first-time home buyers to 

the FHFA every 2 years through the Community Support Statement. Further, 

FHFA has failed to provide any data or empirical evidence to support its claims that 

the FHLB system is at risk because some members may not meet the proposed 

asset percentage requirements on an ongoing basis. Given the sufficient existing requirements, and the lack of statistical support for the proposed changes, NAFCU 

does not believe FHFA needs to move forward with the newly proposed ‘‘ongoing’’ 

membership requirements for depository institutions in this rulemaking. 

Further exacerbating this issue for credit unions is the statutory exemption for 

FDIC-insured banks with under $1.1 billion in assets from the 10 percent requirement as outlined in the Federal Home Loan Bank Act. In addition to seeking 

changes to the underlying FHFA proposal, NAFCU believes this discrepancy also 

needs to be addressed to ensure an even playing field between all financial institutions including credit unions on this matter. We would urge the committee to act 

on this matter and create parity for credit unions. 

IX. Department of Defense (Military Lending Act Proposed Rule) 

NAFCU is in full support of protecting servicemembers from predatory and unscrupulous lenders. It is clear this is the intent of the proposed rule DoD has issued. 

Unfortunately, and unlike the original regulation promulgated by DoD in 2007, this 

rule does not take into account the unintended consequences to the financial industry. While well-intentioned, the rule creates a significant and unnecessary regulatory burden on financial institutions particularly for small community institutions 

like credit unions. 

The burden is significant because it will force all lenders to add an extra time 

consuming and costly step to essentially every extension of consumer credit. Under 

the DoD proposed rule, all lenders would be forced to determine if any individual 

receiving consumer credit is a servicemember or a dependent of a servicemember. 

While the rule provides flexibility in the manner in which a lender could determine 

the status of a borrower, it only grants a safe harbor from civil and potentially 

criminal penalties if the lender uses the Defense Manpower Data Center (DMDC) 

database. Additionally, even this safe harbor can become invalid if it is found that 

financial institution had actual knowledge of a borrower’s status. 

This presents a number of issues for credit unions particularly small credit 

unions. First, every lender would be forced to review all information and documentation on every existing member or customer to determine if they have actual knowledge of the status of that particular individual. This would produce a significant cost 

to a lender to not only review all records but also to implement a system of checks 

to ensure that any information given to them in the future that could serve as actual knowledge is documented. 

Second, lenders would have to institute a set of procedures to check the DMDC 

database for every extension of consumer credit. Credit unions would either have 

to manually check the database in every situation or pay what could amount to an 

enormous cost to integrate an automated system into their current systems. This 

burden would be created for virtually every extension of credit to identify individuals that may makeup less than 1 percent of a credit union’s membership. 

As noted, NAFCU supports providing servicemembers with protections, and if incurring the unintended consequences of this rule was the only way to protect service 

members, this would certainly be a different discussion. What is most perplexing 

about the DoD rule is the fact that there is a very simple solution to this problem 

that would significantly reduce the burden on credit unions and lenders while still 

providing servicemembers with the same protections. This solution is self-identification. If service members self-identify themselves, virtually all the unnecessary burden of the rule would be mitigated and service members would still receive the protections intended by the rule. This method has worked extremely well with the interest rate reduction required under the Servicemembers Civil Relief Act (SCRA). 

Another major concern regarding the rulemaking has been the process. While this 

rule will effectively cover almost every lender in the Nation, the Department of Defense has refused to meet with industry to discuss how this rule could be implemented in the most effective manner. Given the opportunity, we believe that industry could make a valuable contribution to ensuring this rule works both effectively 

and efficiently. 


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X. Regulatory Coordination is also Needed 

With numerous new rulemakings coming from regulators, coordination between 

the agencies is more important than ever. Congress should use its oversight authority to make sure that regulators are coordinating their efforts and not duplicating 

burdens on credit unions by working independently on changes to regulations that 

impact the same areas of service. There are a number of areas where opportunities 

for coordination exist and can be beneficial. We outline two of them below. 

Financial Stability Oversight Council (FSOC) 

NAFCU has been on the forefront encouraging the FSOC regulators to fulfill their 

Dodd-Frank mandated duty to facilitate rule coordination. This duty includes facilitating information sharing and coordination among the member agencies of domestic financial services policy development, rulemaking, examinations, reporting requirements and enforcement actions. Through this role, the FSOC is effectively 

charged with ameliorating weaknesses within the regulatory structure and promoting a safer and more stable system. It is extremely important to credit unions 

for our industry’s copious regulators to coordinate with each other to help mitigate 

regulatory burden. We urge Congress to exercise oversight in this regard and consider putting into statute parameters that would encourage the FSOC to fulfill this 

duty in a thorough and timely manner. 

Data Security 

Outside of advocating for Federal legislation with regard to the safekeeping of information and breach notification requirements for our Nation’s retailers, NAFCU 

has also urged regulatory coordination for credit unions already in compliance with 

the stringent standards in the Gramm-Leach-Bliley Act. In the wake of the massive 

Target data breach in December 2013 the Federal Trade Commission began exploring a range of regulatory options to assist consumers, businesses, and financial institutions. Moving forward, it is imperative that NCUA ensure that credit unions 

are protected from any unnecessary regulatory burden and continue to allow them 

to provide quality services to their members. 

Congress must also act to establish a national data security standard for retailers 

who hold personal financial data. The financial services industry has been subject 

to such a standard since the passage of Gramm-Leach-Bliley in 1999, it’s time for 

others who hold financial data are held to a similar standard. While it is not the 

subject of this hearing, we hope that the Committee will make addressing data security concerns one of its priorities in the 114th Congress. 

XI. Conclusion: All Credit Unions Need Regulatory Relief 

The growing regulatory burden on credit unions is the top challenge facing the 

industry today and credit unions are saying ‘‘enough is enough’’ when it comes to 

the over regulation of the industry. All credit unions are being impacted regardless 

of asset size. This burden has been especially damaging to smaller institutions that 

are disappearing at an alarming rate. The number of credit unions continues to decline, as the compliance requirements in a post Dodd-Frank environment have 

grown to a tipping point where it is hard for many smaller institutions to survive. 

Those that do are forced to cut back their service to members due to increased compliance costs. 

Credit unions want to continue to aid in the economic recovery, but are being stymied by this over regulation. NAFCU appreciates the Committee holding this hearing today. Moving forward, we would urge the Committee to act on credit union relief measures pending before the Senate and the additional issues outlined in 

NAFCU’s Five Point Plan for Credit Union Regulatory Relief and NAFCU’s ‘‘Top 

Ten’’ list of regulations to review and amend. Additionally, Congress needs to provide vigorous oversight to the NCUA’s proposed risk-based capital rule and be ready 

to step in and stop the process so that the impacts can be studied further. Finally, 

the Committee should also encourage regulators to act to provide relief where they 

can without additional congressional action. 

We thank you for the opportunity to share our thoughts with you today. I welcome any questions you might have. 

PREPARED STATEMENT OF MICHAEL D. CALHOUN

PRESIDENT, CENTER FOR RESPONSIBLE LENDING

FEBRUARY 12, 2015

Good morning Chairman Shelby, Ranking Member Brown, and Members of the 

Senate Committee on Banking, Housing, and Urban Affairs. Thank you for allowing 


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1 Jeff Plagge, American Bankers Association, Hearing before the Senate Committee on Banking, Housing, and Urban Affairs, Examining the State of Small Depository Institutions, 113th 

Cong. 2d sess, 2014; John Buhrmaster, Independent Community Bankers of America, Hearing 

before the Senate Committee on Banking, Housing, and Urban Affairs, Examining the State of 

Small Depository Institutions, 113th Cong. 2d sess, 2014. 2 Corelogic, ‘‘CoreLogic Reports 41,000 Completed Foreclosures in November 2014,’’ (January 

14, 2015) accessed at http://investor.corelogic.com/mobile.view?c=118425&v=203&d=1&id

=2007499. 3Federal Deposit Insurance Corporation, Failed Bank List, accessed at https://www.fdic.gov/

bank/individual/failed/banklist.html. 4 John Carney, ‘‘The Size of the Bank Bailout: $29 Trillion,’’ CNBC, December 14, 2011, 

accessed at http://www.cnbc.com/id/45674390#.

me the opportunity to testify on regulatory relief for community banks and credit 

unions and the need to ensure that all financial institutions, regardless of their size, 

are subjected to responsible regulatory oversight that maintains consumer financial 

protections. 

I am the President of the Center for Responsible Lending (CRL), a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership 

and family wealth by working to eliminate abusive financial practices. CRL is an 

affiliate of Self-Help, a nonprofit community development financial institution. For 

30 years, Self-Help has focused on creating asset building opportunities for low-income, rural, women-headed, and minority families. In total, Self-Help has provided 

$6 billion in financing to 70,000 home buyers, small businesses, and nonprofits and 

currently serves more than 80,000 mostly low-income families through 30 retail 

credit union branches in North Carolina, California, and Illinois. As the General 

Counsel of Self-Help for 20 years, I can personally attest to the fact that responsible 

regulations and regulatory oversight are critical to the success of a small lender. 

I. Differences Exist for Community Banks and Credit Unions. 

Community lenders and credit unions, and the financial services they provide, are 

both important and distinctive. We appreciate that small lenders and credit unions 

frequently use a different business model to provide financial services to consumers, 

one that usually involves smaller transactions and is based on the institution having much closer ties to both the borrowers and communities that they serve. The 

result is a tailored lending and underwriting process that can produce more successful lending. Also, unlike their larger bank counterparts, smaller financial institutions are less likely to participate in capital market transactions. Previous testimony from industry organizations, like the American Bankers Association and the 

Independent Community Bankers of America, has shown that community banks 

oversee a much smaller percentage of the Nation’s financial assets—on average less 

than $1 billion at each institution—and operate with far fewer employees, with industry estimates ranging from staff averages of 40 to 54.1

Given the differences in business practices, business scale, and company resources, CRL supports a regulatory framework and oversight structure that appropriately recognizes and accommodates the unique nature of community banks and 

credit unions. It is important that regulators understand how small lending institutions work and take those factors into account when regulating. One-size regulation 

does not always fit all. Community banks and credit unions must be able to continue successfully conducting business in America’s communities. 

II. Financial Regulations are Important. 

Yet, it is important to remember why regulations, especially financial regulations, 

are essential to preserving the financial health of American consumers and the 

health of this Nation’s economy. Responsible financial regulations protect consumers 

from abusive and harmful financial products, ensure the safety and soundness of financial institutions, and prevent systemic risk from threatening to undermine the 

Nation’s financial market as a whole. 

Recent history has already shown us the consequences of under-regulation in the 

financial market. In the wake of the financial crisis, 5.5 million American consumers have lost their homes through foreclosure.2 And, according to the Federal 

Deposit Insurance Corporation, more than 500 banks shuttered their doors; most of 

those institutions were community banks.3 The failure to have a responsible regulatory environment also resulted in taxpayers paying $7 trillion to bail out financial 

institutions through loans and, according to some reports, an additional $22 trillion 

through the Federal Government’s purchase of assets.4 In addition, the national 

economy was undermined and plunged into a severe recession. People lost their jobs, 

small businesses went under, and many Americans—from small entrepreneurs to 

families-struggled to make ends meet while being unable to obtain the credit and 


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5Public Law 111–203 (2010). 

6 Consumer Financial Protection Bureau Examination and Reporting Threshold Act of 2014, 

S. 2732, 113th Cong. (2014). 7 Consumer Financial Protection Bureau Examination and Reporting Threshold Act of 2014, 

S. 2732, 113th Cong. (2014). 8 Community Lending Enhancement and Regulatory Relief Act of 2013, H.R. 1750, 113th 

Cong. (2014). 9 Independent Community Bankers of America, ICBA Policy Resolutions for 2014. 10Federal Deposit Insurance Corporation, Community Banking Study. 11 American Enterprise Institute, The Impact of Dodd-Frank on Community Banks.

capital they needed from financial institutions in order to sustain their position or 

expand their asset base. 

The negative nature of these consequences make it clear to CRL that proactive, 

responsible financial regulations—like those being enacted under the Dodd-Frank 

Wall Street Reform and Consumer Protection Act (Dodd-Frank)5—are needed to protect consumers, small businesses, taxpayers, and the Nation’s economy. And it is 

equally clear that oversight is necessary for every actor in the financial market, 

whether they are as large as J.P. Morgan Chase, a mid-size institution like 

Synovus, community bank lenders like Georgia Bank & Trust and First National 

Bank of Scotia, or credit unions like SRP Federal Credit Union and CRL’s affiliate, 

Self-Help. All financial institutions, including community banks and credit unions, 

benefit from the underlying purposes of financial regulation: protecting consumers, 

ensuring the safety and soundness of institutions, protecting community financial 

institutions from unfair competition, and defending the Nation’s financial market 

from systemic risk. The question is whether there are different, more efficient ways 

to effectively ensure that these objectives are being met when regulating community 

banks and credit unions. 

III. Relief for Community Financial Institutions Should Be Targeted to 

Those Institutions. 

During the 113th Congress, a number of bills and other industry proposals were 

introduced under the banner of providing regulatory relief to community banks that, 

in reality, would have primarily or solely benefited regional, mid-size institutions. 

These bills and proposals included provisions to:

• Amend the Consumer Financial Protection Act, a component of Dodd-Frank, to 

raise the examination threshold that brings an insured depository institution or 

insured credit union within CFPB’s supervisory purview from assets of $10 billion or more to assets of $50 billion or more;6

• Increase the threshold size of an insured depository institution or insured credit 

union that is subject to the Consumer Financial Protection Act’s reporting requirements from assets of $10 billion or more to $50 billion or more;7

• Exempt creditors with under $50 billion in assets from the escrow account requirement for first lien, higher-priced mortgages held in portfolio as required 

by the Dodd-Frank Act; and 8

• Exempt institutions with less than $50 billion in assets from the Volcker Rule’s 

compliance requirements if they are not involved in any activities under the law 

and even remove their obligation to analyze their trading and investments to 

ensure that their activity is exempt.9

The reality is that, in terms of asset size, geographic base, and company resources, institutions with assets between $10 to $50 billion look very different than 

a traditional community bank. CRL’s analysis shows that while community banks 

have on average less than 54 employees, the institutions that stand to benefit from 

these proposals have an average of more than 2,500 employees. Compliance costs 

related to staffing resources can hardly be viewed as parallel. 

Moreover, while the business model of community banking is predicated on strong 

community relationships in a concentrated geographic market, many of the institutions that stand to benefit from these provisions have nationwide markets. These 

institutions are large players with familiar names, like Morgan Stanley Private 

Bank, American Express Bank, GE Capital Bank, and E*Trade Bank. Many people 

would be surprised to hear these institutions called community banks. They would 

also be surprised to learn that American Express Bank is considered as somehow 

having the same business model and compliance cost challenges as First National 

Bank of Scotia, an institution with 10 banking branches located in a single State 

and operating with fewer than 200 employees. 

Asset size alone may not accurately define a community bank. Yet, organizations 

as diverse as the FDIC,10 American Enterprise Institute,11 and CRL agree that a 


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12Federal Deposit Insurance Corporation, FDIC Quarterly 2014, Volume 8, Number 2. 13Larry Fazio, National Credit Union Administration, Hearing before the Senate Committee 

on Banking, Housing, and Urban Affairs, Examining the State of Small Depository Institutions,

113th Cong. 2d sess, 2014. 14 Community Lending Enhancement and Regulatory Relief Act of 2013, H.R. 1750, 113th 

Cong. (2014). 15 Community Lending Enhancement and Regulatory Relief Act of 2013, H.R. 1750, 113th 

Cong. (2014). 16 Federal Bureau of Investigation, 2010 Mortgage Fraud Report. 17Federal Deposit Insurance Corporation, Statistics on Depository Institutions.

business model focused on relationship-based lending, geographically concentrated 

business market, and limited business resources are important supplementing factors that complete the definition. The FDIC’s recently updated analysis of its 2012 

Community Banking Study notes that, using these factors, 94 percent of all community banks have assets under $10 billion and 90 percent of those institutions have 

assets under $1 billion.12 Moreover, 80 percent of credit unions have less than $100 

million in assets.13 Therefore, so-called community bank provisions that provide ex- emptions for the 72 institutions holding between $10 to $50 billion in assets do little 

to help the more than 6,000 community banks that provide credit and capital across 

this country. 

IV. Substantive Rollbacks of Dodd-Frank are not Community Bank Regulatory Relief. 

A number of community bank regulatory relief proposals focus on making substantive changes to the mortgage protections put in place by Dodd-Frank. For example, proposals like those to remove the escrow requirement for institutions with less 

than $50 billion in assets threaten to erase important consumer protections for millions.14 Under the CFPB’s implemented regulations for Dodd-Frank, escrows are required only on higher priced mortgages-and even this requirement only applies for 

the first years of the loan to ensure that the loan is sustainable. Escrow accounts 

protect consumers by ensuring that they have funds for reoccurring homeownershiprelated expenses, such as property taxes and insurance premiums, thereby reducing 

the likelihood of default. 

Another proposal, to exclude appraisal requirements for loans under $250,000 is 

so broad in scope that it would allow nondepository lenders to benefit along with 

all banks and credit unions.15 These very nonbank lenders were key players in the 

financial crisis and are already subject to less oversight because of their nondepository status. The appraisal exemption for $250,000 loans is also overly broad because 

it would apply to nearly half of all homes in the United States. In 2014, the median 

sales price for existing homes in the United States was only $209,500. It is important for everyone to remember that mortgage appraisal fraud was a key driver of 

the housing bubble and subsequent bust.16

Nearly 9 out of 10 mortgages in the United States are made by noncommunity 

bank lenders.17 Substantive rollbacks of Dodd-Frank’s mortgage provisions with 

broad applicability undermine Dodd-Frank’s goal of protecting consumers as a whole 

and preventing the recurrence of another foreclosure crisis. Rollbacks should not be 

included in community bank regulatory relief legislation. 

V. Regulators are moving in the right direction by making efforts to reduce 

regulatory burdens for small lenders. 

The focus should be on what will help traditional community banks and credit 

unions, while protecting consumers, the institutions, and the Nation’s economy as 

a whole. Thankfully, the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and National Credit 

Union Administration have been mindful of the differences between larger institutions and smaller lenders and are working to tailor rules implementing Dodd-Frank 

accordingly. 

The CFPB, in particular, has developed a successful track record in taking the 

lead to adopt and consider regulations that are balanced for financial institutions 

and accommodate smaller lenders. For example, the CFPB recently requested comment on whether to increase the 500 first-lien mortgage cap under QM’s small-creditor definition. CRL expressed support for a reasonable increase of the 500 loan cap, 

limiting any potential increase to rural banks or for loans held in portfolio. The 

CFPB’s proposal quadruples the limit, expanding the loan origination cap for small 

lenders from 500 first-lien mortgages to 2,000. This 2,000 limit is exclusive of loans 

held in portfolio by both the creditor and its affiliates. 

The CFPB has also proposed to only include first-lien mortgage originations of 

small lender affiliate assets toward the current $2 billion small lender asset cap. 


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18Public Law 104–208 (1996), codified at 12 USC § 3311. 

And, to accommodate concerns that the definition of a ‘‘rural and underserved’’ area 

is too narrow, the CFPB has proposed expanding the definition of rural areas by 

including census blocks as defined by the Census Bureau. Finally, the CFPB is also 

proposing to allow grace and qualifying periods for small creditors to adjust to current and proposed standards. While we may not always agree on all specifications, 

we have and continue to support the CFPB’s ongoing efforts to reasonably explore 

how mortgage rules can further accommodate small lenders and lending in designated rural and underserved areas. 

In addition to the CFPB’s activity with mortgage rules, financial regulators are 

working with industry, consumer groups, and other stakeholders to review their regulatory framework, as required by the Economic Growth and Regulatory Paperwork 

Reduction Act of 1996.18 Under the existing law, the agencies must eliminate any 

unnecessary regulations and are required to report their actions to Congress next 

year. 

Finally, regulators have reported that technical assistance and ombudsman programs have been extremely effective vehicles for providing regulatory assistance to 

community banks and credit unions. The effectiveness of these programs, however, 

depends upon adequate funding. CRL recommends that any regulatory relief legislation include increased funding for regulators’ technical assistance and ombudsman 

activities. 

VI. Conclusion 

Community banks and credit unions play an important and essential role in this 

Nation’s financial market. Therefore, CRL understands the need for appropriate regulatory flexibility for small depositories. We oppose, however, any effort to use regulatory relief for community banks and credit unions as a vehicle for nondeposit-taking lenders, mid-size and large financial institutions to avoid having the regulatory 

scrutiny and oversight that proved lacking in the buildup to the financial crisis. The 

need for regulatory flexibility must be balanced against the importance of consumer 

safeguards, an institution’s safety and soundness, and the security of America’s financial system as a whole. Federal financial regulators, like the CFPB, must be allowed to both protect the American people and ensure access to a broad, sustainable 

financial market. 

I look forward to continuing to work with this Committee, community banks and 

credit unions, their associations, and regulators, to ensure that all of these objectives are satisfied through laws and responsible regulations. Thank you for the opportunity to testify today, and I look forward to answering your questions. 


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RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN 

FROM WALLY MURRAY 

Q.1. At Tuesday’s hearing, NCUA stated that its top priority was 

to obtain authority from Congress to examine third-party vendors. 

In addition to its arguments that it would reduce burdens for credit 

unions, it made the case that this authority is vitally important to 

protect the smallest credit unions from cyber-attacks. What are 

your views on this proposal?

A.1. We disagree with the assertion that providing NCUA with authority to examine third-party vendors would reduce regulatory 

burden. Moreover, we disagree with the premise that adding an additional layer of regulation could reduce regulatory burden. NCUA 

has several tools at its disposal to ensure that credit unions conduct due diligence in establishing and maintaining relationships 

with credit union service organizations and other third-party vendors. It seems unlikely that NCUA would reduce its expectation on 

credit unions with respect to due diligence if it had authority to examine third-party vendors and more likely that these vendors 

would spread the cost of examinations to their credit union customers. Further, NCUA already has the authority to require credit 

unions to provide information on the credit union service organizations that they own—and, indeed, already requires this through a 

2014 regulation. Providing NCUA with additional authority in this 

area will increase regulatory burden and costs for all credit unions 

without meaningfully improving the safety and soundness of the 

credit union system or providing benefit to credit union members. 

Likewise, we question NCUA’s assertion that increased authority 

is necessary to protect the smallest credit unions from cyber-attacks. Protecting critical infrastructures from cyber-attacks is a significant national security issue, one on which the Department of 

Homeland Security and other agencies have the expertise and have 

taken the lead. Given the coordinated nature of these efforts, we 

are concerned that providing NCUA with additional authority could 

be counterproductive given the comparatively light expertise the 

agency has on these matters.

Q.2. As the Committee considers proposals to provide regulatory 

relief to community banks and small credit unions, I am reminded 

of an exchange that I had with then Fed Chairman, Bernanke, in 

July 2013. At that hearing he indicated that regulators should ‘‘do 

whatever we need to do to make sure the U.S. financial system is 

safe.’’ Do you agree that this is the regulators’ primary objective?

A.2. There is no doubt that safety and soundness has paramount 

importance—after all, if there is no confidence in the safety of the 

financial system, it will collapse. Regulators play an important role 

in this regard, but they are not the only ones capable of managing 

safety and soundness. Credit unions have demonstrated a strong 


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historical track record of managing our institutions prudently, 

through even the most challenging economic times, because we inherently understand that do so is in the best interest of our members. 

It is important for the financial system to be regulated in a manner that allows providers to offer products and services to the users 

at rates and terms that are agreeable. NCUA’s mission statement 

acknowledges this dual responsibility to promote safety and soundness and encourage the availability of credit union services to 

members: ‘‘The mission of the NCUA is to facilitate the availability 

of credit union services to all eligible consumers, especially those 

of modest means, through a safe and sound credit union system.’’ 

(www.ncua.gov). 

This is why regulatory relief for credit unions is so important. 

When the regulator errs on the side of too much caution in terms 

of safety and soundness, the ability of credit unions to serve their 

members is restricted. We believe there are several areas of regulation and statute that are unnecessary from a safety and soundness 

perspective and should be altered or removed altogether. 

RESPONSE TO WRITTEN QUESTION OF SENATOR COTTON 

FROM WALLY MURRAY 

Q.1. As far as you are aware, to what extent (or lack thereof) has 

CFPB exercised its exemption authority under Section 1022 of 

Dodd-Frank? Is this concerning given the broad scope and lengthy 

detail of some of its rulemakings, which, while not aimed at small 

financial institutions, can substantially and negatively impact 

those businesses?

A.1. Although we recognize that the CFPB has exercised its exemption authority in important ways, and has taken positive steps to 

revisit small institution exemptions in some areas recently, the Bureau can and should do much more. 

In many cases, the exemption levels the Bureau has provided are 

much too low to be useful in the real world. For example, the exemption level for the international remittances rule works out to 

be approximately two transactions per week. For a product that depends on transaction volume in order to make offering the service 

economically viable, this is far too low. As a result, many credit 

unions have stopped providing this important service to their members. There are many other examples of exemption levels set too 

low, such the small servicer exemption to the mortgage servicing 

rules. 

Regrettably there are several rules for which the Bureau could 

have provided small institution exemptions but did not, including 

the HOEPA rules, appraisal rules under Regulation B and Regulation Z, and importantly, the TILA–RESPA rule that becomes effective in August. 

Credit unions were not engaging in the risky products and services that caused the financial crisis. They should not be regulated 

in the same way as those that did. Regulating credit unions in the 

same way as the largest banks has the net effect of reducing lending, harming credit union members and communities from coast to 

coast. When a rule intended to reign in large banks or nonbank fiVerDate 0ct 09 2002 14:52 Feb 29, 2016 Jkt 000000 PO 00000 Frm 00158 Fmt 6604 Sfmt 6604 S:\DOCS\94014.TXT SHERYL

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nancial service providers results in fewer credit unions providing 

the service, consumer protection suffers, the large banks just get 

larger, and the rule has failed. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN 

FROM JOHN H. BUHRMASTER 

Q.1. At the Banking Committee’s February 10, 2015 hearing on 

regulatory relief, the OCC and FDIC proposed an increase from 

$500 million to $750 million the asset-size threshold that determines whether a community bank can qualify for an examination 

every 18 months, rather than every 12 months. What do you think 

about this proposal?

A.1. ICBA strongly supports the proposal. However, we would like to see the proposal expanded to include banks with assets up to $2 

billion and we would like to extend the exam cycle from 18 months 

to 2 years. Since this provision would only apply to well rated 

banks, we believe extending the cycle is justifiable and would not 

impair the ability of regulators to supervise these banks. Even 

banks on an 18-month cycle, have contact and oversight by their 

regulators at least quarterly if not more frequently. An extension 

of the exam cycle would not result in any increase in safety and 

soundness risk. Quite to the contrary, it would allow us to devote 

more resources to our operational and lending risk review, and less 

to exam and compliance risk responses.

Q.2. As the Committee considers proposals to provide regulatory 

relief to community banks and small credit unions, I am reminded 

of an exchange that I had with then Fed Chairman, Bernanke, in 

July 2013. At that hearing he indicated that regulators should ‘‘do 

whatever we need to do to make sure the U.S. financial system is 

safe.’’ Do you agree that this is the regulators’ primary objective?

A.2. Yes, the primary objective of bank regulation should be safety 

and soundness. However, we believe regulatory burden is threatening the safety and soundness of community banks. Many community banks cannot survive under the current burden and are being 

forced to merge or consolidate with other banks. For these reasons, 

ICBA is strongly advocating for its Plan for Prosperity—a set of 

proposals designed to reduce the onerous burden on community 

banks and the communities they serve. A good example is at my 

own bank. We have rated compliance and exam risk to be higher 

than lending risk, and therefore several years ago reassigned our 

most skilled commercial lending analyst to compliance. We have a 

strong and conservative lending history, very similar to most community banks, and yet the regulatory burden has caused us to take 

our most talented individuals and assign them to compliance, and 

not to our 91-year-old focus, helping make peoples’ lives better. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR VITTER 

FROM JOHN H. BUHRMASTER 

Q.1. Mr. Buhrmaster, as I am sure you are aware the Federal Deposit Insurance Corporation (FDIC) recently released a statement 

encouraging, ‘‘institutions to take a risk-based approach in assessing individual customer relationships rather than declining to proVerDate 0ct 09 2002 14:52 Feb 29, 2016 Jkt 000000 PO 00000 Frm 00159 Fmt 6604 Sfmt 6604 S:\DOCS\94014.TXT SHERYL

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vide banking services to entire categories of customers.’’ This was 

in response to requests from Congress over concerns of the financial task force known as ‘‘Operation Choke Point.’’

As President of your bank did you ever feel any pressure from 

any apparatus of the Federal Government not to bank any category 

of business? Do you believe that this statement by the FDIC will 

stop Operation Choke Point?

A.1. My bank is nationally chartered and regulated by the OCC 

and my bank did not feel regulatory pressure aimed at specific 

business lines. However, as I’ve talked with bankers nationally, I 

heard many instances of regulatory overreach targeted at banks 

providing payment services to payday lenders and money service 

businesses. The statement by the FDIC represents a step in the 

right direction, but community banks will not know the impact of 

the FDIC’s recent statement until their next safety and soundness 

examination. Our examiners have required us to provide risk analysis to our minute ACH origination program that far exceeds our 

risk with our low volume, and the minimal fees we get for the service. We reexamine the rational for maintaining this business line 

each year due to these burdensome regulatory requirements.

Q.2. Mr. Buhrmaster, the Nation’s largest Wall Street banks enjoy 

an implicit guarantee—funded by taxpayers and awarded by virtue 

of their size—as the market knows that these institutions have 

been deemed ‘‘too-big-to-fail. This allows the Nation’s largest 

megabanks to borrow at a lower rate than regional banks, community banks, and credit unions. This funding advantage, which has 

been confirmed by three independent studies, is estimated to be as 

high as $83 billion per year. 

As Chairman of the Independent Community Bankers of America 

do you agree that the Nation’s largest banks have an unfair advantage over community banks? What steps do you believe need to be 

taken to fix this inequity?

A.2. We agree that there is an unlevel playing field in banking and 

that the large, TBTF banks enjoy an unfair funding advantage over 

community banks. The continued growth and dominance of these 

banks has created an overly concentrated financial system, created 

unacceptable moral hazard and systemic risk, thwarted the operation of the free market, and harmed consumers and business borrowers. Although we support some of the enhanced prudential 

standards that the regulators have been imposed on the large 

banks such as additional capital and liquidity standards, OLA and 

contingent resolution plans, we do not believe these steps by themselves will eliminate the TBTF advantage. We believe the only way 

to truly eliminate the advantage and level the playing field is by 

restructuring the banking system. ICBA supports FDIC Vice Chairman Tom Hoenig’s proposal to restructure banking organizations to 

prevent extension of the Federal safety net and reduce systemic 

risk. Under the Hoenig proposal, banks would be restricted to core 

banking activities and would be prohibited from engaging in risky 

nonbanking activities. 


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RESPONSE TO WRITTEN QUESTION OF SENATOR COTTON 

FROM JOHN H. BUHRMASTER 

Q.1. As far as you are aware, to what extent (or lack thereof) has 

CFPB exercised its exemption authority under Section 1022 of 

Dodd-Frank? Is this concerning given the broad scope and lengthy 

detail of some of its rulemakings, which, while not aimed at small 

financial institutions, can substantially and negatively impact 

those businesses?

A.1. CFPB has exercised its exemption authority on a number of 

occasions to provide tiered regulation for small institutions or institutions with a small volume of activity. Examples include: the 

small creditor portfolio loan exception under the Ability to Repay/

Qualified Mortgage rules (banks under $2 billion in assets that 

originate fewer than 500 first lien mortgages per year; pending proposed would increase the limit to 2,000 loans per year excluding 

portfolio loans); the small servicer exception under the Mortgage 

Servicing rule (for those servicing 5,000 loans or fewer); the Escrow 

rule exception (for small rural creditors); and the Remittances rule 

exemption (institutions sending fewer than 100 remittances a 

year). 

While these exceptions and exemptions are appreciated, community banks are still overburdened with regulatory requirements 

that are not necessary to ensure they make high quality, safe 

loans, or provide fair and transparent services to their customers. 

In many cases, the exceptions and exemptions should be broader 

to encompass more community banks. For example, we bump up 

against the remittance rule of 100 each year, and each year we consider dropping the service. If we go over, we will drop the program, 

as the risk of the additional compliance will outweigh any potential 

gain. In any case, the portions of the rules that do apply to community banks comprise hundreds and hundreds of pages of complex 

and detailed requirements that consume large quantities of time 

and resources to implement and maintain. In many cases, the requirements make it increasingly difficult for community banks to 

provide competitive products and services to their customers, thereby reducing access to credit in some communities and eliminating 

options and choices for consumers who need it most. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN 

FROM ED TEMPLETON 

Q.1. At Tuesday’s hearing, NCUA stated that its top priority was 

to obtain authority from Congress to examine third-party vendors. 

In addition to its arguments that it would reduce burdens for credit 

unions, it made the case that this authority is vitally important to 

protect the smallest credit unions from cyber-attacks. What are 

your views on this proposal?

A.1. NAFCU does not support this proposal. We do not believe 

spending credit union resources to expand NCUA’s examination authority into noncredit union third parties is a wise use of resources. 

While NCUA contends that examination and enforcement authority 

over third-party vendors will provide regulatory relief for the industry, NAFCU and our members firmly believe that such authority is unnecessary and will require considerable expenditure of the 


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agency’s resources and time. NAFCU disagrees with the assertion 

that third-party vendor examination and enforcement authority 

will provide any significant improvement to credit union safety and 

soundness. While cybersecurity is an extremely important issue, 

NAFCU does not believe that cybersecurity and third-party vendor 

authority go hand in hand. 

The key to success with appropriate management of vendors is 

due diligence on behalf of the credit union. NAFCU supports credit 

unions being able to do this due diligence and NCUA already offers 

due diligence guidance to credit unions. Given this fact, we believe 

NCUA already has tools to address any issues through the credit 

union examination process. NAFCU believes that giving NCUA additional authority is unlikely to provide additional protection to 

credit unions. This new authority would require an additional outlay of agency resources, which will, in turn, necessitate higher costs 

to credit unions.

Q.2. As the Committee considers proposals to provide regulatory 

relief to community banks and small credit unions, I am reminded 

of an exchange that I had with then Fed Chairman, Bernanke, in 

July 2013. At that hearing he indicated that regulators should ‘‘do 

whatever we need to do to make sure the U.S. financial system is 

safe.’’ Do you agree that this is the regulators’ primary objective?

A.2. Safety and soundness is a critical responsibility for regulators, 

but there can be different interpretations on what steps should be 

taken to achieve it. Ensuring that financial institutions can continue to provide financial services to the American public in the 

most efficient manner, without compromising safety and soundness, is also critical. The primary objective of a regulator should be 

to keep an industry safe, while at the same time facilitating robust 

activity within the industry to serve consumers. If a regulator ensures an industry is safe, but the industry can no longer meet the 

needs of or serve consumers, the regulator has likely not achieved 

its primary objective. 

RESPONSE TO WRITTEN QUESTION OF SENATOR COTTON 

FROM ED TEMPLETON 

Q.1. As far as you are aware, to what extent (or lack thereof) has 

CFPB exercised its exemption authority under Section 1022 of 

Dodd-Frank? Is this concerning given the broad scope and lengthy 

detail of some of its rulemakings, which, while not aimed at small 

financial institutions, can substantially and negatively impact 

those businesses?

A.1. The CFPB has used this authority sparingly, and many times 

when it has been used it has not been implemented in a way that 

provides a meaningful exemption. An area where the CFPB could 

be the most helpful to credit unions would be to use its legal authority to exempt all credit unions from various rulemakings. 

Given the unique member-owner nature of credit unions and the 

fact that credit unions did not participate in many of the questionable practices that led to the financial crisis and the creation of the 

CFPB, subjecting credit unions to rules aimed at large bad actors 

only hampers their ability to serve their members. While the rules 


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of the CFPB may be well-intentioned, many credit unions do not 

have the economies of scale that large for-profit institutions have 

and may opt to end a product line or service rather than face the 

hurdles of complying with new regulation. This is concerning, as 

the CFPB has the ability to address this through the exemption authority, but has not gone far enough in doing so. While the CFPB 

has taken steps, such as their small creditor exemption, we believe 

they should do more, such as using this authority to exempt all 

credit unions on certain rules. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN 

FROM MICHAEL D. CALHOUN 

Q.1. At the Banking Committee’s February 10, 2015 hearing on 

regulatory relief, the OCC and FDIC proposed an increase from 

$500 million to $750 million the asset-size threshold that determines whether a community bank can qualify for an examination 

every 18 months, rather than every 12 months. What do you think 

about this proposal?

A.1. The Center for Responsible Lending supports allowing wellmanaged banking institutions with up to $750 million in assets the 

opportunity to qualify for an 18-month examination schedule. The 

result should relieve compliance costs for 300 community banks, 

while giving financial regulators more resources to address those 

institutions that present consumer protection, capital, or other 

issues of concern.

Q.2. At Tuesday’s hearing, NCUA stated that its top priority was 

to obtain authority from Congress to examine third-party vendors. 

In addition to its arguments that it would reduce burdens for credit 

unions, it made the case that this authority is vitally important to 

protect the smallest credit unions from cyber-attacks. What are 

your views on this proposal?

A.2. We support NCUA’s proposal to obtain authority to examine 

and regulate third-party vendors, including CUSOs and subsidiaries of credit unions. As noted by NCUA, this authority is given 

to other financial regulators, and it is an important component of 

supervision for both safety and soundness and consumer protection.

Q.3. As the Committee considers proposals to provide regulatory 

relief to community banks and small credit unions, I am reminded 

of an exchange that I had with then Fed Chairman, Bernanke, in 

July 2013. At that hearing he indicated that regulators should ‘‘do 

whatever we need to do to make sure the U.S. financial system is 

safe.’’ Do you agree that this is the regulators’ primary objective?

A.3. Given the consequences of an unstable financial system, it is 

clear that consumers, financial institutions, our economy, and taxpayers benefit when financial regulators prioritize the safety and 

soundness of the system. Yet, that priority still must be balanced 

with an understanding that the purpose of the financial system is 

to responsibly provide access to credit and capital. Each of these 

priorities should be equally key considerations that guide regulatory actions. 


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RESPONSE TO WRITTEN QUESTION OF SENATOR VITTER 

FROM MICHAEL D. CALHOUN 

Q.1. Mr. Calhoun, in a statement on June 24, 2014, on your organization’s Web site you were quoted as saying, ‘‘Despite what critics 

claim, Operation Chokepoint is a critical program that protects 

American businesses and consumers.’’

Please explain how attempting to cutoff lawful businesses’ ability 

to bank in anyway protects American businesses and consumers? 

Do you agree with the FDIC’s recent directive stating, ‘‘institutions 

to take a risk-based approach in assessing individual customer relationships rather than declining to provide banking services to entire categories of customers?’’

A.1. The Operation Choke Point program is designed to target 

sources of illegal financial activity. By doing so, it ensures that our 

Nation’s biggest banks are not complicit in activities like fraudulent debt collection, drug trafficking, and funding terrorism. 

Several settlements under the program demonstrate its importance in ensuring that our bank and payment systems are not used 

to further illegal activities. Many of these cases addressed illegal 

transaction and consumer scams, such as the systematic charging 

of fraudulent withdrawals from consumers’ accounts. 

Regulators have asked financial institutions to exercise due diligence and implement appropriate controls to ensure that they are 

not aiding the commission of crimes. That approach is reasonable, 

necessary, and consistent with the FDIC’s most recent directive related to the program. 

RESPONSE TO WRITTEN QUESTION OF SENATOR MENENDEZ 

FROM MICHAEL D. CALHOUN 

Q.1. Mr. Blanton’s testimony calls for deeming any mortgage made 

by a depository institution and held in the lender’s portfolio—regardless of the institution’s size—to be a ‘‘Qualified Mortgage’’ 

under the Dodd-Frank Act. Meaning, a lender would be exempt 

from requirements to make a good faith attempt to verify a borrower’s ability to repay the loan, even if the loan includes risky or 

exotic features or charges very high fees that might make the loan 

profitable to the lender even if the borrower is not able to repay 

it. 

It’s one thing to consider, as the CFPB does, whether a loan is 

held in portfolio as one factor among many for certain specific, targeted exemptions for small institutions. But it’s another to call for 

making this the only factor to create an exemption for institutions 

of any size and loans of any type. 

Mr. Calhoun, can you explain some of the problems with this approach? Didn’t Washington Mutual and Countrywide, two large institutions that failed spectacularly during the financial crisis, hold 

mortgage loans in their portfolio of a type that would be problematic to exempt from the ability-to-repay rules?

A.1. We have serious concerns regarding this proposal. It is important to remember that, during the crisis, institutions like WaMu 

and Wachovia originated many unsustainable loans that they retained in their portfolios. 


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The reality is that lenders who maintain loans in portfolio may 

still pay insufficient attention to a borrower’s ability to repay. This 

is especially true in cases where the loan creditor can earn sufficiently high up-front compensation, where borrowers have substantial equity that would cover any default risk, and where the incentives of the individual loan originators and the creditor differ. 

The Center for Responsible Lending supports a narrowly tailored 

exemption that allows the portfolio loans of community banks, with 

certain characteristics that ensure ability to repay, to be treated as 

qualified mortgages. For example, there are important protections 

in the CFPB rule for small mortgage lenders and the recent proposed revisions to this rule. It maintains protections against negative amortization loans, retains limits on points and fees and ties 

safe harbor status to the loan having a reasonable interest rate. 

In addition, it is extremely important to limit this rule to small 

depository institutions. Permitting lightly supervised nondepository 

lenders to be covered by the same rule would encourage and insulate risky lending by the very same entities that drove irresponsible lending during the housing crisis. The rule should also be limited to traditional, small banks because the community-bank-lending model is much more personalized and differs significantly from 

the mortgage-lending model adopted by larger financial institutions. 

RESPONSE TO WRITTEN QUESTION OF SENATOR COTTON 

FROM MICHAEL D. CALHOUN 

Q.1. As far as you are aware, to what extent (or lack thereof) has 

CFPB exercised its exemption authority under Section 1022 of 

Dodd-Frank? Is this concerning given the broad scope and lengthy 

detail of some of its rulemakings, which, while not aimed at small 

financial institutions, can substantially and negatively impact 

those businesses?

A.1. The Consumer Financial Protection Bureau has used a number of provisions of Dodd-Frank to tailor rules that accommodate 

the business differences of community banks, while also protecting 

consumers. 

More recently, the CFPB requested comment on whether to increase the 500 first-lien mortgage cap under QM’s small-creditor 

definition. CRL expressed support for a reasonable increase of the 

500 loan cap, limiting any potential increase to rural banks or for 

loans held in portfolio. The CFPB’s proposal quadruples the limit, 

expanding the loan origination cap for small lenders from 500 firstlien mortgages to 2,000. This 2,000 limit is exclusive of loans held 

in portfolio by both the creditor and its affiliates. The CFPB has 

also proposed to only include first-lien mortgage originations of 

small lender affiliate assets toward the current $2 billion asset cap. 

And, to accommodate concerns that the definition of a ‘‘rural and 

underserved’’ area is too narrow, the CFPB has proposed expanding the definition of rural areas by including census blocks as defined by the Census Bureau. Finally, the CFPB is also proposing 

to allow grace and qualifying periods for small creditors to adjust 

to current and proposed standards. 


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In addition to the CFPB’s rulemaking exceptions, Dodd-Frank 

contains a number of provisions designed to ensure that CFPB regulations and activities do not negatively impact the business model 

of smaller financial institutions. As an example, Dodd-Frank exempts community banks from examination and enforcement actions 

by the CFPB; the law also requires the CFPB to go through the 

SBREFA rulemaking process. As a result, small businesses have 

the ability to comment on the Bureau’s rules at an early stage and 

have advance notice of a rules direction. By comparison, only two 

other Federal agencies have to go through the SBREFA process. Finally, the CFPB voluntarily created a community bank advisory 

board to give institutions the opportunity to have an ongoing dialogue with the Bureau to discuss its activities.


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ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD


BANKI-41578DSA with DISTILLER9401402.eps
164


BANKI-41578DSA with DISTILLER9401403.eps
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BANKI-41578DSA with DISTILLER9401404.eps
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BANKI-41578DSA with DISTILLER9401405.eps
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BANKI-41578DSA with DISTILLER9401406.eps