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THE EFFECT OF DODD–FRANK ON 

SMALL FINANCIAL INSTITUTIONS 

AND SMALL BUSINESSES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

MARCH 2, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–12 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

LARRY C. LAVENDER, Chief of Staff 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SHELLEY MOORE CAPITO, West Virginia, Chairman 

EDWARD R. ROYCE, California, Vice 

Chairman 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JEB HENSARLING, Texas 

PATRICK T. MCHENRY, North Carolina 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

JAMES B. RENACCI, Ohio 

ROBERT J. DOLD, Illinois 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

CAROLYN B. MALONEY, New York, 

Ranking Member 

LUIS V. GUTIERREZ, Illinois 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

GREGORY W. MEEKS, New York 

STEPHEN F. LYNCH, Massachusetts 

JOHN C. CARNEY, JR., Delaware 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

March 2, 2011 ................................................................................................... 1 

Appendix: 

March 2, 2011 ................................................................................................... 43 

WITNESSES 

WEDNESDAY, MARCH 2, 2011 

Borris, David, Main Street Alliance ....................................................................... 32 

Buckley, John P., Jr., President and Chief Executive Officer, Gerber Federal 

Credit Union, on behalf of the National Association of Federal Credit 

Unions (NAFCU) .................................................................................................. 9 

Cheney, O. William, President and Chief Executive Officer, Credit Union 

National Association (CUNA) .............................................................................. 10 

Kelly, Albert C., Jr., Chairman and Chief Executive Officer, SpiritBank, on 

behalf of the American Bankers Association (ABA) .......................................... 7 

MacPhee, James D., Chairman, Independent Community Bankers of America 

(ICBA) ................................................................................................................... 14 

Nielsen, Robert, Chairman of the Board, National Association of Home Builders (NAHB) ........................................................................................................... 28 

Schaible, John M., CEO, Chairman, and Founder, Atlas Federal Holdings ...... 30 

Sharp, Jess, Executive Director, Center for Capital Markets Competitiveness, 

U.S. Chamber of Commerce ................................................................................ 26 

Skillern, Peter, Executive Director, Community Reinvestment Association of 

North Carolina ..................................................................................................... 16 

Stinebert, Chris, President and Chief Executive Officer, American Financial 

Services Association (AFSA) ................................................................................ 12 

APPENDIX 

Prepared statements: 

Canseco, Hon. Francisco .................................................................................. 44 

Huizenga, Hon. Bill .......................................................................................... 45 

Borris, David ..................................................................................................... 46 

Buckley, John P., Jr. ........................................................................................ 50 

Cheney, O. William .......................................................................................... 83 

Kelly, Albert C., Jr. .......................................................................................... 100 

MacPhee, James D. .......................................................................................... 116 

Nielsen, Robert ................................................................................................. 125 

Schaible, John M. ............................................................................................. 140 

Sharp, Jess ........................................................................................................ 161 

Skillern, Peter ................................................................................................... 169 

Stinebert, Chris ................................................................................................ 175 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Capito, Hon. Shelley Moore: 

Written statement of the National Association of REALTORS (NAR) ........ 181 

Written statement of the National Association of Small Business Investment Companies (NASBIC) ......................................................................... 183 

Written statement of the Retail Industry Leaders Association (RILA) ....... 186 

McCarthy, Hon. Carolyn: 

Written responses to questions submitted to John Buckley ......................... 218 

Written responses to questions submitted to O. William Cheney ................ 220 

Page

VI 

McCarthy, Hon. Carolyn—Continued 

Written responses to questions submitted to Albert C. Kelly, Jr. ................ 224 

Written responses to questions submitted to Chris Stinebert ...................... 226 

(1) 

THE EFFECT OF DODD–FRANK ON 

SMALL FINANCIAL INSTITUTIONS 

AND SMALL BUSINESSES 

Wednesday, March 2, 2011 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:02 p.m., in room 

2128, Rayburn House Office Building, Hon. Shelley Moore Capito 

[chairwoman of the subcommittee] presiding. 

Members present: Representatives Capito, Royce, Westmoreland, 

Luetkemeyer, Huizenga, Duffy, Renacci, Canseco; Maloney, Watt, 

and Scott. 

Chairwoman CAPITO. Thank you. This hearing will come to 

order. 

As many of you know, we have pending votes that are supposed 

to begin at any moment. Flexibility is the key here. What we would 

like to do is go ahead and get started and get our opening statements, and then we may have to adjourn the meeting and come 

back after our votes. So, to our witnesses, I apologize for the inconvenience in advance. 

I would like to thank the members of the Financial Institutions 

Subcommittee for joining me today in today’s hearing entitled, ‘‘The 

Effect of Dodd-Frank on Small Financial Institutions and Small 

Businesses.’’ 

As the House and Senate worked through financial regulatory reform, there was a constant theme: small institutions should be exempted from the provisions of this Act. In theory, I think we can 

all agree on this point. But, despite the efforts of many to carve out 

small financial institutions with less than $10 billion in assets, this 

is not the case. Now that Dodd-Frank is being implemented, we are 

hearing concerns about additional regulatory burden from the very 

institutions that were supposed to be exempted. 

The most notable carve-out in the Dodd-Frank Act is the exemption of small institutions from supervision by the newly-created 

Consumer Financial Protection Bureau (CFPB). In January, the Financial Services Committee heard testimony from Charles Maddy, 

a friend of mine and a community banker from West Virginia. Despite operating an institution that is below $10 billion in assets, 

Mr. Maddy is very concerned that small institutions like his will 

2 

be subject to the rules that the Bureau creates even when they are 

not subject to their supervision. 

What does this mean for a small institution? They will have to 

hire more compliance staff, which puts additional cost pressures on 

their ability to cooperate. Higher compliance costs, combined with 

uncertainty about capital standards, will have a direct result on 

small institutions’ ability to serve their small business clients. 

Our economy relies on the growth and innovation of small business and entrepreneurs. Some of these entrepreneurs are fortunate 

enough to have startup capital, but many are not. They are often 

dependent on small financial institutions for loans to start their 

companies. We must make sure that overburdensome regulations 

on small institutions do not have the spillover effect of stifling economic growth and small business development. 

I look forward to hearing from our two panels today. 

I would like to recognize the ranking minority member, the 

gentlelady from New York, Mrs. Maloney, for the purpose of making an opening statement. 

Mrs. MALONEY. Thank you very much. 

I thank Chairwoman Capito and, on the Democratic side, Congressman Scott from the great State of Georgia for being with us 

for this important meeting. 

I am very proud of the work that we did to enact financial regulatory reform last summer in the wake of one of the deepest recessions in my lifetime. We did a number of critical things in that bill 

to put investors on an equal playing field with financial institutions, to provide consumers with a new bureau that will regulate 

predatory financial products, to end ‘‘too-big-to-fail,’’ to regulate the 

derivatives market, and to ensure that systemically important 

firms are adequately supervised and regulated. 

We are still in the early days of the implementation of this reform effort, and there will still be some uncertainty about how the 

rules will affect financial institutions going forward. But, throughout our effort, we were mindful of the impact that these reforms 

would have on smaller financial institutions. Because we all agree 

that small financial institutions did not cause the financial crisis, 

we all agree that small financial institutions were absolutely critical to ensuring that capital would continue to flow to small businesses, and we all agree that small financial institutions function 

very differently than larger institutions. 

With all of this in mind, we enacted a number of important 

things in Dodd-Frank with small institutions in mind, and I would 

like to highlight a few of them. 

First, we changed the formula for deposit insurance in assessments so small institutions, including community banks and credit 

unions, will pay significantly less in premiums. We did this by putting forward a formula that better reflects the risks an institution 

poses to the Deposit Insurance Fund using total consolidated assets 

minus tangible equity, rather than simply domestic deposits. This 

will ensure that larger institutions engaged in riskier activities will 

then be required to pay more, and lower assessments will mean 

more room for smaller institutions to lend to small businesses. 

3 

Second, we made the $250,000 deposit insurance limit permanent, which will increase public confidence and help smaller financial institutions continue to serve their communities. 

Third, we leveled the playing field for small financial institutions 

and credit unions so that they can compete with nonbank institutions for the first time. Nonbank institutions such as mortgage brokers and payday lenders were playing by a different set of rules, 

and now these institutions will have a new regulator, the CFPB, 

to ensure that they are regulated in the same manner as financial 

institutions are regulated. We also exempted institutions under $10 billion from the fee 

caps in our interchange rule. 

Finally, we exempted smaller institutions from CFPB supervision 

so they will continue to have a single Federal regulator for safety 

and soundness under either the OCC, the FDIC, or the Fed. 

I will be very much interested in hearing from the witnesses 

today what you see as the challenges going forward. I look forward 

to your testimony, and we appreciate the positive role that you 

have played in our economy. We want to make sure that you continue playing that positive role. 

Thank you, and I yield back. And I guess we have time for other 

people to comment? 

Chairwoman CAPITO. Yes. I would like to recognize the gentleman from California, Mr. Royce, for 2 minutes for an opening 

statement. 

Mr. ROYCE. I thank the chairwoman; and I do, Madam Chairwoman, want to recognize Bill Cheney from California, who is one 

of the witnesses here today. 

I want to say that there is agreement on both sides of the aisle 

on the fact that smaller institutions did not cause this crisis. 

Where we have some disagreement is the concern that we have on 

our side of the aisle, a concern many economists have pointed out 

is that, as a result of Dodd-Frank, we have now put smaller institutions at a structural competitive disadvantage because of the legislation. As time goes on, how we treated small institutions in this 

legislation becomes clear, and I would like to point out three 

things. 

The first would be what we did really compounds ‘‘too-big-to-fail,’’ 

and it divides our financial system really between those who are 

going to have the implicit government backstop. The FDIC tells us 

the advantage of doing this, a lower borrowing cost, 100 basis 

points for the institutions that are large and, of course, for their 

smaller competitors, the ‘‘too-small-to-save’’ competitors, this is an 

issue. 

The second issue is it adds another layer of regulations through 

the new CFPB and then it restricts the ability to recover costs 

through the interchange fee. Even the head of the Federal Reserve, 

the agency tasked with implementing the rule, says the small 

issuer exemption may not be workable; and I think these are issues 

that we have to examine at this hearing. 

Thank you. 

Chairwoman CAPITO. Thank you. 

I would like to recognize the gentleman, Mr. Scott, for 4 minutes 

for an opening statement. 

4 

Mr. SCOTT. Thank you very much, Madam Chairwoman, and 

thank you for this important hearing on the Dodd-Frank financial 

reform legislation and how it is impacting small businesses and 

small banks. 

The original intent of the Dodd-Frank legislation was to increase 

oversight and enforcement of existing protections for consumers 

while at the same time putting a stop to reckless behavior by Wall 

Street that helped cause the financial crisis. 

The law continues to promote transparency and accountability 

that was lacking in the financial sector so the consumers who are 

constituents are protected against predatory lending practices and 

excessive risk-taking. In the Dodd-Frank legislation, we also move 

to protect community banks. We exempted many of them from 

many of the bill’s provisions so that they could continue to compete 

with large banks and serve the local communities. 

Our small community banks form the heart and soul of our local 

communities in terms of financial arrangements. Despite these protections for small institutions, there is one aspect of the financial 

legislation that remains a major point of concern to me and that 

issue is a limit on interchange fees. This was approved by a Durbin 

Senate amendment but was never considered by the House of Representatives. 

These interchange fees, whether restricted or not, are a contentious subject within the realm of finance and business, both large 

and small. The current rule proposed by the Federal Reserve would 

cap interchange fees at 12 cents, which is around 10 percent lower 

than the average fee on such transactions last year and a very 

drastic reduction from the current level of around 44 cents, a decrease of 78 percent. 

I was happy to participate in a hearing in this subcommittee 2 

weeks ago where the primary topic was interchange fees, and I am 

pleased we have an opportunity to discuss this issue again. 

Earlier today, I put the question to Federal Reserve Chairman 

Bernanke and I was pleased to get his response that there is concern that we make sure we move on this issue judiciously, very 

carefully so that we do what is in the best interest of the consumer 

and the retailer as well as our financial institutions and especially 

credit unions and the smaller banks that were not consulted in the 

initial survey. 

The intended purpose of interchange fees is to protect consumers 

who rely on debit cards for daily purchases. However, if the unintended consequence of this limit is a strain on consumers and on 

the smaller institutions, then we must revisit this issue. 

I look forward to a vibrant discussion on this critical issue, and 

I hope we can find a solution that both protects the consumer as 

well as our retailers and our smaller financial institutions from additional fees in this already challenging economic climate. Our 

small businesses and the smaller banks form the heart and soul of 

our economic system, creating most of the jobs and providing the 

way out of the economic difficulties we are in today; and that is 

why this hearing is so very, very important and timely. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

5 

I would like to recognize the gentleman from Georgia for 1 

minute for an opening statement. 

Mr. WESTMORELAND. I thank the chairwoman. 

As you know, I am keenly aware of the impact that government 

regulations have had on our community financial institutions and 

small businesses. Georgia has had 59 bank failures since 2008, including 6 failures already in 2011. When a community institution 

closes, millions of dollars in community wealth are lost. 

Unfortunately, the reality is the Dodd-Frank Act protections for 

small community institutions will not shield the backbone of our 

communities from the overreaching government regulations, despite its sales pitch. Failed banks are one of the top threats to the 

small business entrepreneurship and job growth in Georgia, and 

these overbearing regulations stemming from Dodd-Frank are a 

major threat to small businesses and job growth across the country. 

When small banks have employed more compliance officers than 

tellers or loan officers, we need to take pause and assess what we, 

the government, have done to put them under such a burden for 

their business and all their customers. I look forward to hearing 

from all of the witnesses, hopefully with a solution other than more 

regulation. 

I would like to thank the chairwoman for yielding. 

Chairwoman CAPITO. Thank you. 

I would now like to recognize Mr. Luetkemeyer for 1 minute for 

an opening statement. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman, and thank 

you for holding this hearing. 

As a former community banker, I have very serious concerns 

with the effect of Dodd-Frank, what it would have on small institutions and businesses. I am afraid that we are creating uncertainty 

among these institutions that are heading down a very slippery 

regulatory slope with many of the provisions of this bill. 

The Durbin amendment on interchange fees, for example, allows 

the Federal Reserve to set price caps on financial products. While 

many maintain that small institutions with less than $10 billion in 

assets will be carved out of this rule, I am concerned by the potential for discrimination and the potential for merchants to come 

back to Congress when they decide that institutions under $10 billion are charging what they deem to be unfair fees. 

Dodd-Frank also created the Consumer Financial Protection Bureau, a self-regulated body funded outside the congressional appropriations process that may even be unconstitutional that promises 

to promulgate rules to regulate every single financial product available. This agency puts consumer protection above safety and 

soundness, our financial system, causing great concern and further 

uncertainty in the marketplace. It is the uncertainty that is most 

damaging to our system. 

Across America, small businesses that could be growing and reinvesting in their customers are being forced to hire staff to deal exclusively with the increased regulatory burdens they face. I hear it 

from every business person who walks in my office, from banks and 

credit unions to utility companies and insurance agents and farmers. We are regulating ourselves out of an economic recovery, and 

legislation intended to help the situation will only make it worse. 

6 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

Our final opening statement will be from Mr. Huizenga, who 

would also like to make an introduction. 

Mr. HUIZENGA. Thank you, Madam Chairwoman. I appreciate 

that. 

I know our votes clock has started, so we will make this quick, 

and you will see everybody rush out to go take care of our business. 

But I appreciate you having this hearing. This is an important 

hearing as we are moving forward on Dodd-Frank. 

The Congressional Research Service has estimated that there are 

300 rules made by 10 different agencies regarding these 

rulemakings. And I can tell you that it also has stated that companies under 20 employees—there is over a $10,000 per employee estimation for just complying with Federal regulations. As a gentleman who owns a small gravel company with 2 employees, that 

means I have over $20,000 a year just for compliance on those 

things. And with an 11-year-old loader, which is the key to my 

business, I desperately could use that cash in my business. 

But I look forward to hearing your testimony from you all today 

regarding the effects of the Dodd-Frank. 

More importantly, I am pleased and honored to welcome one of 

the witnesses who is an important constituent of Michigan’s 2nd 

District, John Buckley. He is from a great little town called Fremont. If you have ever eaten Gerber Baby Food, that is the home 

of it, and we are very proud of that. 

Mr. Buckley is the president and CEO of Gerber Federal Credit 

Union located in Fremont. He has a long and impressive resume 

both in community banks and now with credit unions. He earned 

his BA in economics from Notre Dame, an MBA from the University of Illinois, and he is a graduate of the banking school of the 

University of Wisconsin. So you pretty much run the entire Big 10 

there. 

And like most community leaders, he is very active in the area; 

and I think that is a key as we are looking at this. These are people who are very active in their communities. 

As a small business owner, I know that there are some universal 

principles of success that Congress needs to work on to grow this 

economy again. For government, that means creating an atmosphere for success for small business that does not include a burdensome regulatory environment. 

I believe, Madam Chairwoman, that my time is up. But I appreciate you all being here today and informing this committee. Thank 

you. 

Chairwoman CAPITO. Thank you. 

As you can hear, the bell is going off and probably some 

distractedness. We have three votes, which should probably bring 

us back here in half an hour. Again, I apologize. I will then introduce the witnesses, and we will have the testimony. 

Thank you. We are in recess. 

[recess] 

Chairwoman CAPITO. The hearing will come back to order. 

7 

I am pleased to welcome—and again, excuse us for our little gap 

in the proceedings—the first panel. I will just introduce you right 

before you speak individually, if that is all right. 

Our first panelist is Mr. Albert C. Kelly, president and chief executive officer of Spirit Bank, on behalf of the American Bankers 

Association. Mr. Kelly, you are recognized for 5 minutes. I ask that 

you all keep your statements to 5 minutes. We have your larger 

statements for the record and we can ask some questions. Yes, sir. 

STATEMENT OF ALBERT C. KELLY, JR., CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, SPIRITBANK, ON BEHALF OF THE 

AMERICAN BANKERS ASSOCIATION (ABA) 

Mr. KELLY. Chairwoman Capito, Ranking Member Maloney, and 

members of the subcommittee, my name is Albert Kelly. I am 

president and CEO of SpiritBank in Bristol, Oklahoma, and chairman-elect of the American Bankers Association. 

Thank you for the opportunity to testify today. These are very 

important issues for the thousands of community banks that work 

hard to serve our communities every day. 

The health of banks and the economic strength of our communities are closely interwoven. A bank’s presence is a symbol of 

hope, a vote of confidence in a town’s future. 

This connection is not new. Most banks have been in their communities for decades. SpiritBank has served our community for 95 

years. In fact, 2 out of every 3 banks have served their communities for more than 50 years and one of every three has been in 

business for more than a century. These numbers tell a dramatic 

story about banks’ commitment to the communities that they serve. 

Just to illustrate this commitment, my bank contributed over $550,000 last year and our 330 employees have logged thousands 

of hours of service to schools, charities, and community organizations throughout our area in a year when our investors saw no return. 

Banks are working hard every day to make credit available. 

Those efforts are made more difficult by the hundreds of new regulations expected from Dodd-Frank and the constant second-guessing by bank examiners. Managing the tsunami of regulation will be 

a challenge for a bank of any size, but for the medium-sized bank 

with only 37 employees, it is overwhelming. Let me give a few examples of how Dodd-Frank will negatively impact community 

banks. 

First, the cumulative burden of hundreds of new regulations will 

lead to massive consolidation in the banking industry. Of particular 

concern is the additional compliance burden expected from the Bureau of Consumer Financial Protection. This new bureaucracy will 

impose new obligations on community banks that have a long history of serving consumers fairly in a competitive environment. 

One claim is that community banks are exempt from the new 

Bureau, but community banks are not exempt. All banks, large and 

small, will be required to comply with all rules and regulations set 

by the Bureau. Bank regulators will enforce these rules as aggressively as the Bureau. 

The Bureau should focus its energies on supervision and examination of nonbank financial providers. This lack of supervision of 

8 

nonbanks contributed mightily to the financial crisis. We urge Congress to ensure that this focus on nonbanks is a priority of the Bureau. 

Second, the government has inserted itself in the day-to-day 

business of banking, which will mean less access to credit and 

banking services. The most egregious example is the price controls 

on interchange fees which will devastate retail bank profitability, 

stifle innovation, and force some people out of the protection of the 

banking system. 

Some will say the so-called carve-out for community banks from 

the Fed’s interchange rule will protect community banks. Nothing 

could be further from the truth. Having two different prices for the 

same exact product is not sustainable. The result for small banks 

is a loss of market share and loss of revenue that support products 

like free checking. 

It is imperative that Congress take immediate action to stop the 

Fed’s interchange rule. I urge you to suspend implementation until 

a full understanding of the consequences is known. 

Third, some rules under Dodd-Frank will drive banks out of some 

business lines. For example, the SEC rules on municipal advisors, 

if done improperly, will drive community banks out of providing 

basic banking products to the local and State governments. Similarly, the mortgage risk retention rules, if done improperly, will 

drive community banks out of mortgage lending. 

ABA urges Congress to use its oversight authority to ensure that 

the rules adopted will not have adverse consequences for municipalities and mortgage credit availability. Ultimately, it is the consumers who bear the consequences of government restrictions. The 

loss of interchange income will raise the cost for consumers of 

using their debit cards. The lack of a true safe harbor for low-risk 

mortgages means that community banks will make fewer mortgage 

loans or none at all. More time spent on government regulations 

mean less time devoted to our communities. 

The consequences for the economy are severe. These impediments raise the cost and reduce the availability of credit. Fewer 

loans mean fewer jobs, and fewer jobs mean slower economic 

growth. Since banks and communities grow together, limits on one 

mean limits on the other. 

The regulatory burden from Dodd-Frank must be addressed in 

order to give all banks a fighting chance to maintain long-term viability. Each bank that disappears from a community makes that 

community poorer. It is imperative that Congress take action to 

help community banks do what they do best, namely, meet the 

credit needs of their communities. 

Thank you for the opportunity to present the views of the American Bankers Association. I would be happy to answer any questions that you may have. 

[The prepared statement of Mr. Kelly can be found on page 100 

of the appendix.] 

Chairwoman CAPITO. Thank you, Mr. Kelly. 

Our next witness is Mr. John Buckley, president and chief executive officer of Gerber Federal Credit Union, on behalf of the National Association of Federal Credit Unions. Welcome. 

9 

STATEMENT OF JOHN P. BUCKLEY, JR., PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, GERBER FEDERAL CREDIT 

UNION, ON BEHALF OF THE NATIONAL ASSOCIATION OF 

FEDERAL CREDIT UNIONS (NAFCU) 

Mr. BUCKLEY. Chairwoman Capito, Ranking Member Maloney, 

and members of the subcommittee, my name is John Buckley, and 

I am testifying this afternoon on behalf of the National Association 

of Federal Credit Unions. I serve as the president and CEO of Gerber Federal Credit Union in Fremont, Michigan. Gerber has more 

than 13,400 members, with assets totaling $114 million. 

NAFCU and the entire credit union community appreciate the 

opportunity to discuss the impact that regulatory restructuring 

under the Dodd-Frank Act is having and will have on credit 

unions. 

Credit unions were not the cause of the financial crisis. This 

point was reiterated last month by the cochairman of the congressionally-established Financial Crisis Inquiry Commission during 

testimony before the House Financial Services Committee. In fact, 

credit unions helped blunt the crisis by continuing to lend to creditworthy consumers during difficult times. Yet, they are still firmly 

within the regulatory reach of several provisions contained in the 

Dodd-Frank Act. The additional requirements in Dodd-Frank have 

created an overwhelming number of new compliance burdens which 

will take credit unions considerable time, effort, and resources to 

resolve. 

We applaud recent efforts by the Administration and Congress to 

tackle excessive regulations that hamper the ability of our industry 

to create jobs and aid in the economic recovery. With a slew of new 

regulations emerging from the Dodd-Frank Act, such relief from 

unnecessary and outdated regulation is needed now more than ever 

by credit unions. 

First and foremost, the Durbin amendment on debit interchange 

included in the Act and the Federal Reserve’s proposed rule are 

disastrous for credit unions and the 19 million members we serve. 

We believe that the exemption for financial institutions under $10 

billion in assets will not work. In recent testimony before the Senate Banking Committee, Federal Reserve Chairman Ben Bernanke 

reinforced that belief when he stated that the small issuer exemption will not be effective in the marketplace. 

We believe the purported exemption actually creates a negative 

impact on small institutions like mine as the Federal Reserve only 

surveyed large, nonexempt institutions to determine the price cap. 

When small issuers receive the lower capped interchange rate, that 

rate will be twice as difficult for small issuers to manage because 

the fee is based not on their own costs but on the costs of larger, 

more complex institutions with better economies of scale. Consequently, the so-called small issuer exemption will create the perverse effect of providing a significant competitive advantage to 

large issuers. In order to compensate for this, credit union members may lose free checking, face new fees for debit cards, and some 

may even lose access to debit cards. 

At Gerber, we estimate we will lose $210,000 annually under the 

proposed rule, and as a not-for-profit, this lost income will come directly out of our members’ pockets. To put this in perspective, such 

10 

a loss would have put us significantly in the red last year. I am 

dismayed that our members will shoulder tremendous financial 

burden and still be on the hook for fraud loss, while large retailers 

receive a giant windfall at the hand of the government with no obligation to lower prices for consumers. 

Today, on behalf of credit unions and their 92 million members, 

I am asking Congress to take action to stop the Federal Reserve’s 

proposed rule from going into effect this July. This issue should be 

studied further to examine the true impact. And if Congress decides further action is needed, a new fair process for rulemaking 

must be established. 

While debit interchange is the industry’s immediate concern, the 

creation of the new Consumer Financial Protection Bureau is also 

potentially problematic as the Bureau will have rule-writing authority over credit unions of all sizes. 

Additionally, the CFPB was granted examination and enforce- ment authority for credit unions with more than $10 billion in assets. We already protect consumers, our member owners, and have 

consistently opposed efforts to include credit unions in any unnecessary regulatory scheme. I cannot emphasize enough how burdensome and expensive unnecessary compliance costs can be to credit 

unions. My employees already spend countless hours updating disclosure booklets and Web sites, retrofitting facilities for new regulations, and rewriting documents to comply with changes to regulations. The time and costs spent on this compliance burden are resources lost that could be used to help members purchase a new 

car or buy their first home. 

We believe that Congress can help ease some of these new regulatory burdens by taking the following steps: first, strengthen the 

veto authority of the Financial Stability Oversight Council in reviewing proposed rules of the CFPB; second, extend the transition 

time for many of the new compliance burdens of the Dodd-Frank 

Act; third, annually index for inflation all monetary thresholds in 

the bill; and fourth, provide credit unions parity with the FDIC and 

insurance coverage for IOLTAs. 

Finally, as outlined in my written testimony, NAFCU urges Congress to enact a series of additional fixes to the Dodd-Frank legislation to help relieve the new regulatory burdens on credit unions. 

I thank you for the opportunity to appear before you today on behalf of NAFCU and would welcome any questions that you may 

have. 

[The prepared statement of Mr. Buckley can be found on page 50 

of the appendix.] 

Chairwoman CAPITO. Thank you, Mr. Buckley. 

Our next witness is Mr. O. William Cheney, president and chief 

executive officer on behalf of the Credit Union National Association. 

STATEMENT OF O. WILLIAM CHENEY, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, CREDIT UNION NATIONAL ASSOCIATION (CUNA) 

Mr. CHENEY. Thank you. 

Chairwoman Capito, Ranking Member Maloney, and members of 

the subcommittee, thank you very much for the opportunity to tesVerDate Nov 24 2008 13:16 May 04, 2011 Jkt 065671 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\65671.TXT TERRIE
11 

tify. My name is Bill Cheney, and I am president and CEO of the 

Credit Union National Association, which represents nearly 90 percent of America’s 7,700 State and federally chartered credit unions 

and their 92 million members. 

Credit unions support reasonable safety and soundness rules, as 

well as meaningful consumer protection laws. However, credit 

unions are already among the most highly regulated financial institutions in the country. Credit union executives and volunteers are 

concerned that the mountain of regulation will only grow under the 

Dodd-Frank Act. 

Credit unions concern with regulatory burden is not motivated 

by a desire to avoid the intent of consumer protection legislation. 

Because credit unions are owned by their members, they already 

face very strong incentives to treat consumers well. Consumer protection rules hardly ever require changes in credit union business 

practices. However, compliance with those rules is often very expensive. 

The combination of existing rules and new burdens is a prime 

consideration when credit unions think about consolidation. It is 

becoming a crisis of creeping complexity. The steady accumulation 

of regulatory requirements over the years eventually adds up until 

a straw breaks the camel’s back. 

Twenty years ago, there were over 12,000 credit unions with under $50 million in assets. Today, there are approximately 5,500. 

Many of these smaller credit unions found it untenable to continue 

as standalone operations, often because of the employee time required to comply with numerous regulatory requirements. 

Credit unions are concerned that these creeping regulatory burdens also stifle innovation. It is critical that Congress provide diligent oversight to ensure that new regulation is not overly burdensome and redundant. My written testimony goes into detail regarding the overall regulatory burden facing credit unions. 

With respect to the Dodd-Frank Act, I would like to highlight two 

key areas of the law that are very significant to credit unions. 

The first is Section 1075 regarding interchange fees, which is 

why we oppose the Dodd-Frank Act. Last month, CUNA testified 

before this subcommittee regarding the Fed’s debit interchange regulation. While Congress exempted all but three credit unions, we 

believe this statutory carve-out is rendered essentially meaningless 

by market forces created by a rule that excludes many of the costs 

of providing debit at large issuers and by the Fed’s proposed rule 

that does not enforce the exemption. 

Further, the network exclusivity and routing provisions are very 

problematic. Credit unions are not exempt from these provisions, 

which, as Federal Reserve Chairman Bernanke has indicated, will 

likely put downward pressure on small institutions’ interchange 

fees. Ultimately, interchange regulation will make it more expensive for consumers to access their checking accounts. This is not 

what Congress intended. 

A legislative remedy is necessary to fully realize the intent of one 

of the sponsors who said small institutions would not lose any 

interchange revenue that they currently receive. We urge Congress 

to intervene to ensure small issuers are protected as Congress 

promised. 

12 

The second area I call your attention to are the two provisions 

of the Act which are designed to reduce regulatory burden. The 

first provision directs the Bureau to ensure that outdated, unnecessary, and unduly burdensome regulations are regularly identified 

and addressed in order to reduce unwarranted regulatory burdens. 

The second provision directs the Bureau to consider the impact of 

proposed rules on credit unions and community banks with less 

than $10 billion in assets. 

It is widely expected that the Bureau will engage in a comprehensive regulatory review process. Quite frankly, credit unions 

and others fear that at the end of this process, the overall regulatory burden will have increased. You cannot simplify regulation 

by creating new rules. Outdated regulations must be peeled back. 

These provisions offer credit unions hope that the Bureau will 

take steps to reduce regulatory burden and that it will fully consider the impact of its rules on credit unions. The Bureau staff has 

acknowledged this concern, and congressional oversight of this 

process is critical. 

My written testimony describes several other impediments to 

credit union member service beyond the scope of the Dodd-Frank 

Act. We ask Congress to increase the statutory member business 

lending cap, which would permit creditors to lend an additional $10 

billion to small businesses in the first year, helping them create 

over 100,000 new jobs at no cost to the taxpayers. We also encourage Congress to enhance safety and soundness by permitting credit 

unions to count supplemental forms of capital as net worth. This 

would permit credit unions to more quickly recover from the financial crisis and position them to continue to be a source of stability 

to their members in the future. 

Madam Chairwoman, thank you for the opportunity to testify at 

today’s hearing. I am pleased to answer any questions that the 

members of the subcommittee may have. 

[The prepared statement of Mr. Cheney can be found on page 83 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. Stinebert. He is president and chief executive officer of the American Financial Services Association. Welcome. 

STATEMENT OF CHRIS STINEBERT, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, AMERICAN FINANCIAL SERVICES ASSOCIATION (AFSA) 

Mr. STINEBERT. Thank you. 

My name is Chris Stinebert. I am president and CEO of the 

American Financial Services Association. AFSA is a national trade 

association. I represent the consumer credit industry. I am happy 

to report that the Association will celebrate its 100th year 5 years 

from now, and its 370 member companies include consumer and 

commercial finance companies. 

First, I would like to say that I certainly agree with my colleagues here and their concerns about regulatory costs and compliance type issues. Certainly we agree in many of the areas with 

mortgage concerns and debit interchange fees. 

13 

Madam Chairwoman, you and the members of the committee are 

probably more familiar with AFSA’s bigger members, which include 

many banks, bank subsidies, and large captive auto finance companies. But AFSA’s roots lies with the local finance companies that 

have been serving communities for many generations. Today, I am 

testifying on behalf of these small financial institutions, finance 

companies who provide personal loans to people in their communities, like the carpenter who needs to repair a transmission on his 

truck or somebody who needs to buy a washer or dryer. 

The Department of Defense, in its recent policymaking on credit 

for military families and dependents, described installment loans 

as a beneficial product and specifically cited the differences between installment loans and payday loans. I should note that we 

do not represent the payday lenders. 

Each loan, installment loan is individually underwritten for affordable and sensible debt. Equal installments of principal and interest support repayment over, on average, from 9 to 12 months 

with no balloon payments due. Lending and consumer service, customer service are provided by real people in local bricks and mortar 

offices. Customers are constantly monitored for their capacity to 

repay, and performance is reported to the credit bureaus. 

The FDIC recently reported in its small dollar loan pilot program that loans up to $2,500 were too costly for depositories to achieve 

much acceptance of future participation, except perhaps in cases 

where government taxpayer subsidies could be applied and/or saving accounts were mandatory or additional bank products could be 

sold. 

Finance companies are certainly not afraid to be regulated, but 

we do not want to be regulated like depositories, because they simply are not banks. Unlike banks, when a finance company makes 

a loan, its customers’ deposits are not at risk and the government 

and the taxpayers do not insure its capital. The only entity harmed 

by poor underwriting and defaults is the finance company because 

it is their money they are lending, certainly not yours or mine. 

Prior to enactment of the Dodd-Frank Act, finance services’ regulation has been dominated by oversight of the depositories, banks, 

thrifts, and credit unions. Therefore, regulators have a very good, 

I think, understanding of the Federal banking model. 

For decades, nonbanking finance companies have worked effectively with State regulators in complying with both State and Federal consumer protection loans. These nonbank finance companies 

have been successful in providing credit and other products and 

services in communities in which they operate in part because of 

the oversight of these State regulators that have often been the 

first to identify emerging practices and products that they deem 

need further examination. 

ASFA’s finance companies are concerned that the wealth of experience and knowledge will be lost on Federal regulators with their 

emphasis on bank-centric experience that they have. Nonbank finance companies want to make sure that they are not regulated to 

the point they can no longer make sustainable loans. 

The U.S. Small Business Administration study shows that the 

expense for small firms to comply with Federal rules is 45 percent 

greater than it is for larger business competitors, and almost 90 

14 

percent of the country’s 26 million small businesses use some form 

of credit. As part of the Dodd-Frank Act, the CFPB is required to 

comply with the Small Business Regulatory Enforcement Fairness 

Act panel process. That panel study and the potential impact must 

be studied, and we encourage this committee to make sure and 

clear that the CFPB has a full complement of small institutions 

represented on that panel. Consumers and the economy need to expand installment lending. 

The only thing I can close in saying is that preserving and expanding access to affordable credit should be the goal of every legislator and regulator, Federal and State. But it must also acknowledge that the uncertainty and the fear of excess regulation is an 

ever-present anchor on meeting this goal. 

Again, AFSA appreciates the opportunity to testify to the subcommittee, and I am happy to take any questions. 

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

175 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. James MacPhee. He is chairman of the 

Independent Community Bankers of America. Welcome. 

STATEMENT OF JAMES D. MACPHEE, CHAIRMAN, 

INDEPENDENT COMMUNITY BANKERS OF AMERICA (ICBA) 

Mr. MACPHEE. Thank you, Chairwoman Capito, Ranking Member Maloney, and members of the subcommittee. 

I am Jim MacPhee, CEO of Kalamazoo County State Bank in 

Schoolcraft, Michigan, and chairman of the Independent Community Bankers of America. Our bank is a State-chartered community 

bank with $85 million in assets, 40 employees, and 103 years of 

continuous business to our community. I am pleased to represent 

community banks and ICBA’s nearly 5,000 members and 18,000 locations and 270,000 employees at this important hearing. 

Community banks are the primary source of credit, depository, 

and other financial services in thousands of rural areas, small 

towns, and suburbs across the Nation. As such, they play an essential role in the recovery of our national economy. Regulatory and 

paperwork requirements impose a disproportionate burden on community banks, thereby diminishing their profitability and ability to 

attract capital and support their customers, including small businesses. Every provider of financial service, including every single 

community bank, will feel the effects of this new law to some extent. 

By a wide margin, the most troubling aspect of Dodd-Frank is 

the debit interchange amendment. We are grateful to you, Chairwoman Capito, for dedicating a recent hearing to the debit interchange amendment and the Federal Reserve’s proposed rule. The 

hearing substantiated the grave concerns we have with the law and 

the proposed rule, which would fundamentally alter the economics 

of consumer banking. 

In light of that hearing, for which we submitted a statement for 

the record, I will be brief in my comments here. But this point 

bears emphasis: Community banks were not effectively carved out 

by the statutory exemption for debit cards issued by institutions 

with less than $10 billion in assets. Small issuers will feel the full 

15 

impact of the Federal Reserve proposal over time. To use my bank 

as an example, in 2010, we had 1,600 debit cards outstanding and 

our profits on those cards for the year was a modest $4,800. 

If the Federal Reserve proposal goes into effect, I estimate that 

we will lose $20,000 on that debit card program, lost income that 

we would have to make up through higher fees and other products 

and services. 

Another source of concern is the CFPB. While we are pleased 

that Dodd-Frank allows community banks with less than $10 billion in assets to continue to be examined by their primary regulators, we remain concerned about the CFPB regulations to which 

community banks will be subject. In particular, the CFPB should 

not implement any rules that would adversely impact the ability of 

community banks to customize products to meet customers’ needs. 

Because bank regulators have long expertise in balancing the safety and soundness of banking operations with a need to protect consumers, ICBA supports amending the law to give prudential regulators a more meaningful role in CFPB rule writing. 

In representing our members during consideration of DoddFrank, ICBA focused on making the Act workable for community 

banks. This meant seeking exemptions that were appropriate. It 

also meant seizing the opportunity to advocate for long-sought community bank priorities that we believe strengthen community 

banks over the long term. 

ICBA was the leading advocate for the deposit insurance provision of the Act, including the change in the assessment base from 

domestic deposits to assets—minus tangible equity—which will better align premiums with a depository’s true risk to the financial 

system and save community banks $4.5 billion over the next 3 

years. The deposit insurance limit increase to $250,000 per depositor and the 2-year extension of the transaction account program, 

which provides unlimited deposit insurance coverage for noninterest bearing transaction accounts, will both help to offset the 

advantage enjoyed by the ‘‘too-big-to-fail’’ mega-banks in attracting 

deposits. 

The legislative ideas highlighted in this testimony will be included in the Communities First Act, legislation which the ICBA 

is working on with members of both Houses of Congress. We hope 

it will be introduced in the near future and considered by this committee. In addition to proposed changes in Dodd-Frank, the Community First Act will include other provisions that would offer regulatory and tax relief to community banks. 

Thank you for the opportunity to testify today on behalf of the 

ICBA and its members. Like most pieces of legislation, especially 

those that run 2,300 pages, Dodd-Frank offers a mixed outcome for 

community banks. I hope that my testimony, while not exhaustive, 

helps to clarify some of the concerns as well as the bright spots in 

Dodd-Frank for community banks. Legislation of this magnitude 

cannot be gotten right the first time. We hope to work with this 

committee to improve the law and to ensure that it is implemented 

in a way that will impose the least burden on community banks. 

I would be happy to answer any further questions. Thank you, 

Madam Chairwoman. 

16 

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

116 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our final witness is Mr. Skillern, executive director of the Community Reinvestment Association of North Carolina. Welcome. 

STATEMENT OF PETER SKILLERN, EXECUTIVE DIRECTOR, 

COMMUNITY REINVESTMENT ASSOCIATION OF NORTH 

CAROLINA 

Mr. SKILLERN. Thank you very much, Chairwoman Capito and 

Ranking Member Maloney, for the opportunity to testify today. I 

am Peter Skillern, executive director of the Community Reinvestment Association of North Carolina. 

Small financial institutions are facing long-term trends of consolidation and competition from mega-banks and unregulated financial institutions. The Dodd-Frank Act will help to create baseline rules for all lenders which will help small banks by providing 

a more level playing field such as an example of mortgage origination rules. 

Small businesses are facing a tougher credit market and slower 

recovery. The Act makes an extraordinary effort to do no harm to 

small businesses and to help them through increased transparency 

in credit decisions. Most importantly, Dodd-Frank provides a more 

stable financial system for small banks and businesses by mitigating the systemic risks and abuses that catalyzed the financial 

crisis. This legislation stands up for the little guy in the financial 

marketplace—small institutions, small businesses, and families. Nationally, the number of banks with under $100 million in assets dropped by more than 5,400 from 1992 to 2008. In North Carolina, of 146 institutions, the bottom 100 hold only 10 percent of the 

deposits, while the top 6 hold 76 percent. Yet small banks remain 

essential components of local financial services lending and civic 

engagement. Many areas of the country would not have banking 

services if it were not for the small institution. 

By contrast, the consolidation of assets and market share of 

mega-banks has increased. In 1995, the top banks had 11 percent 

of the deposit shares. By 2009, they had nearly 40 percent. In the 

last half of 2010, 3 lenders conducted 50 percent of mortgage activity. 

The challenges that small financial institutions face are not from 

the Dodd-Frank Act but from long-term trends of capital concentrations and consolidation. The Dodd-Frank Act primarily focuses on 

large financial institutions that operate in the capital markets. Its 

focus is on reducing systemic risk, creating a means for the resolution of failed giant institutions, prohibiting proprietary trading, 

regulating derivatives, and reforming the regulatory system itself. 

These are not primarily the concerns of small banks, other than 

whether the system itself is stronger and more stable in which they 

operate. 

The creation of the Consumer Financial Protection Bureau, in 

our opinion, will benefit banking by consolidating and simplifying 

rule writing for all financial institutions. It will supervise 2 percent 

of deposit institutions. The remaining 98 percent will be supervised 

by their prudential regulators. And, ironically, the efforts to reduce 

17 

the CFPB’s ability to regulate mega-banks and non-depository institutions will mean that small banks will again be regulated by 

their prudential regulators, while the bad practices are allowed to 

drive out the good ones that they model. 

There will be costs related to regulatory reform, and there is uncertainty in change. We agree that the unique needs of small institutions need to be considered as rules are written and implemented. We, too, urge simplicity, paper reduction, and cost savings. 

We want our money back in the community, not in paperwork. But 

that is not an argument that rules and reforms are not merited. 

The CFPB will benefit the financial system and small banks. 

Given the record number of small bank failures, foreclosures, and 

mega-bank collapses, we support Dodd-Frank’s emphasis on safety 

and soundness, yet we urge that the rulemaking does not overly restrict credit or disadvantage small institutions in lending. As an 

example, the rulemaking to define the Qualified Residential Mortgage, QRM, exemption from capital retention could adversely impact small lenders and consumers. Capital risk retention should be 

targeted towards non-conventional risky loans. If the definition is 

overly restrictive, such as having high downpayments or not utilizing mortgage insurance, small lenders will be sidelined by capital requirements and first-time home buyers will have an unnecessary hurdle to homeownership. 

Small businesses are currently faced with constriction of credit 

availability. Loans to small businesses in 2009 were only 44 percent of those in 2008, and the decline in outstanding balances to 

small business continued in 2010. 

The Dodd-Frank Act makes explicit protections to protect small 

businesses from unintended consequences of regulation. Section 

619 prohibitions on proprietary trading do not apply to small business investment corporations, allowing for banks to invest in 

SBICs. Section 1027 explicitly excludes merchants, retailers, and 

other sellers of nonfinancial goods and services. Subtitle C, Section 

1031, specifically allows for small business income to be considered 

in loan underwriting. Subtitle G, Section 1071, which requires new 

data collection, will better ensure lending to small business is done 

without bias. Three different sections—1099, 1424, and 1474—all 

require studies to ensure that credit costs are not increased for 

small businesses through this regulation. 

As I read it, the Dodd-Frank Act is small-business friendly. 

Small banks, small businesses, and families will be well served by 

the Dodd-Frank Act and Consumer Financial Protection Bureau. 

Thank you. 

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

169 of the appendix.] 

Chairwoman CAPITO. Thank you. I appreciate all of the testimony, and I am going to begin the questioning. It appears as 

though we are going to have votes again at 3:45. So my plan is, 

as the Chair, I will shorten my questions and try to get as many 

as we can in and dismiss the first panel, if that is all right with 

the rest of the committee. 

Our final witness gave us a contrast. But I want to go back to 

what Mr. Kelly mentioned when we are talking about contracting 

18 

credit and accessibility to the smaller institutions in the different 

communities. 

You listed three ways. You mentioned interchange. You also said 

that your banks could be out of certain business lines, and that 

with the mortgage risk retention provisions, which I guess is in the 

qualified mortgage, those are three pretty significant issues. We 

did have the hearing on interchange, So if you could talk a little 

bit more about the latter two. What kind of business lines are you 

concerned that you might fall out of under this regulatory regime? 

And, also, let us talk about the mortgage risk retention and how 

that will influence credit to the little guy. 

Mr. KELLY. Thank you, Madam Chairwoman. 

The mortgage risk retention, to speak of that first, our bank provides a retail mortgage product of about $20 million a month in 

mortgages. We also provide warehouse funding for over 900 locations across the Midwest, which make all prime, no subprime, 

mostly government-insured loans of one manner or another. 

Because of the really unknown nature of what the risk retention 

is, the title of that risk retention is drawn, the more difficult it is 

going to be for a bank of our size or smaller or really any moderatesized bank to have the capital to retain 5 percent of every mortgage 

that they make. So if that rule is drawn narrowly, we are concerned that we and others will be out of the mortgage business and 

thereby the mortgage business will move away from community 

banks and we will not be able to be competitive in that particular 

market. 

Chairwoman CAPITO. Let me just clarify here so I make sure I 

understand exactly. This provision does not exempt any community 

banks or certain asset level—it corrects across every financial institution that is in the mortgage business; is that correct? 

Mr. KELLY. Yes, Madam Chairwoman, that is correct. 

We are also concerned about the competitiveness of the supposed 

two-tier system relative to the debit cards, and I realize that was 

one that you said we have already had some discussion on. But, 

likewise, that will require us to examine our fees and look to see 

how those fees could be made up that we will no longer be getting 

from the debit cards. 

As an example, the fact that we have to retain—all banks retain 

the fraud risk of a transaction such as that. In our particular instance, we actually lost during one month when we had a scam 

that was in the area, a debit card scam resulted in a $143,000 loss 

for our bank. There is no way that 12 cents makes up the fraud 

loss, much less that it makes up and allows us to make any money. 

From the standpoint of being able to lose business lines, we are 

concerned about the municipal advisor provision of the SEC rule or 

the SEC attempted position because we believe that while in our 

communities—and we cut across many communities in Oklahoma. 

We have many school districts. We have all sorts of municipal-type 

companies that we bank. We believe that those rules, if construed 

the way that we understand the SEC is attempting to construe 

them, will not only require us to register my teller and my new accounts and CD clerk, but it will also give the SEC the ability to 

come in and examine us for those things, one more examination, 

a regulatory scheme that we will have to put up. 

19 

Yes, ma’am. 

Chairwoman CAPITO. Have you all made comments or been 

asked to weigh in on the formulation of that rule? 

Mr. KELLY. Have we made comments? Yes. Our bank did make 

an extensive comment, and the ABA likewise has made comments. 

We have had a number of banks that have made comments on 

that, and we tried to point that out. 

We believe that we provide marvelous service to the municipalities and the school boards and the like across the State of Oklahoma. We merely warehouse their money or put their money into 

an instrument. We are not serving as a ‘‘municipal advisor.’’ Yet, 

the requirement is for us to go into the municipal deposit rulemaking and register, as well as with the SEC, both of which will 

be very onerous. 

Chairwoman CAPITO. Thank you. 

I am going to turn this over to Mrs. Maloney for questions. 

Mrs. MALONEY. I want to thank all of you and to underscore 

what has been said many times in your testimony: The crisis was 

not caused by smaller institutions. If anything, you were a rock on 

which to lean during the crisis for communities and continue to be 

a rock for available liquidity and loans across America. You are a 

big part of the solution to the recession that we are experiencing. 

One of the things that we tried to do after safety and soundness 

and restoring stability to our markets was to level the playing field 

for smaller institutions so that you could compete and win in an 

easier way, and one way that we tried to do that was to say that 

all nonbank financial companies should be brought to the same 

level as any financial institution. 

Many people were going to mortgage brokers because there was 

no requirements. And many banks had all kind of regulatory requirements. And the financial crisis in many ways was not with 

the regular banking system that was regulated. It was for the 

nonbank financial institutions and new exotic products that were 

not regulated. 

So I would like to ask, does this help bringing in mortgage companies, payday lenders, private student lenders, and other large 

players in sort of the shadow banking system? We tried to bring 

them into the same regulations as smaller institutions. And I believe that this will be a benefit to smaller institutions. 

But I would like someone to answer me, does it not help the competition in bringing the shadow financial industry under the same 

regulation? 

Mr. CHENEY. Ranking Member Maloney, thank you very much 

for the question. As I said in both my oral testimony and the written testimony, credit unions are already the most highly regulated 

financial institutions. We have additional restrictions that don’t 

exist, even in the traditional banking sector. So we are not in favor 

of additional regulation for other financial institutions. 

However, I do think that there are parts of the financial services 

system that are not currently regulated that could benefit from 

some oversight. Certainly, credit unions—we have a unique business model in that our business interests and our members’ interests are completely aligned because the members own the institution. So it is a little different business model. But we are not opVerDate Nov 24 2008 13:16 May 04, 2011 Jkt 065671 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\65671.TXT TERRIE
20 

posed to additional regulation for other people who are providing 

similar products and services. 

Mr. KELLY. Ranking Member Maloney, if I might, in my testimony, I said we urge Congress to ensure the focus on those 

nonbanks. And we thank you for that. The shadow banking industry is in need of that type of supervision. And we believe that the 

CFPB would be something that would be quite adequate to do that. 

Our urging is that banks are already so regulated by our existing 

prudential regulators that the focus of the CFPB should be on 

those that have, as you described, no regulation today. 

Mrs. MALONEY. Certainly, one of the things that we wanted to 

accomplish was to reduce the regulatory burden. And one of the 

ways that we did that was creating a single form for federally required mortgage disclosures, simplifying the process for financial 

institutions and consumers alike, and reducing compliance costs. 

And I, for one, would like to continue to work in any way to reduce 

a duplication or regulatory burden. 

Possibly there is a way you could computerize the requirements 

that are required from various regulators and have that go out 

quarterly. There may be other ways that we could make it less onerous on people. I specifically would like to hear from any of you 

how you think the regulatory burden could be reduced while preserving safety and soundness necessary, obviously. 

Mr. CHENEY. As I mentioned in my oral testimony, we can’t simplify regulation just by creating new regulations. We have to peel 

back decades of outdated and overly burdensome regulation. The 

mission of the Consumer Financial Protection Bureau is to do that. 

But I think it is critical that as new regulations are even being considered, much less promulgated, they look at what currently exists. 

You mentioned the mortgage form, a 1-page form. Anybody who 

has ever closed a mortgage loan knows how onerous that is, not 

only on the financial institution but on the consumer; how difficult 

it is to understand. But if all we do is create a new form and we 

don’t get rid of the stacks and stacks of conflicting forms, we really 

haven’t simplified anything. 

And I know that wasn’t the intent of the legislation. It is just important that as the Bureau implements the legislation, they make 

sure that they remove that outdated regulation. 

Mr. STINEBERT. Speaking on behalf of the nonbank participants 

up here on this panel, I should note that leveling the playing field 

is basically increasing regulations on another entity. I think for the 

nonbanks that are certainly here, if you look at the total auto sector and you look at the small loan sector and others, they didn’t 

cause any of the problems that we are talking about. We are really 

talking about specifically mortgage that cut across all lines that 

created the crisis. 

And as we start talking about regulation, we want to make sure 

that regulations are truly going to protect the consumer and that 

are smart, that are good; not necessarily creating additional supervision, additional examinations that perhaps are unnecessary. 

We have been talking about the level of regulation now. And burdening another sector with increased regulations is not always the 

way to go. 

Chairwoman CAPITO. Thank you. 

21 

Mr. Westmoreland. 

Mr. WESTMORELAND. Thank you, Madam Chairwoman. 

Mr. Skillern, have you ever heard of a recording artist by the 

name of Alan Jackson? 

Mr. SKILLERN. No, sir. 

Mr. WESTMORELAND. He is a country recording artist, and he has 

a song out called, ‘‘Here in the Real World.’’ I suggest you buy it 

and listen to it for a little bit. 

Mr. MacPhee, I continue to hear from both banks and builders 

in my congressional district—and I come from a building background, a real estate background—that the examiners are turning 

some of this regulatory guidance on commercial real estate into assuming that if a builder has a qualified presale, somebody who 

comes in who is a qualified buyer, a presale, a lot of banks are saying—regulators are saying, ‘‘You’re at 100 percent of your commercial real estate exposure, so, therefore, you cannot make a loan to 

this builder to build this presale house even though he has a qualified buyer.’’ 

Are you getting any of that from some of your banks? I know in 

Georgia, we have had more bank failures than I guess any other 

State, 59 total, and 6 in this last year. So this is a problem that 

we are having, that banks are not being able to do what they do 

to make money, and that is to loan money. 

Mr. MACPHEE. Thank you for the question, Congressman. 

I have heard that from a number of community banks within the 

ICBA family around the Nation. And it depends on the geographic 

area as to how serious or what level the examiners do criticize any 

new commercial loan activity. I think there are areas, like Texas 

as an example, where the economy is pretty strong. They don’t 

seem to be criticized too heavily there. 

But I can tell you, coming from Michigan, with the highest unemployment in the Nation for a number of years, if I were a bank 

on the east side of Michigan doing a commercial loan, I would be 

heavily criticized for that. 

Mr. KELLY. Congressman Westmoreland, may I? Could I respond? 

Mr. WESTMORELAND. Sure. Absolutely. 

Mr. KELLY. I might give you a real world example when we talk 

about this. For our bank, the guidelines are 300 percent of capital. 

And CRE is also—a component of that is construction and development, which are not supposed to be, as you stated, over 100 percent. We are at 150 percent, and we were over that when the guidance became a rule, so to speak, so we have yet to get down below 

that, even though our total concentration is below 300 percent. 

We had the real world example of a company that wanted to build their headquarters building in Oklahoma, about a $10 million 

headquarters building, and the problem was they came to us for 

the construction loan, and we went up the chain of the regulatory 

ladder and were told, ‘‘Well, even though they are going to be occupying it and even though once they occupy it, it will be owner-occupied, and outside the CRE, no one occupies it during that construction, so you can’t make that loan.’’ And so, to my knowledge, that 

loan has not been made. That building has not been constructed, 

and that headquarters isn’t in Oklahoma. 

22 

The same is true for all of our custom builders. You may have 

a custom house to build, but the owner doesn’t live there until it 

is finished. So you technically can’t build it without raising your 

CRE. To me, that is counterintuitive, but that is the rule. 

Mr. WESTMORELAND. Yes, sir, it is counterintuitive. And until the 

construction business is able to come back, I would say that 60 percent of the people who are unemployed in this country right now 

are former construction workers. So we have to do something to 

help the housing market come back. 

The other thing is the regulation about writing down toxic assets, 

nonperforming assets, to zero or to some amount, when this asset 

is really performing; it is a performing asset. Somebody is paying 

their interest every month. They are making the calls at renewal 

periods. But yet the regulator comes in and says, ‘‘You have to 

write this loan down.’’ And the people who can’t bring in any more 

equity—they can’t even get their equity out of the some of the stuff 

they have now. That is what, to me, is causing a lot of the bank 

failures. Would you agree from both the banking ends of it? 

Mr. KELLY. Congressman, I think you have hit exactly on the 

head the issue, and that is that we all know that when you have 

a robust economy and you make a loan, even though it is performing, if that robust economy then falls and the value of that collateral falls with the potential of saying, we expect you to reappraise that. And once that is reappraised, you now have an impairment on the loan, which conceivably could go to zero or could 

be a very large impairment, which immediately becomes a hit to 

capital. 

In the case of Georgia, as you are well aware, what happens 

when those banks close and the regulators then dispose of the 

property at a lower price, I may have a good loan that is well capitalized—or, excuse me, well collateralized, but when the assets are 

sold by the regulator to be rid of them, now my loan that was good 

gets a low appraisal and, whoa, all of a sudden, I have an impairment. It becomes almost a self-fulfilling prophesy, and it becomes 

kind of the death spiral. So the suspension of that type of an appraisal requirement to go in and immediately write it down and 

immediately impair capital is a serious problem. 

Mr. WESTMORELAND. Whatever the level of the playing field, we 

have a steeper slope for businesses. 

Chairwoman CAPITO. Thank you. 

The gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you, Madam Chairwoman. 

First of all, let me start with you, Mr. Cheney. We have somewhat of a clear understanding of how this rule would affect our 

larger banks. How would this rule affect credit unions, the interchange fee rule? 

Mr. CHENEY. We are concerned that the interchange rule will 

have a dramatic effect on credit unions. All but three credit unions 

are exempt in terms of the asset size limit. However, there is nothing in the rule that enforces the exemption. There is nothing that 

requires a two-tiered system. There is nothing that enforces honor 

all cards. And so we are concerned that what we are talking about 

here is a $1.5 billion annual impact on credit unions and, more importantly, the impact on consumers. 

23 

Credit unions, as I said earlier, serve 92 million Americans, millions and millions of debit cards. The two-tiered system—even if 

there is a two-tiered system, because there is no enforcement of 

honor all cards, market forces we know will drive those rates down 

even at smaller issuers, and ultimately the cost, especially at a 

credit union, which is a cooperative institution, has to be passed on 

to consumers. And that drives people out of the banking system. 

It raises costs for the people who can least afford it. 

We are concerned that this is a train wreck for consumers. But 

we can stop it before it happens if we can take action quickly. 

Mr. SCOTT. And if you had to put some dollar figure on where 

we are now, where it is basically recommended of a 73 percent decrease, from 45 to around 12, in terms of economic impact and in 

particular dealing with the credit unions, what are we talking 

about in loss of revenue? 

Mr. CHENEY. The numbers that you mentioned in your opening 

statement and you just repeated, from 44 or 45 cents a transaction 

down to 12 cents a transaction, if the exemption doesn’t work, it 

is a $1.5 billion a year for the credit union movement for not-forprofit credit unions. And, more importantly, ultimately that will 

have to be passed on to the consumer. 

Mr. SCOTT. Now let me go to you—the banker. Mr. Kelly. I had 

it written here. 

You are the president and CEO of a small bank. Small banks 

were not covered in the survey that were done. How do you think 

that has skewed the results of that survey by you all not being involved in that survey? 

Mr. KELLY. I think both the survey and some of the instructions 

certainly were skewed against the community banks. We don’t 

have the economies of scale that a very, very mega-bank would 

have. We have a lot of costs that have to be consolidated as we 

offer those debit cards to our customers. And so when we talk 

about, in our case, Congressman, one of the things that we have 

gone and evaluated is we believe that the cost, exclusive of fraud, 

will be about a million dollars to our bank. That is just a guess 

based on this pricing at twelve cents. The thing that, again, the 

Federal Reserve study did not take into account was they said you 

can take into account fraud prevention, but it was not anything as 

far as fraud cost. 

Our estimate is that fraud cost is about those 12 cents. So 

whether you are right or wrong about that, it is going to be a fairly 

massive loss for banks across the scale that are community banks. 

You can do the index on it, but it will be a very, very large loss, 

depending on the number of debit cards. 

Mr. SCOTT. Now we are concerned about small businesses. Would 

this affect your ability to lend to small businesses? 

Mr. KELLY. The ability that we have to lend to small businesses 

obviously is directly proportional to your ability to both take a risk 

and have a risk appetite and also have the ability to fund the necessary positions to cover all of the necessary lending function that 

there is. 

As far as the ability to lend to small businesses, I don’t think 

this is going to counter our ability to lend to small businesses. I 

think, though, it will reduce significantly, absent finding a way to 

24 

increase our cost, I think it will reduce significantly the dollars 

that we have at our disposal to reinvest. 

Mr. SCOTT. Now how would it affect your customers’ access to existing benefits, like free checking? 

Mr. KELLY. I believe that the debit card income that we have 

seen and we see across our industry is used by banks to offset some 

of the loss leaders that we have, free checking and other things 

such as that. Those products would have to have some type of cost 

to the consumer. I can’t tell you exactly what those costs would be, 

but we would have to make up some of that loss somewhere in 

order to fund the additional compliance requirements that we are 

going to have out of the Dodd-Frank Act and in order to just make 

up for the loss that we are currently carrying relative to the debit 

cards themselves. 

Mr. SCOTT. Thank you. 

Chairwoman CAPITO. Thank you. We are on a tight timeframe 

here. What I am going to do is call on Mr. Renacci, and then if we 

have any time left, I am going to give it to Mr. Royce. Then, if it 

is okay with the other members, I am going to dismiss the first 

panel. So when we come back from voting, we will start up with 

panel two. 

Mr. Renacci. 

Mr. RENACCI. Thank you, Madam Chairwoman. 

Just a couple of quick questions for Mr. Buckley and Mr. Cheney. 

This is in regard to credit unions. Can you tell me what percentage 

of your customer base is low- or moderate-income customers? And 

also, I am trying to frame this in total. What is the total impact 

of the Dodd-Frank regulations on the credit unions to raise capital? 

I know that is a broad question. And knowing that the credit 

unions raise capital through earnings only, which is an issue, and 

then what is the impact of the loss of this capital or earnings, if 

that potentially is the case, because of these regulations on the sustaining of credit unions in the marketplace in the future? 

Mr. BUCKLEY. Congressman, in Newaygo County, where we primarily operate, I would estimate that fully 40 to 50 percent of our 

membership would be classified as low- to moderate-income folks. 

Again, this gets back to the historical nature of employer-based 

credit unions and their service to people of low or modest means. 

With respect to the impact of Dodd-Frank and the raising of capital, our concern is that we are now pitting safety and soundness 

concerns against the regulatory environment, which by its nature 

is more costly than the current environment. 

So as regulations change or are modified and we then incur costs 

to change documentation, to put out new disclosures, that is every 

dollar of additional cost is a dollar out of my members’ pocket. That 

comes right out of our bottom line and out of our capital. We don’t 

have the means of raising capital through mezzanine financing or 

the like that some of my fellow financial institutions on the panel 

might have. 

Mr. CHENEY. Just to comment, if I might, Mr. Buckley is exactly 

right: Every dollar that credit unions lose in revenue or every dollar that they have to spend on compliance is a dollar that comes 

out of the bottom line. The bottom line of credit unions is retained 

25 

earnings is the only way they can build capital in this environment. We talked about the possibility of supplemental capital. 

But I think at $1.5 billion in potential lost revenue, that is the 

difference for many credit unions, if you get down to the local level, 

that is the difference between a continued recovery out of this economic crisis, a crisis that credit unions didn’t create, and continued 

losses. It is a very, very severe impact in this environment. 

Mr. RENACCI. Or the sustainability of a credit union. 

Mr. CHENEY. Or the sustainability, absolutely. 

Mr. RENACCI. For Mr. Kelly and Mr. MacPhee, this goes over to 

the small financial institutions. Again, I think everybody would 

agree that as regulations increase, costs go up. My concern again 

would be for the low- and the moderate-income families who use 

your small institutions. And as these costs go up, what is going to 

be the ability to maintain checking accounts for the low- and moderate-income and also the ability to maintain branches, small 

branches in areas where there is low- and moderate-income, as 

your costs continue to increase? If you agree, and again, I have had 

a number of conversations with small bankers who said these regulations are going to drive up costs. 

Mr. MACPHEE. I couldn’t agree more, Congressman. 

We are in a small community where we know our customer pretty well. Our products aren’t plain vanilla in our communities. We 

make loans to people, and we have to fashion them to their needs. 

And when you get something as ominous as the interchange bill, 

as an example, that ratchets up your costs to a point where, as an 

example, I only make $2.28 on the transaction on each of my 1,600 

cards. It is not a get-rich-quick program. So when I lose just even 

that $5,000 a year in income, it is significant to our little bank, and 

it does affect my customers. 

Mr. KELLY. Congressman, I think that in Oklahoma, the counties 

that we are in are mostly low- to moderate-income areas. And so 

we have a tremendous concern and also respect for the people who 

make up that population. This debit card—certainly, the debit card 

situation the way that it is today has the potential to impact them. 

It is either going to impact their ability to afford an account or it 

is going to impact our ability to bring more money in to reinvest 

in our communities and do other things. We have been very mindful of trying to be sure that those folks do have banking services. 

And so the banks that do that, and they do traditionally do that, 

will have to make the decision, are we going to go ahead and reduce our ability to invest in other things like more compliance officers and eat those charges, or are we going to have to charge those 

people who are in those accounts? 

So I would hope that we are able to keep them in the bank. But 

it will require the banks to sacrifice more of their revenue to do so. 

Chairwoman CAPITO. I think in the interest of time—we have 3 

minutes before we need to vote. I had told Mr. Royce that he could 

have a minute or two, but it looks like we are down to the wire 

here. So I want to thank the panel for attending. 

I would note that some members may have additional questions 

for this panel which they may wish to submit in writing. Without 

objection, the hearing record will remain open for 30 days for memVerDate Nov 24 2008 13:16 May 04, 2011 Jkt 065671 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\65671.TXT TERRIE
26 

bers to submit written questions to these witnesses and to place 

their responses in the record. 

Thank you very much. Thank you for your patience. 

We will return after votes. 

[recess] 

Chairwoman CAPITO. Ranking Member Maloney said we could go 

ahead. I am really pleased that you are here, and I look forward 

to your testimony. I will introduce each of the panelists before you 

speak and ask that you speak for 5 minutes. We have your written 

statements in the record. 

So our first speaker is Mr. Jess Sharp, executive director for the 

Center for Capital Markets Competitiveness, with the U.S. Chamber of Commerce. 

Thank you. 

STATEMENT OF JESS SHARP, EXECUTIVE DIRECTOR, CENTER 

FOR CAPITAL MARKETS COMPETITIVENESS, U.S. CHAMBER 

OF COMMERCE 

Mr. SHARP. Thank you, Chairwoman Capito, Ranking Member 

Maloney, and distinguished members of the subcommittee. I am 

Jess Sharp, executive director for the Center for Capital Markets 

Competitiveness at the U.S. Chamber of Commerce. The Chamber 

is the world’s largest business federation, representing more than 

3 million businesses and organizations of every size, sector, and region. We appreciate the opportunity to testify before the subcommittee today on behalf of the businesses that the Chamber represents. 

I am going to focus my testimony this afternoon on the potential 

impact of the Consumer Financial Protection Bureau, called the 

CFPB, on America’s small businesses. First, I want to say the 

Chamber firmly supports sound consumer protection regulation 

that weeds out fraudulent and predatory actors and ensures consumers receive clear and concise disclosures about financial products. However, we also want to work with the CFBP to ensure that 

in doing this work, the Bureau avoids sweeping policies that would 

impose duplicative regulatory burdens on small businesses, and 

perhaps even more importantly, policies that would prevent small 

businesses from obtaining the credit they need to expand and create the new jobs that our economy so desperately needs. 

The CFPB has broad authority to regulate consumer financial 

products and services of banks and nonbank financial institutions. 

So credit cards, mortgages, and student loans, for instance. The 

Dodd-Frank Act, however, also gives the CFPB the authority to 

regulate a number of activities that are fairly common to businesses outside the financial services sector, sort of the financial 

services mainstream; for example, merchants that extent credit to 

customers. While there is sort of an exemption, at least in principle 

in the statute, it is very, very complicated, and I think it is a fivepart test to ensure that you actually can qualify for that exemption 

as a business extending credit. 

In addition to casting this very wide net of coverage, the DoddFrank Act also gives the CFPB a very broad standard to enforce: 

the prevention of unfair deceptive or abuses acts or practices. 

While unfair and deceptive practices have been proscribed for 

27 

years, with decades of case law to guide compliance and enforcement, the new abusive standard will require immediate interpretation by the Bureau that will likely continue to evolve into the future. 

Together, these standards are very vague and give the CFPB tremendous power to interpret its own mandate and give the regulated community, including small businesses, very little guidance 

to follow as we approach the July 21st transfer date. The full universe of covered entities is unknown, and the standards by which 

those entities will be judged compliant or noncompliant have yet to 

be written. 

So our two main concerns about the CFPB relative to small business are these. First, as I sort of alluded to at the top, small businesses may be subject directly to the CFPB’S regulation and other 

oversight because they engage in one of these 10 activities laid out 

in the statute or are service providers to one of those companies. 

Under current law, most of these companies, if not virtually all of 

them, are already subject to some sort of oversight by the Federal 

Trade Commission. So the Chamber fears that overlap and duplication of efforts and sort of double jeopardy will be inevitable as the 

Federal agency sorts out lines of jurisdiction and responsibility. 

And to some extent, those are the growing pains of the new agency 

as we have here, but it is something we want to be mindful of and 

caution against. 

Second, CFPB regulation—and I think we heard a little bit of 

this on the first panel—may possibly decrease the availability or 

increase the cost of the forms of credit small businesses rely on to 

provide working capital. According to research conducted by the 

Small Business Administration’s Office of Advocacy, 80 percent of 

small firms use nontraditional sources of funding, including owners’ loans, and personal and business credit cards, while 60 percent 

use traditional types of loans, such as credit lines, mortgage loans, 

and others. In fact, 47 percent of all small businesses use personal 

credit cards rather than business credit cards. 

So, in regulating consumer products, it is fair to say there will 

be an indirect effect on the availability of credit to small businesses 

as a result of that. 

Yesterday, the Chamber and a number of other trade associations sent a letter to Secretary Geithner laying out a series of recommendations to guide the Bureau’s development in some of the 

early decision-making. I am just going to work through a quick 

summary of that. If you would like, I will provide a full copy of that 

for the record. 

We have some structural recommendations, one of which we are 

happy to see that the CFPB has already incorporated, and that is 

the creation of a COO position. So often with new regulatory agencies and even with existing regulatory agencies, there can be an inability to see the whole field. So a COO position that kind of cuts 

across the silos, we think is a good idea, and we are happy they 

are ahead of us on that. 

As I said at the top as well, empowering consumers by 

rationalizing disclosure requirements should be, we believe, the primary focus of the CFPB’s work, and we think they can add a lot 

of value there, and we look forward to working with them to do 

28 

that. We are hoping they will prevent duplicative and inconsistent 

regulation to Main Street businesses. As I said, some of that will 

have to be negotiated, I think, between the CFPB and the Federal 

Trade Commission and the attorneys general and the prudential 

regulators, but we understand that is a work in progress. 

As I said, we want them to preserve small business access to 

credit, and we want to ensure they are coordinating with potential 

regulators; that is very critical. And last, what we have asked is 

that the Secretary of the Treasury, in the event that there is a period of time between the transfer date and the confirmation of a 

director, what we have asked is that there not be any attempts to 

regulate or take enforcement actions that would interpret the new 

authorities under the statute. 

With that, thank you very much. I am happy to answer questions. 

[The prepared statement of Mr. Sharp can be found on page 161 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. Robert Nielsen, chairman of the board, 

National Association of Home Builders. 

Welcome. 

STATEMENT OF ROBERT NIELSEN, CHAIRMAN OF THE BOARD, 

NATIONAL ASSOCIATION OF HOME BUILDERS (NAHB) 

Mr. NIELSEN. Chairwoman Capito, Ranking Member Maloney, 

and members of the Subcommittee on Financial Institutions and 

Consumer Credit, I am pleased to appear before you today on behalf of the National Association of Home Builders to share our 

views on the effect of the Dodd-Frank Act on small financial institutions and small businesses and to highlight the existing regulatory obstacles to housing production credit. 

My name is Bob Nielsen. I am the 2011 National Association of 

Home Builders chairman of the board and a home builder from 

Reno, Nevada. 

The housing sector is an industry made up of mostly small businesses. Over 85 percent of the NAHB builders members reported 

building fewer than 25 homes per year in both 2008 and 2009. And 

over 95 percent have receipts less than $15 million. Thus, the typical home builder easily qualifies as a small business. And these 

small businesses depend almost entirely upon commercial banks 

and thrifts for housing production credit. 

Indeed, small community lenders account for over 90 percent of 

residential land acquisition, development, and residential construction, that is AD&C, loan originations. With no alternative source 

of housing production credit for most firms in the home building industry, NAHB is extremely interested in how the rulemakings required by the Dodd-Frank Act will impact the ability of small community banks to service our industry in the coming months and 

years. 

Federal banking regulators are now entering an intense period of 

rulemaking on key components of the Dodd-Frank law. NAHB will 

be examining and commenting on these crucial rulemakings, not 

only for their potential to impact the already struggling home 

building industry but also for the additional uncertainty that the 

29 

sheer weight of new regulation will have on the ability of small 

builders to obtain much-needed housing production credit. Additional burdensome and unnecessary regulatory excesses will be 

sure to have a negative impact on small homebuilding companies 

and thus for the entire economy. 

NAHB is concerned that the forthcoming credit risk-retention 

rules required by Dodd-Frank Act may result in an unduly narrow 

definition of the important term ‘‘qualified residential mortgage,’’ 

which could forestall recovery of the housing market by making 

mortgages unavailable or unnecessarily expensive. This could 

occur, for example, if the rules required home buyers to make large 

downpayments. A move to a larger downpayment standard at this 

juncture would cause renewed stress and uncertainty for borrowers 

who are seeking or are on the threshold of seeking affordable sustainable, homeownership. Moving forward, NAHB recommends the 

broadest criteria possible when defining the qualified mortgage exemption without interfering with the safety and soundness requirements of the Dodd-Frank Act. 

While the possible effects of ongoing Dodd-Frank regulations on 

community lending institutions are concerning, small builders have 

already been significantly impacted by existing regulatory requirements. Community banks are under intense regulatory pressure 

that has resulted in a severe lack of credit to home builders for 

AD&C loans. Such short-term loans are the life blood of our industry. 

Unfortunately, I continue to hear from my fellow builders that it 

is extremely difficult if not impossible to obtain new AD&C loans. 

Additionally, builders with outstanding loans are experiencing intense pressure as a result of requirements for additional equity, denials on loan extensions, and demands for immediate repayment. 

This is a major impediment to the housing recovery and an increasing threat to the ability of many home builders to survive the economic downturn. 

Of concern to NAHB is that lenders often cite regulatory requirements or examiner pressure that banks shrink their AD&C loan 

portfolios as the reason for their actions. While Federal bank regulators maintain that they are not encouraging institutions to stop 

making loans or to indiscriminately liquidate outstanding loans, reports from my fellow members and their lenders suggest that bank 

examiners in the field are adopting a significantly more aggressive 

posture. 

To address this situation, NAHB has presented banking regulators with specific instances of credit restrictions. To date, these 

efforts have not produced any tangible result. It is clear that congressional action is now needed. As my written statement outlines, 

NAHB is offering a formal legislative blueprint focusing on fixing 

specific instances of regulatory excesses. NAHB stands ready to 

work constructively with this subcommittee to find prudent and 

workable solutions to both the current and ongoing regulatory constraints that are impacting the ability of the home building industry to fully participate in our Nation’s economic recovery. Thank 

you. 

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

125 of the appendix.] 

30 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. John Schaible, chairman of Atlas Federal Holdings. 

Welcome. 

STATEMENT OF JOHN M. SCHAIBLE, CEO, CHAIRMAN, AND 

FOUNDER, ATLAS FEDERAL HOLDINGS 

Mr. SCHAIBLE. Chairwoman Capito, Ranking Member Maloney, 

and members of the subcommittee, my name is John Schaible. I am 

the chairman, founder, and CEO of Atlas Federal Holdings. I want 

to begin by commending the committee for holding this hearing on 

Dodd-Frank, and I want to thank you for providing me the opportunity to share my opinions and hopefully what amounts to insights. 

I am a businessman and an entrepreneur. I founded a company 

called NexTrade, which was one of the first electronic exchanges to 

compete directly with the New York Stock Exchange. I founded another company called Matchbook FX, which was the first spot foreign currency electronic exchange. I also founded a company called 

Anderen Financial, which is a Florida State-chartered bank and 

brokerage firm. Anderen remains today one of the best capitalized 

banks in the country. 

To the success of my firms, I have employed, contracted thousands of Americans and been responsible for facilitating billions of 

dollars of economic activity, all of it generated from scratch. In the 

simplest sense, my business has been about inventing better ways 

for other businesses to access capital and distribute risk. 

From this level, I submit to you that business in America needs 

certainty. And Dodd-Frank undermines that certainty. To make 

matters worse, Dodd-Frank is aimed at the financial services industry, which is the fuel pump for capital formation for all other 

businesses. At the core of the legislation, there is a philosophy inherently opposed to capital formation: the concept that regulation 

should be maximally flexible. To an entrepreneur like me, flexible 

regulation is a euphemism for arbitrary regulation, and it deters 

investment. 

Dodd-Frank is massive, but there are three provisions in particular I want to reference that give me the most uncertainty. The 

first is Title X, which creates the Consumer Finance Protection Bureau. The reach of the CFPB does not seem to be limited in any 

material way for any firm engaged in finance. In addition, Congress has seen fit to abdicate the entire construction of the body 

of rules of the agency to the agency itself. For the business entrepreneur considering entering the field of finance, the entrepreneur 

has no way of forecasting the costs of this new rulemaking body 

and, therefore, has no real way to convince someone to put capital 

into them. 

The secondary provision of concern is Title II, under which DoddFrank creates the orderly liquidation authority. The powers extended to the government during an orderly liquidation are practically limitless. While the vocalized intent is that the authority 

will seldom, if ever, be utilized, the reality is that it can occur. And 

potential investors and financial services have to look at two distinct scenarios: The first scenario is the possibility that their firm 

31 

that they are investing in gets placed under OLA. The second scenario, which is more likely, is that one of the firms that they contract with or are a customer of gets placed into OLA. 

I will give you an example of a firm, like Bank of New York, which handles over $24 trillion in custody and administration services. They clear for over 1,150 other brokerage firms, and they provide services to what is roughly 45 percent of all exchange-traded 

funds. Bank of New York is one of the preferred places for small 

firms like mine to go to for services that we need. Our fear is that, 

under the OLA, what happens to our investors if such a bank like 

that gets seized? 

We are faced with the cold reality that our contracts that we 

have with them can be canceled, or worse, forced to stay in place 

even though this firm is now recognized because of the seizure as 

a credit risk. 

The OLA not only strips firms under resolution of certain rights, 

but it also otherwise can strip innocent and otherwise solvent end 

customers of their rights. To me, this is not even remotely American, very scary, and a severe deterrent to future capital formation. 

The third section that gives me great concern is Title VI and, 

specifically, the Volcker Rule. The unintended consequences of the 

Volcker Rule can be very broad. Without the liquidity that bankowned dealers provide, there can be some substantial negative effects for business formation in general. There will be higher funding and higher debt cost for U.S. companies, there will be a reduced ability of households to build wealth through the participation in liquid securities. Hopefully, if we learned anything during 

the recent crisis, it is the importance of liquid markets. The reduced willingness of investors to provide capital for new financial 

service firms because of the illiquidity and the higher trading costs 

in general will probably impact investors. 

We have to realize that we face very strong competition from 

overseas capital markets and a prescriptive rule set that precludes 

liquidity support from some of largest capitalized players will substantially drain liquidity and important trade and products, and 

move jobs and wealth offshore. 

In conclusion, I think that the passage of Dodd-Frank was definitely made with the best intentions, but I am concerned that we 

are trading prosperity for political expedience. I think we have a 

misunderstanding as to what caused the crisis. I think it is in fact 

a cause of government intervention and a very ill-defined regulatory rule set that tends to drive good business into small margins 

and allows what I call the ‘‘cockroaches of the industry’’ to survive 

in the dark margins and even thrive. 

So, to that extent, when we understand that government intervention and bad rule sets are the cause of the problem, I think that 

Dodd-Frank probably is just one more Band-Aid and not a good solution. 

Thank you. 

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

140 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our final panelist is Mr. David Borris of the Main Street Alliance. 

32 

Welcome. 

STATEMENT OF DAVID BORRIS, MAIN STREET ALLIANCE 

Mr. BORRIS. Thank you. Chairwoman Capito, Ranking Member 

Maloney, and members of the subcommittee, thank you for the invitation to testify regarding the impact of the Dodd-Frank financial 

reform law on small business. 

My name is David Borris, and I serve on the Executive Committee of the Main Street Alliance, a national network of small 

business owners. Our network creates opportunities for small business owners to speak for themselves on matters of public policy 

that impact our businesses. 

I have been a small business owner for over 25 years. My wife 

and I opened a gourmet carryout food store in 1985, and over the 

years have expanded into a full-service catering company with 25 

full-time employees and up to 80 part-time and seasonal workers. 

We take pride in what we do. 

I think it is important to understand the vital connection small 

businesses share with the communities we serve. Unlike big corporations, Main Street business owners see our customers every 

day, in our businesses, at the local grocery store, at school bus 

stops. We share close personal relationships and equally close economic ties. Policies that impact the economic health of our customer base reverberate quickly to our bottom lines. 

Much attention has been paid to the severe tightening of credit 

markets. And this is certainly a serious issue for small business. 

But to blame Dodd-Frank for this credit crunch makes little sense. 

Credit dried up and has remained frozen because of the financial 

crisis itself, which could have been averted or mitigated had the 

stabilizing measures contained in Dodd-Frank been in effect at the 

time. To blame Dodd-Frank for the credit crunch confuses cause 

and effect, especially as the new law has not even been implemented yet. 

When it comes to new capital requirements, leading financial experts dismiss the claim of a negative impact on lending. Professor 

Anat Admati from the Graduate School of Business, Stanford University, and her colleagues have looked carefully at the topic. They 

conclude that better capitalized banks will find it easier to raise 

funds for new loans and, further, that new capital requirements 

can help address biases in the current risk-weighted system and increase incentives for traditional lending. 

The real reasons why small institutions and small businesses are 

having difficulties with credit lending are the underlying uncertainties in the economy: high unemployment; stagnant consumer demand; and the lingering foreclosure crisis. The great recession cost 

this economy 8 million jobs and eroded the small business customer 

base severely. Those customers have yet to return. Uncertainty in 

the foreclosure market continues to hang like an albatross around 

the neck of consumer demand as the unwillingness of big lenders 

to write down principal lingers as a drag on lending markets on 

economic growth. It should be noted, too, that efforts to rewrite 

Dodd-Frank even before it is implemented only add to that uncertainty. 

33 

New data on bank reserves reinforce the conclusion that the 

credit problem doesn’t stem from regulatory requirements. According to last Friday’s Wall Street Journal, U.S. bank reserves have 

swelled to $1.3 trillion, a figure the Journal describes as eye-popping. Those excess reserves represent money that could be out circulating in the economy on productive loans instead of sitting at 

the Fed. 

Yes, we are in a credit crunch. The banks slashed their small 

business lending by $59 billion between June of 2008 and June of 

2010, but the current levels of excess reserves could fill that lending gap 20 times over. The $150 billion in reserve at small institutions is 2.5 times the amount necessary to restore small business 

lending to 2008 levels. 

While Dodd-Frank is hardly responsible for drying up credit, it 

does include a number of provisions that will provide real help for 

small business. The new Consumer Financial Protection Bureau 

will benefit small business in three ways: first, directly, because we 

are financial consumers also; second, by protecting people from bad 

credit arrangements and helping them keep money in their pockets 

to spend in the real economy at our Main Street stores; and third, 

by promoting a level playing field in lending. 

Meanwhile, the law’s proprietary trading limits will encourage 

banks to restore the focus on economically productive lending, and 

that will boost commercial lending. And the law includes provisions 

that should restore some parity to credit and debit contracts and 

debit interchange fees, an important area for many small businesses. 

For me, as a small business owner, the bottom line is trust. 

Small businesses across America succeed by earning the trust of 

our customers. The financial sector lost sight of this basic principle 

of business, and we have all paid a very steep price. That is why 

we need these new rules of the road for the financial sector to engender trust, inspire confidence, and decrease uncertainty. 

Small businesses like mine are counting on Dodd-Frank to succeed so we can go back to doing what we do best, creating jobs, 

building vibrant economies, and serving local communities across 

America. 

Thank you. 

[The prepared statement of Mr. Borris can be found on page 46 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

I want to thank all of the witnesses. We will begin the question 

portion. I am going to begin. 

First of all, Mr. Sharp, you raised an issue that I have great concern about as well in terms of the development of the CFPB in 

terms of the timing. We are at the beginning of March. We have 

no nominee for a director. We are going up against a timeline here. 

And I think there are some very fundamental questions as to what 

is going to happen in the short term if a situation should arise that 

there is not a nominee or the nominee hasn’t been confirmed, etc., 

etc. So I thank you for raising that issue. I think it is very real and 

certainly leads, again, to more uncertainty, which I think we are 

trying to, in all facets of our economy, trying to create and bring 

about more certainty so that we can get moving again. 

34 

I would like to ask Mr. Nielsen a couple of questions. Small home 

building companies, how will you be affected by the rules requiring 

banks to retain a portion of the credit risk associated with the 

mortgage loan? Is this a great concern for you all? 

Mr. NIELSEN. Yes, it is. In fact, that could have a dampening effect on the ability of mortgage creators to create mortgages, and it 

would reduce the number of home builders that would qualify for 

a mortgage. 

Chairwoman CAPITO. What would you say is the most common 

reason now that banks are giving to home builders for denial of 

credit? Mr. Westmoreland was here for the last questioning, and I 

think he was hitting on this very topic. Is it regulatory guidance? 

Is it lack of confidence in the economy? Is it real estate prices? Is 

it all of the above? 

Mr. NIELSEN. Two different issues there. The first issue is to the 

consumer who is trying to buy a home. And, certainly, the tightening of FHA regulations, the tightening of banking regulations in 

terms of scores, credit scores, and that kind of thing are an issue 

for someone trying to purchase a home today. The other piece is 

for home builders trying to get financing, trying to access capital 

to be able to build, which the regulators have absolutely shut 

down. And that is the reason why we believe there needs to be a 

legislative response to that kind of a problem. 

We have talked to the regulators. We have said bankers need to 

be able to make well underwritten loans in reasonable markets like 

Tulsa, Oklahoma, or North or South Dakota and parts of Texas, 

where home building can still be done. In fact, the regulators say, 

we encourage that with our examiners. But when you go out and 

talk to the community bankers, as you heard in your first panel, 

the examiners aren’t telling them. So if the examiners are telling 

them to reduce their real estate lending book, they are going to do 

that, because they have to do that. 

So that is the concern. It is twofold: one on the consumer side; 

and one on the production side. 

Chairwoman CAPITO. All right. Thank you. 

This is really for anybody. It will be my final question. President 

Obama recently announced an initiative to reassess regulations in 

light of their effectiveness and their effort and their effect on economic growth and jobs. I am curious to know, have you all or has 

anybody in the course of your businesses, have you ever been the 

beneficiary of reduced regulation and—not oversight, but it seems 

to me we are piling more regulation upon more regulation. Are any 

of your regulations going away to ease the business moving forward? 

Mr. NIELSEN. I can guarantee you, Madam Chairwoman, we 

have seen no reduction in regulations. In fact, we see additional 

regulations at this point. I guess you have to give them time to do 

that. But we certainly see no move at this point to reduce regulations that affect our builders. 

Chairwoman CAPITO. Does anybody else have a comment on 

that? 

Mr. Sharp? 

Mr. SHARP. I would just agree with what my colleague here said. 

I haven’t seen a reduction anywhere. 

35 

Chairwoman CAPITO. Thank you. 

Mrs. Maloney. 

Mrs. MALONEY. Thank you. And I want to thank all the panelists 

for being here and for what you do every day to create jobs and 

be part of our economy. 

I do want to share that at the last hearing of this Joint Economic 

Committee, Dr. Hill, who was appointed by former President Bush 

to head the Bureau of Labor Statistics, testified that this recession 

was the first one that wasn’t just economic factors but was a failure of the financial system. And when you look at the failures that 

took place, it was highly unregulated, risky products that got us 

into the mess that we are digging our way out of. 

It is estimated we lost $13 trillion in profits or value in our economy, 8 million jobs. It has been a devastating impact on all of us. 

Certainly, to respond to Mr. Nielsen and others who raised access 

to credit, there has been a dual story going on where the regulators 

and bankers will come in and say, oh, we are getting all the credit 

out into the community. And then you talk to the community and 

the community cannot find access to capital. And you are not going 

to grow, you are not going to invest until you have access to capital. 

So, in the last Congress, we passed a bill that would create in 

Treasury a $300 billion fund for small banks, for communities, to 

get the capital out in the community to get the building of small 

businesses going. That is the Small Business Lending Fund. And 

it is just beginning to provide the necessary liquidity to small businesses. 

The panel before you was a lot of smaller financial institutions, 

which I would say in this financial crisis have been the true heroes 

and heroines. They have been in the community. They have gotten 

the capital out. They have been well managed. They did not take 

risks. It was the old way of not handing out a loan unless people 

could pay for it. It got so bad during the heyday that the joke in 

New York was, if you can’t afford your rent, go out and buy a 

home. Because there just wasn’t any oversight. You didn’t have to 

put anything down. You didn’t have to have any credit. It was 

called no-doc loans. It really went overboard. And we are suffering. 

We are working very hard in New York to really handle the foreclosure process, but in some States, our colleagues literally are having brand new homes bulldozed down and destroyed because there 

is nobody there to buy them. 

I think one of the challenges, and I think Mr. Nielsen hit on it, 

is that there are some places where the economy is rebounding, 

where you need to be able to get these loans where they could presell their homes and really prove that there is a demand and get 

it moving. 

I think one of the things that is confronting us, I believe it was 

Mr. Zandi, a private-sector economist who works for Moody’s, 

which means that if he is not right in his forecast, he gets fired. 

But he was estimating that housing was 25 percent of our economy. It is huge. If it is 25 percent of our economy, when you look 

at all of the aspects of it, with the home building, the contractors, 

the construction workers—and construction workers have been 

36 

hardest hit in this downturn—I don’t see how we really rebound in 

a positive way until we get housing moving again. 

Earlier today, Chairman Bernanke testified that the recession 

was over and that we are not falling, but we are not climbing out 

of it. We are not even creating enough jobs to equal the number 

of people going into the workforce, which is roughly 150,000. 

So my question, I guess, to Mr. Nielsen is, realistically, what can 

we do to get the housing moving? There are certain areas in the 

country where there is still a backlog of buildings that have been 

built. I would say that is true here in the Arlington, Virginia/Washington, D.C., area. There is a backlog of having built enough things 

that they can’t even sell them. 

It is hard to build new things when there is a backlog there. So 

I just think it is a huge challenge, because I do think there are 

some piecemeal areas in the country, some in Florida, I would say 

some in New York, where the demand is there and you could move 

forward. But still the fact that the backlog is so deep and strong 

has everybody concerned. 

And I just want to put out there that the intent of this bill—government doesn’t like to get involved with the private sector. But if 

the banks are closing and you are on the verge of a Great Depression and your entire financial community would have crumbled 

without the intervention of a Federal Reserve, that is why people 

came in. And, as I said, it was the deregulated areas that took the 

derivatives, moved them off the exchanges so no one knew what 

was going on with them. 

There is a movie out—actually, it won an Academy Award, a documentary called, ‘‘Inside Job.’’ But it was about the whole meltdown of the financial industry where all regulation was moved off 

the charts. We are now trying to put transparency back in so the 

consumers can see those areas. 

So I guess my question to you, Mr. Nielsen, or anybody else who 

wants to answer it, is what can we do to get the housing market 

moving again? And is the demand even out there? If you could 

build the houses, is there anyone there to buy them? 

As I said, we now have this lending fund that will be there if you 

can prove that, in fact, someone can pay for it. We are stopping the 

area of building things that people can’t pay for and then leaving 

the taxpayer with the tab. And some people say that is too much 

regulation. 

I think it is smart not to give someone a house that they can’t 

afford that is going to be foreclosed on and the taxpayer is going 

to have to pay for. I think that is a dumb public policy. So what 

we were trying to do is put some balance in it. But anything that 

could get housing moving if the demand is there. 

Number one, do you think the demand is there? And just your 

comments on it, because I don’t believe we are going to ever get 

past the sort of treadmill area that we are in until housing, 25 percent of our economy, starts moving again. 

Mr. NIELSEN. Absolutely correct. I love hearing you say that 

housing is what could lead this economy out of the recession. 

Clearly, housing is still in a huge recession, unless you want to 

call it a depression. Unfortunately, the small business bill that you 

spoke of expressly precludes home builders from accessing that. In 

37 

fact, we had a fix-it bill that almost made it through in the last 

Congress but didn’t. So we don’t have access to those funds. That 

is part of the problem. 

You are right that there are segments of the country that are beginning to come back. As I said in my testimony, Tulsa, Oklahoma, 

the Dakotas, and parts of Texas and, actually, specific areas of 

even Florida are starting to come back. 

But if builders are precluded from having capital to be able to 

fund their business, they can’t come back; and that is what we are 

experiencing. Some of the very largest builders, the biggest builders have direct access to Wall Street and don’t have that problem. 

But our members, 165,000 of them, are small builders. They are 

community builders. They are people who build less than 25 

homes. And unless we can create capital flow to them, which we 

believe a piece of legislation that we are crafting right now will do, 

they are not going to get back and be building. And, without that, 

they won’t be hiring the people, as you pointed out, that we need 

to hire for that. 

Mrs. MALONEY. The $300 billion precludes home builders. What 

about a home buyer? Can a home buyer access that $300 billion? 

Mr. NIELSEN. I don’t think that is for mortgages. At least, I don’t 

believe it is. 

Chairwoman CAPITO. Thank you. 

I would like to ask for unanimous consent to insert into the 

record statements from the National Association of REALTORS, 

the National Association of Small Business Investment Companies, 

and the Retail Industry Leaders Association. 

Without objection, it is so ordered. We will now go to Mr. Luetkemeyer for questioning. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

Mr. Nielsen, let us continue with your discussion here. You hit 

on an interesting problem here and one that I hear all the time as 

I go back and talk to my local folks in the district. And that is the 

one where—especially with the builders and contractors and developers where there is a huge disconnect between the regulatory officials here in D.C. and what is going on in the district where it affects the people who make the livings and get our economy going 

from the standpoint that they are forcing the local examiners, the 

ones in the field are forcing the banks to restrict credit, call notes 

that really—there is nothing wrong with them, other than the fact 

that the market is kind of flipped upside down with regards to the 

values they have been performing and have never been past due 

and yet they are being called. It is a huge problem, and I am glad 

to hear your testimony along that fact. 

If you can just again confirm what is going on out there. One of 

the questions I have is, what is the present inventory of homes 

that is sitting there ready to be purchased that people have moved 

out of? Or how big is the inventory and how long would it take to 

get rid of it? 

Mr. NIELSEN. That is a very fluid question, and I am certainly 

not an economist and couldn’t give you a number. But I can tell 

you that the overhang is huge. 

But what you were talking about earlier, the banks calling—performing loans is what really concerns me, too. Because a lot of our 

38 

builders have land that is ready to build at this point that they are 

holding. But because banks are, in essence, reappraising that land 

and they are forcing home builders or owners of that land to put 

additional equity into the—pay the bank, additional equity to keep 

the loan in balance. And if they can’t do that, they are foreclosing 

on that. 

When they foreclose on it, the bank then sells that at a distressed value and reduces the value of every other piece of property 

around it because an appraiser has to look at that when they appraise a property, which is another problem, the appraisal problem. 

Both of those are addressed in our legislation. 

Mr. LUETKEMEYER. I had a situation where I had a developer 

that was so big, he had four different banks involved, and they all 

foreclosed on him because he was bankrupt. But if they all foreclosed on him, it would drive all the prices in the whole area down 

to a level that everybody would lose everything else. All the good 

loans would suddenly be worthless. That is how big and how bad 

the situation can get. 

Mr. NIELSEN. Right. And we will get you the number of foreclosed houses on that. 

Mr. LUETKEMEYER. Mr. Schaible, you hit on a couple of points 

there that are of interest to me, saying that the CFPA and the 

whole bill as a whole, Dodd-Frank really undermines the certainty 

of what businesses need in order to be able to continue to operate. 

And as I go out and talk to my folks, over and over again, the key 

word is certainty. They can’t go anywhere because they are not certain of the laws, not certain of the regulations, not certain of taxes, 

not certain—if you get to manufacture, not certain of trade policy. 

You used the word ‘‘arbitrary’’ regulation. I kind of like that. 

That is kind of a neat way to put what is going on here. They come 

in and they arbitrarily seem to, without any sort of documentation 

or real problem there, all of a sudden they are arbitrarily imposing 

rules and regulations on things. 

And you made a comment in your testimony with regard to them 

being able to come in and take away some of the businesses and 

come in and repossess or close down. Would you elaborate on it just 

a little bit? Because I think this is a very important point that we 

make here. 

Mr. SCHAIBLE. From my reading of the order of liquidation authority, they can seize certain enterprises when they feel that the 

enterprise is in trouble of potentially going under. And what is interesting is that they chose not to fall back on bankruptcy provisions or really any form of due process. They just kind of arbitrarily make that decision. 

If you are on the other side of that as a customer of one of these 

larger firms, you can depend on these customers for clearing, for 

settlement, for stock loans, for a whole variety of services that are 

critical to your business. But the downside is the contracts that you 

have, even if you put provisions in your contracts to get away from 

them if they go bankrupt, they have specifically nullified that. And 

from what I have seen and that, from my perspective, if I am on 

the other side of that situation and my service provider has suddenly been randomly seized, I cannot break my contracts and I 

can’t go someplace else unless the FDIC for a period of 90 days 

39 

gives me authority. And as a small firm dealing in trading, 90 days 

or 9 days, it doesn’t matter. You will be out of business. It is a very 

scary situation. 

Mr. LUETKEMEYER. I was talking to somebody today, and their 

comment was that it may be even unconstitutional to do this sort 

of thing. Because it is pretty arbitrary about where there they are 

doing it, and there is no basis there for them to be able to go in 

and basically take over a company without some sort of due process, which is basically what they are doing here. 

Just very quickly—my time is about out—with regards to interchange fees. Mr. Borris, I believe it is, I am just kind of curious, 

how many businesses do you have in your Alliance? 

Mr. BORRIS. We have about 8,000 businesses. 

Mr. LUETKEMEYER. Do you know roughly what amount of the 

business transacted uses debit cards? 

Mr. BORRIS. I don’t know that. I can get that for you, though. 

Mr. LUETKEMEYER. I am just kind of curious from the standpoint 

that, if debit cards go away, how impactful is it going to be to your 

merchants? 

Mr. BORRIS. If debit cards were to disappear? 

Mr. LUETKEMEYER. Yes. 

Mr. BORRIS. Implying that debit cards will disappear by bringing 

those debit card fees more in line with what can be afforded? 

Mr. LUETKEMEYER. By breaking the folks who can no longer afford to provide the service without being able to be paid for it. That 

is my question. If they can’t pay for it, where are they going to— 

and they will pull the service or go someplace else to find other 

moneys to be able to continue to provide service free. 

Mr. BORRIS. I think they indeed may go someplace else to try to 

find some of that money. 

Mr. LUETKEMEYER. My question is, how impactful that will be to 

businesses? I am kind of curious. You are asking for the government to come in here and you seem to be approving this, to be able 

to set a price. How would you like to have somebody come in and 

set the prices on the products that you sell? 

Mr. BORRIS. Right. What I can say is that, in my experience with 

my business, in my experience with other merchant businesses, we 

have sort of been at the mercy and still conduct our business at the 

mercy of credit card interchange fees, which have changed dramatically over the last several years both in transaction fees as well as 

in discount rates, the difference between nonqualified cards and 

qualified cards and swipe cards. I think that it is time for us to get 

some sort of fairness and justice in the marketplace for merchants. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

Mr. Renacci. 

Mr. RENACCI. Thank you, Madam Chairwoman. 

Thank you to all the panelists there. 

After listening to all of you speak, the one thing that you all 

agree on is that we need certainty and predictability to move forward. But the one thing that you disagree on, and Mr. Borris especially, is the effects of Dodd-Frank. I want to go to Mr. Borris, some 

of your comments. 

40 

You made the comment that—and again, I was a small business 

owner for 28 years. So I understand what it takes to run a small 

business, and I understand what certainty and predictability in a 

marketplace and how necessary that is. But it is interesting because you made the comment that the Consumer Financial Protection Bureau would bring certainty and predictability. And I am just 

intrigued by that comment because I know in my business background, after 28 years, I was never really comfortable about certainty and predictability when there was a new bureau coming in 

to oversee what I was doing. Can you kind of elaborate on that? 

Mr. BORRIS. Sure. I think that part of what happened to our 

business, and what happened to business across America over the 

last 2 years is that the demand disappeared as jobs were lost and 

as people had all of the equity sucked out of what they thought 

they had equity in, their homes. So as that demand disappeared 

and the money flowed strictly to a very narrow band of extraordinarily profitable—as it turned out because of taxpayer bailouts— 

extraordinarily profitable investment banking firms and loan originators who didn’t have to hold on to any of their loans. So what 

I believe that the Consumer Financial Protection Agency will do is 

protect consumers from getting involved in predatory lending, bad 

mortgages that have no prayer of ever becoming repaid, and keep 

money in their pockets where it will be spent in our local communities. So that is where it will give some certainty to what is happening in the economy. 

Mr. RENACCI. Mr. Schaible, do you believe that? I know you commented about that same organization. 

Mr. SCHAIBLE. Do I agree with what he said? 

Mr. RENACCI. Yes. Do you agree that having another bureau 

coming in is going to bring you certainty and predictability? 

Mr. SCHAIBLE. No. I completely disagree. 

Mr. RENACCI. Mr. Nielsen, in your organization, in the homebuilding industry, any more oversight, would that bring you certainty and predictability? 

Mr. NIELSEN. No, it doesn’t. I think that what we are looking at 

is additional regulation which, unless really watched very carefully, 

is going to be difficult for any of our guys to deal with. 

Mr. RENACCI. Mr. Sharp? 

Mr. SHARP. As I said, at this point it is not clear who is covered 

by the CFPB and what the rules of the road are going to be. So, 

again, it is a tremendous amount of uncertainty for our members. 

Mr. RENACCI. More uncertainty and more unpredictability. 

How about regulations? As a small business owner—again, I 

would just like for all four of you to comment. Do you believe regulations drive up costs? And in a business, if a regulation drives up 

costs, what are some of the things you have to start looking at? 

Would payroll, employment be one of those things? Will regulations 

drive up costs? 

We will go back to Mr. Borris first. 

Mr. BORRIS. I would answer that this way. There is regulation 

and there is undue regulation, right? So, no, do I want an authority 

saying to me that chicken salad has to be priced at $8.95 a pound 

no matter what your cost of producing chicken salad is? No, I 

would agree that is wrong. But do I want somebody stamping the 

41 

meat that comes in my door so that I know that it is valid and that 

it works? Do I want reasonable regulation for workplace environments so that we don’t have a situation like we had before Upton 

Sinclair wrote, ‘‘The Jungle’’? 

I think that there are some big-picture issues that are significant 

and need to be talked about. If you and I were having a conversation right now about what is—should we have a 50-hour workweek, 

if there were no overtime provisions right now in law, I think it 

would be a very difficult conversation to have. And yet we wind up 

with a more productive society. 

Mr. RENACCI. I guess it is more of a simple question. Because I 

do believe some regulations. I understand that. The question is, do 

overburdensome regulations increase your costs and reduce your 

ability to have people on the payroll? 

Mr. BORRIS. I don’t think it is a fair question. It is like saying, 

if I put a 120 hitter up at the cleanup spot, is my team going to 

be less productive? If I am forced to do that, then, yes. So if we 

are taking it as a supposition that all regulation is overburdensome, then, yes, you are correct. But I think you and I agree that 

there is proper and good regulation that levels playing fields and 

gives everybody equal access and opportunities to succeed. 

Mr. RENACCI. I am really trying to stick to the Dodd-Frank regulations coming forward, though, not the meat packing regulations. 

Mr. BORRIS. I don’t see Dodd-Frank as overburdensome. 

Mr. RENACCI. The other three panelists, just a quick answer. 

Mr. SCHAIBLE. I don’t know. I do think that it is going to be overburdensome, and it raises a great deal of uncertainty. And part of 

your question is, how do we respond to that? I think when you are 

in businesses that can migrate anywhere because of a virtual economy, you start to look at other jurisdictions that can allow you to 

compete. Because if you don’t have a competitive playing field, you 

are going to go out of business. 

Mr. NIELSEN. I would say that regulations in general are always 

burdensome. However, as some of the other witnesses have said, 

some regulations are necessary. But they have to be based on 

sound science. They have to have a reason why they are there. And 

if that is the case, then we can deal with it. But regulations in general are always costly and always burdensome and reduce the ability of small business to hire people. 

Mr. SHARP. And I would essentially echo what Mr. Nielsen said. 

Regulation is always a tradeoff. And, of course, we always hope 

that the benefits of the regulation exceed, hopefully by a good deal, 

the cost of those regulations. So there is still a lot to be written 

at this point about the Dodd-Frank regulations. So many of them 

are yet to come. But, again, there is a lot of fear out there about 

regulators not moving cautiously and understanding the tradeoffs 

bound up in each of these rules. 

Mr. RENACCI. A lot of uncertainty and predictability. I will end 

it there. Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

I want to thank the panelists certainly for your patience and for 

the great information that you provided for this committee. 

The Chair notes that some members may have additional questions for this panel, which they may wish to submit in writing. 

42 

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses and to 

place their responses in the record. This hearing is adjourned. 

Thank you. 

[Whereupon, at 5:38 p.m., the hearing was adjourned.] 

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A P P E N D I X 

March 2, 2011 

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