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AN EXAMINATION OF THE CHALLENGES 

FACING COMMUNITY FINANCIAL 

INSTITUTIONS IN TEXAS 

FIELD 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 

SECOND SESSION 

MARCH 14, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–106 

( 

(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 

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 

STEPHEN LEE FINCHER, Tennessee 

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 

JAMES H. CLINGER, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SHELLEY MOORE CAPITO, West Virginia, Chairman 

JAMES B. RENACCI, Ohio, Vice Chairman 

EDWARD R. ROYCE, California 

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 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

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 14, 2012 ................................................................................................. 1 

Appendix: 

March 14, 2012 ................................................................................................. 37 

WITNESSES 

WEDNESDAY, MARCH 14, 2012 

Barrera, Janie, President and Chief Executive Officer, ACCION Texas Inc. ..... 17 

Glenn, Robert A., President and Chief Executive Officer, Air Force Federal 

Credit Union ......................................................................................................... 4 

Hansard, George H., President/CEO, the Pecos County State Bank, Fort 

Stockton, Texas .................................................................................................... 6 

Martinez, Maria J., President and Chief Executive Officer, Border Federal 

Credit Union, Del Rio, Texas .............................................................................. 8 

McCauley, Cliff, Senior Executive Vice President, Frost Bank, San Antonio, 

Texas ..................................................................................................................... 10 

Parker, Lester Leonidas, Chairman, President, and Chief Executive Officer, 

United Bank of El Paso Del Norte, El Paso, Texas ........................................... 11 

Urrabazo, Ignacio, Jr., President, Commerce Bank, Laredo, Texas .................... 13 

APPENDIX 

Prepared statements: 

Barrera, Janie ................................................................................................... 38 

Glenn, Robert A. ............................................................................................... 41 

Hansard, George H. .......................................................................................... 55 

Martinez, Maria J. ............................................................................................ 59 

McCauley, Cliff ................................................................................................. 69 

Parker, Lester Leonidas ................................................................................... 78 

Urrabazo, Ignacio, Jr. ....................................................................................... 88 

(1) 

AN EXAMINATION OF THE CHALLENGES 

FACING COMMUNITY FINANCIAL 

INSTITUTIONS IN TEXAS 

Wednesday, March 14, 2012 

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 9:30 a.m., at the 

City Council Chambers of the Municipal Plaza Building, 114 W. 

Commerce Street, San Antonio, Texas, Hon. Shelley Moore Capito 

[chairwoman of the subcommittee] presiding. 

Members present: Representatives Capito and Canseco. 

Chairwoman CAPITO. This field hearing will come to order. I 

would like to thank, first of all, the beautiful City of San Antonio 

for hosting us. It’s my first personal visit to the City, and it’s just 

lovely. And I think it’s obvious from my quick observations that it’s 

very family-friendly and a great and safe place to visit and enjoy 

the wonderful restaurants and beautiful scenery and the 

Riverwalk. So thank you so much for having us here. 

And by way of introduction, my name is Shelley Moore Capito. 

I’m the chairman of the Financial Institutions and Consumer Credit Subcommittee of the Financial Services Committee in the House 

of Representatives. I hail from the great State of West Virginia. 

There are a lot of West Virginians living in Texas, I know that, and 

there are a lot of similarities between West Virginians and Texans. 

We’re good-hearted people, so I’m very, very happy to be here. I’m 

going to kind of walk you through the process of what we’re going 

to do today, and then we’ll proceed. 

We’re having a field hearing. And what this does is it gives us 

a good flavor, a slice-of-life understanding of what we’re doing in 

Washington, bringing Washington to San Antonio, but also we’re 

going to take back what we’re hearing today to Washington and 

formulate policy that will enhance your ability to do business and 

to grow here in Texas. 

So Mr. Canseco and I will each give an opening statement, and 

then our witnesses will be recognized for a 5-minute opening statement. We will then have a couple of rounds of questions where 

each one of us will be recognized for 5 minutes. And the hearing 

should last until around 12:15. 

I want to thank my colleague, Mr. Canseco, for inviting me here, 

and also for his great leadership on our committee. He may be a 

2 

freshman in name, but in reality, he is a force in our committee 

and in Congress, and I really appreciate his leadership. And I know 

it’s not easy; I have a great appreciation for how far he travels 

every week to serve. So, you’re really lucky to have him. 

The title of this morning’s hearing is, ‘‘An Examination of the 

Challenges Facing Community Financial Institutions in Texas.’’ We 

have a panel of witnesses who will provide us with an overview of 

the landscape for community banks and credit unions in Texas. 

This Congress, our subcommittee has conducted a series of hearings on the evolving regulatory environment for community banks 

and credit unions. We have heard a consistent concern from witnesses that the growing regulatory burden for community banks 

and credit unions is making it more difficult to grow the economy 

and help communities recover from an economic downturn. We 

have also heard concerns about the inconsistent application of examinations by the Federal financial regulatory agencies. 

The recent trend of financial institution failures is largely due to 

the financial crisis and the slow economic conditions in communities across the country; however, this is not a recent phenomenon. Since the early 1980s, there has been a consistent trend 

of consolidation in the banking industry. 

According to the FDIC, in 1984, there were 14,884 banking organizations across the country. And as of February of this year, there 

were only 7,349, nearly half the institutions that there were 28 

years ago. 

Now, consolidation is not necessarily bad if you’re doing it on 

your own terms of when you want to do it, and in some ways, it 

allows healthier institutions to grow. However, we must ensure 

that our Nation is served by a diverse financial system that includes community banks, credit unions, regional banks, and national banks. Each entity is tailored to serve the specific needs of 

different populations. This morning’s hearing is an important contribution to this dialogue, and I appreciate our witnesses’ willingness to testify in front of this subcommittee. 

I would also like to say in terms of observations that I have already made since I have been here in Texas, the role of the community bank and the ability to understand and work with the individual communities is something that I think there’s a great concern about in rural areas like I live in, in West Virginia, and like 

you have in Texas. We can’t lose that valued asset in our local communities through consolidation or overburdensome regulatory regimes where a community bank cannot meet or our financial institutions cannot meet the challenges of the regulations. 

So with that, I would like to now introduce our host. My dad was 

in Congress in the 1950s and 1960s. In these little cards that I now 

have from the 1950s and 1960s, he always characterized himself as 

the hardest-working Congressman, but I’m going to characterize 

your Congressman, Mr. Quico Canseco, as the hardest-working 

member of my subcommittee. I now recognize Mr. Canseco for the 

purpose of making an opening statement. 

Mr. CANSECO. Thank you very much, Madam Chairwoman. And 

I appreciate very much you coming down to San Antonio and holding this very important hearing. I also want to thank you for your 

tremendous leadership on the Subcommittee on Financial InstituVerDate Nov 24 2008 12:37 Aug 09, 2012 Jkt 075078 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\75078.TXT TERRIE
3 

tions and Consumer Credit. Welcome to San Antonio. And I’m sure 

that you’ll find us very, very hospitable. I want to also let the City 

of San Antonio know that we’re very, very grateful to be having 

this hearing here in our City Council chambers. It’s a beautiful 

building and a very beautiful environment. 

I want to also thank our witnesses on the panel today. We have 

representatives from San Antonio, Laredo, Del Rio, Fort Stockton, 

and El Paso. I thank you all for being here, and I look forward to 

your testimony and our discussion today which is very, very important. 

America has for many years been home to the most competitive 

and dynamic financial sector in the world. This is in large part due 

to the diversity of institutions that provide loans and help increase 

capital formation in the private sector of our economy. Unlike other 

nations where a small number of mega institutions typically dominate the entire industry, in America the vast number of community 

banks, credit unions, and other small lenders offer a different business model that often fits with the needs of small towns and communities, especially here in Texas. 

The community-oriented model focuses on relationships, service, 

and flexibility with its customer base usually standing in stark contrast with the model offered by larger counterparts. 

While community banks and credit unions oftentimes lack the 

geographic diversity and deep pockets of the too-big-to-fail banks, 

they remain vital to the economic well-being of millions of Americans and American businesses. 

Here in Texas, business owners, farmers and ranchers, families, 

and others rely on local lenders in small towns such as Del Rio and 

Fort Stockton to help grow their businesses, create jobs, and enhance the overall quality of life in their communities. 

As someone who has spent years in community banking, I’m intimately familiar with the importance of this model and the need to 

preserve it. Unfortunately, in recent decades this model has become 

threatened due to a variety of factors such as rising compliance 

costs, economic booms followed by tremendous busts, and perhaps 

most importantly, the tendency of policymakers to paint all institutions with the same brush. These have disproportionately affected 

small financial institutions and threatened to turn our financial 

system into one controlled by a very small number of banks. 

As one participant at a recent community bank conference put it, 

‘‘I think this country will be a very scary place if there are only 

four or five banks providing credit.’’ I couldn’t agree more with that 

statement. The numbers tell the story—30 years ago, there were 

over 14,000 community banks in the United States. Today, there 

are fewer than half that number. It has recently been estimated 

that the Dodd-Frank Act will require companies in the United 

States to spend 22 million manhours for compliance each year. Undoubtedly, this is time that will cost community banks and credit 

unions greatly. 

The Sarbanes-Oxley Act of 2002 also had a similar disproportionate effect and impact. And, of course, over 13 million of our fellow citizens remain unemployed, so community banks and credit 

unions currently face a struggling economy on top of a heap of new 

regulations. 

4 

And so, Madam Chairwoman, I hope today’s hearing serves to 

highlight some of the biggest challenges faced by small financial institutions here in Texas, and what we discuss today, what Congress should do in order to lift the regulatory burden that is currently crushing banks and credit unions. The focus must be on fostering a competitive environment where small financial institutions 

can continue to play a vital role in our economy. I yield back, and 

I thank you. 

Chairwoman CAPITO. Thank you. 

We will now turn to the panel. What I’ll do is introduce each of 

you individually right before you give your statement. 

Our first witness is Mr. Robert Glenn, president and chief executive officer of the Air Force Federal Credit Union. Welcome. 

STATEMENT OF ROBERT A. GLENN, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, AIR FORCE FEDERAL CREDIT UNION 

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

Air Force Federal Credit Union is very pleased to have an invitation to appear before the subcommittee today for this hearing. 

In the course of my oral summation, I’m going to try to cover 

briefly about our credit union, about credit unions in Texas generally, and to explore some of the challenges that our credit union 

has faced in regulatory compliance, and also to discuss our views 

of our examination process and how our industry is consolidated. 

Air Force Federal Credit Union was chartered in November of 

1952 as Lackland Federal Credit Union. At that time, we had 10 

members who each initially deposited $5 into the credit union. We 

ended up in 2011 with over 36,900 members and total assets of 

$342 million. We have 142 employees. We have 131 who are full 

time, and 11 who are part time. 

We’re probably one of the larger credit unions in the State of 

Texas because in Texas, there are 536 credit unions. The average 

size of a credit union in the State of Texas is $135.7 million, and 

they represent 7.8 million members. 

In the State of Texas, 427 of those credit unions have less than 

$100 million in total assets. The average credit union size of that 

group is only $21.8 million in total assets. The total average number of employees in each of those credit unions is eight full-time 

employees, and one part-time employee. If a credit union the size 

of mine with 142 employees is having problems meeting compliance, you can imagine what kind of difficulty a credit union with 

only 81⁄2 full-time equivalents would have. By the way, the State 

of Texas only has 13 credit unions that are over $1 billion in total 

assets, and none of them are over $7 billion in total assets. None 

of them fall under the examination requirements of the CFPB. 

We all have limited resources, and that’s why compliance is such 

a challenge for smaller institutions. We don’t have lots of money, 

we don’t have lots of time other than the time that we have there 

to serve the folks that we’re designed to serve, our members and 

our customers, and we also use a lot of third-party vendors. And 

when we’re trying to comply, we have to get those third-party vendors to line up their processes with the new regulations, and they 

have to help us in our compliance activities. 

5 

I want to go into a couple of regulations that were particularly 

challenging. One of the most challenging for us was the Credit 

Card Act. The Credit Card Act had a number of different facets 

that were challenging to us, for example, the constant due date. 

Under the practice before the Act, the due date would move a couple of days either way depending on when the statement would be 

prepared. And the statement was being prepared based upon how 

cost-effective it would be to cycle the statements throughout the 

month. Preparers of statements could reduce their cost, hold down 

the cost to consumers ultimately, they pay for everything, and we 

were able to avoid weekend preparation of statements. It didn’t 

make sense to prepare statements on Saturday night when you 

can’t put them in the mail on Sunday morning. At least if you do 

put them in the mail, they’re not moving to the ultimate consumer. 

And you have to wonder also about—if some of the other aspects 

of that regulation required, for example, to change dates or rates. 

If you had to change a rate, you had to provide additional notice. 

We send lots of notices to our members, all different kinds of varieties. We have past-due notices, notices of payments that are coming due, we have statements, we have NSF notices, notices for everything that you can imagine, and they’re all additional pieces of 

paper. And we hear from our members that they throw most of 

those away. So you wonder what good an additional notice is going 

to serve. 

I know in our household we have probably three or four credit 

cards. During the course of the passage of this particular piece of 

legislation, we received nine separate notices regarding the 

changes that they were implementing before the Card Act went 

into place. And then subsequently, we have had numerous notices 

on each of those accounts. They didn’t really mean anything because we pay the account off every month in our household. And 

if you do that, the change in rate is a nonissue. 

We had additional information that was required to be placed on 

the statements, particularly on the first page of the statement. This 

new information was to show people how long it would take them 

to pay their account off if they paid just the minimum payment, 

and if they paid a slightly larger payment, how they could pay it 

off more quickly. This extended the length of the document, it 

caused more pages to be produced, it extends the amount of money 

required to print, and so forth. 

And I see a red light blinking, so I need to stop here. 

[The prepared statement of Mr. Glenn can be found on page 41 

of the appendix.] 

Chairwoman CAPITO. Thank you. We do have a little timer here, 

and it gives us 5 minutes. I’m not going to be so bold as to come 

to San Antonio with my own hammer and hammer you down right 

at 5 minutes. But if it gets really long, I might try to do it. Thank 

you. 

Our next witness is Mr. George Hansard, president of Pecos 

County State Bank. Welcome. 

6 

STATEMENT OF GEORGE H. HANSARD, PRESIDENT/CEO, THE 

PECOS COUNTY STATE BANK, FORT STOCKTON, TEXAS 

Mr. HANSARD. Thank you. Chairwoman Capito and members of 

the subcommittee, just a couple of observations. First, I have to say 

that this is probably the first time I have sat between two credit 

unions. And as a banker, it’s somewhat difficult. Second, I’m just 

a West Texas small-town banker, and thank you for putting my 

name on the back so that I remember who I am. 

Again, my name is George Hansard. I’m the president and CEO 

of The Pecos County State Bank in Fort Stockton, Texas. Pecos 

County State Bank is a $150 million community bank that was 

started approximately 80 years ago in Fort Stockton, Texas. Fort 

Stockton only has a population of some 8,000 people. And we have 

a location in Sanderson, Texas, which has a population of 750 people. We are truly community bankers. 

I have been the president of the bank for 6 years, and I have 

been employed with community banks for over 32 years. I appreciate the opportunity to address issues which I believe have adversely affected community banks for the last several years. The 

most important aspect that my board asked me to relay is the inflection of my voice so that the subcommittee will understand the 

frustration that we have seen. 

Several months ago, we at Pecos County State Bank stumbled 

across our bank’s policy manual from 1986. That policy manual 

was 100 pages long. Today, our same policy manual is over 1,000 

pages, which requires a full-time compliance officer and also a real 

estate clerk to remain abreast of regulatory changes to ensure that 

we remain in compliance and their interpretation thereof. 

Community banks have been the life blood of this country, and 

they’re responsible for more small business successes than any 

other resources, including government programs. What’s troubling 

to me and to my bank is the impact of government regulation that 

has been based not upon common sense but on politics. 

Today, only 25 percent of Dodd-Frank has been implemented. 

What has Dodd-Frank done to Pecos County State Bank? For one, 

allowing a consumer the opportunity to determine whether the 

bank may assess a charge on an overdraft. That overdraft is created by a debit card that consumer used. In the old days of check 

writing, no one had a problem with the bank assessing that overdraft. The check was often handed over to the local county attorney 

for collection or prosecution, and that customer had to pay additional fees on top of the bank fees, and in some instances, may 

have had a criminal record. Now Dodd-Frank places no responsibility on that consumer for his or her actions. And in my opinion 

and the opinion of most community banks, this is simply price fixing and has no rational basis. 

Twenty years ago, a community bank the size of Pecos County 

State Bank did not have a compliance officer nor did it have a real 

estate clerk to handle the regulations which covered real estate 

transactions. Now with Dodd-Frank, how many more staff members will a community bank be forced to employ? These staff members actually provide nothing to the bottom line of the bank. We’re 

not sure, but we do know that from over 3,000 pages of law, our 

policy will surely double and our staff to handle these complexities. 

7 

At Pecos County State Bank, I find it interesting that my lending 

staff has not increased in the 11 years that I have been with the 

bank, and we have been able to double the outstanding of our loans 

with the same lending staff. But during that same time period, we 

have had to add two employees simply to handle government regulation. And if I have to double that staff due to Frank-Dodd, that 

will constitute 10 percent of my entire staff. 

Another aspect of Dodd-Frank are the appraisal requirements. In 

my 32 years of banking, and I think many other bankers will 

agree, the banker who puts his hands on his collateral makes good 

loan decisions. Contrary to popular belief, community banks have 

no desire to make bad loans. Bad loans not only impact the bank’s 

bottom line, but they also negatively impact the banker’s job, the 

community, and are also negative to a borrower. And a bad loan 

makes a good customer a bad customer. Dodd-Frank takes that 

evaluation process completely away from the community banker, 

and the community banker must place trust in someone else putting their hands on that collateral. 

I do not believe in not being involved in evaluating collateral 

taken to secure a loan. Maybe loans sold in the secondary markets 

still need independence, but not loans which the banker must live 

with. Would you purchase a home without being involved in deciding the purchase price? 

Further, a real life example of Dodd-Frank occurred in our bank. 

We had used our real estate processor to also perform our real estate appraisals. She is a licensed, State-certified residential appraiser. Dodd-Frank put a stop to this even though Dodd-Frank allows that appraiser to receive a copy of the residential sales contract which clearly states the sale price, the downpayment, the 

loan amount and terms, but it does not allow that appraiser to be 

involved in any type of loan processing, which is the same information she would get from the sales contract. We believe that having 

a knowledgeable appraiser/processor with loyalty to his or her employer, makes for a more reasonable appraisal instead of those alleged in Dodd-Frank. I had to tell her she had to make a choice. 

I lost that important employee. She chose to remove herself from 

the everyday process of regulations which was based upon politics 

and not rationale. What does her family think now? 

Is there a solution? I’m sure that the politicians who wrote the 

legislation believe they are writing it in the best interest of their 

constituents and there is a reason for much legislation, but DoddFrank, with all of its amendments, is far-reaching and overreacting. I strongly believe that the postponement and repeal of 

Dodd-Frank is fair to the county as a whole. Dodd-Frank may have 

good intentions, but these intentions are misguided, certainly to 

community banks which do not sell their loans in the secondary 

market. 

Community banks did not participate nor did we profit from the 

excesses that contributed to the recent economic meltdown in the 

financial and housing industry, yet we are paying a high price for 

the actions of a few large institutions. These institutions have no 

fear. They’re too-big-to-fail. In fact, their only concern is how large 

their bailout will be. We as community banks do not, nor have we 

ever had this luxury. 

8 

Community banks are different from megabanks. Community 

Banks have been closed all over this country, and all the 

megabanks have been bailed out by taxpayers’ expense. The rationale that it is fine to close community banks and to bail out 

megabanks is inherently irrational. Don’t you think community 

banks are as important to that community as the megabank is to 

its country? I can tell you that community banks and their boards 

are at an all-time high in their level of frustration. Something must 

be done that makes good common sense. 

Again, I appreciate the honor and the opportunity to voice my 

opinion on such an important issue, not only for the community 

banks, but for the country and its future. Thank you. 

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

55 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Ms. Maria Martinez, president and chief executive officer of Border Federal Credit Union. Welcome. 

STATEMENT OF MARIA J. MARTINEZ, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, BORDER FEDERAL CREDIT UNION, 

DEL RIO, TEXAS 

Ms. MARTINEZ. Good morning, Chairwoman Capito, and good 

morning, Representative Canseco. Thank you for the opportunity to 

testify at today’s hearing. My name is Maria Martinez. I’m the 

president and CEO of Border Federal Credit Union (BFCU) located 

in Del Rio, Texas, headquartered there. We have a community 

charter, and we serve 13 counties, most of which are underserved. 

BFCU has a low-income designation, and we’re also classified and 

certified by the U.S. Treasury as a Community Development Financial Institution. We have over $107 million in assets and approximately 22,000 members. 

One of the current challenges affecting community credit unions 

today is the current limit of 12.25 percent of assets on the amount 

of member business loans a credit union can make. This cap can 

be increased to 27.5 percent as proposed by H.R. 1418. This cap restricts us from being able to fully serve our members, limiting the 

opportunity of many Texans. 

Border FCU would like to enter the business lending market, but 

we are reluctant to do so. The start-up costs and requirements that 

we must comply with in order to offer small business loans exceeds 

the ability of many credit unions to cover their costs when faced 

with such a low gap. Also, we don’t want to start a business lending program only to turn away members once we reach this low 

cap. Telling our members that we cannot make the loan because 

Congress has imposed this artificial cap is no comfort to our member who qualifies for the loan and has come to us for help. 

Raising the cap or eliminating it completely will open up credit 

to small businesses in our communities and create jobs. The lack 

of credit for small businesses slows the economy’s recovery. Member business lending by our community credit unions is a vital solution to our current economic needs. 

Another challenge we face is the excessive regulatory burden. 

There is no doubt that the increasing amount of new laws and regulations that credit unions face have become overwhelming. As the 

9 

credit union president, I spend many hours reading each new law 

and regulation. I can’t afford to hire lawyers to interpret them for 

me. Most of these laws and regulations are created to address a 

problem caused by organizations other than credit unions. Yet, the 

regulators continue to impose the same requirements on small 

credit unions as they do on the largest financial institutions in the 

country. This just doesn’t make sense. 

Consider, for example, the outdated requirement of posting physical disclosures at our ATM locations. Changing the physical signs 

to electronic disclosures displayed while using the machine could 

avoid serious problems such as vandalism and the wear-and-tear 

on the equipment. Or, for instance, the 400-page proposed rule on 

remittances that will require us to reconsider our ability to open 

the service to our members. 

New regulations require more policies to be implemented by the 

credit union, expensive modifications to computer systems and the 

training of staff and our volunteer board members. It is particularly challenging for small credit unions. Unfortunately, we have 

seen too many small credit unions merge due to the increasing regulations. Far too often, I hear that they just couldn’t keep up with 

the volume of changes in rules and laws, and that is the major factor for the decision to merge. 

When Congress and regulators need to crack down on bad actors, 

they should apply the changes to that specific industry and business type rather than imposing this on credit unions. 

Another challenge is the exam process. At times, it seems there 

is a separation between the policy as stated by the regulatory leadership and what occurs locally during the exam. We all know that 

the exam process is part of operating a financial institution, but it 

is also important that examiners not overregulate or exceed their 

authority. Examiners have tremendous powers. If a credit union 

believes that an examiner has acted unreasonably, they have very 

few realistic options. Passing H.R. 3461, which addresses the exam 

process, would be a positive step in balancing the relationship between the regulator and the regulated. 

And, finally, it is important that consumers be equipped to deal 

with the conflicts, financial products, and issues they face today. 

Border FCU serves an underserved community, an area where 

oil and gas exploration is booming, and we also serve a military 

base. We offer free programs such as home counseling services, 

budgeting workshops, and volunteer income tax preparation. Our 

volunteer staff educates our youth on financial literacy at local 

schools, and we offer a youth financial summer camp. All of these 

programs are designed to create financial awareness. 

I ask the subcommittee to continue to support financial literacy 

programs. As communities grow and jobs are created, programs 

must be accessible to consumers within the industry to assist them 

with financial education. We all know that an educated consumer 

is the best client of any institution. 

Madam Chairwoman and Representative Canseco, thank you for 

coming to Texas and holding this hearing. This concludes my testimony. 

[The prepared statement of Ms. Martinez can be found on page 

59 of the appendix.] 

10 

Chairwoman CAPITO. Thank you very much. 

Our next witness is Mr. Cliff McCauley, executive vice president, 

correspondent banking, of Frost Bank. I understand this is a 

former Frost Bank— 

Mr. MCCAULEY. You are correct. 

Chairwoman CAPITO. —building. It’s beautiful. Welcome. 

STATEMENT OF CLIFF MCCAULEY, SENIOR EXECUTIVE VICE 

PRESIDENT, FROST BANK, SAN ANTONIO, TEXAS 

Mr. MCCAULEY. Thank you. Chairwoman Capito, Representative 

Canseco, I am Cliff McCauley, senior executive vice president of 

Frost Bank, where I have worked for over 30 years. My current responsibilities include leading our correspondent banking line of 

business, where I have the opportunity to work with financial institutions all over the State of Texas on a daily basis. I would like 

to welcome you to my hometown of San Antonio and express my 

gratitude for you holding this hearing. And as you mentioned, 

these chambers also have a special meaning as this building served 

as the Frost Bank headquarters for many years prior to the construction of our headquarters just next door. 

In my role of working with community financial institutions for 

over 25 years, I have been a part of many business cycles that have 

affected the banking industry and have seen the corresponding attempts to prevent the downturns from happening again. There 

were many sweeping regulatory changes after the banking crisis of 

the 1980s when nearly half of the community institutions in this 

State disappeared. These new regulations were put in place to prevent the next crisis but did very little in retrospect as numerous 

institutions grew into what we now know are too-big-to-fail. 

The regulatory burden that was put in place then is nowhere 

comparable to the overkill we’re experiencing today, and in my 

opinion will have about the same effect of past attempts to rein in 

the too-big-to-fail institutions while punishing the community institutions that have historically played by the rules. 

If Dodd-Frank is allowed to stand and proliferate as a monster 

regulatory overhaul, only the largest institutions will be able to 

navigate its requirements, and the community institution model 

will continue to diminish. 

The cost of regulatory compliance is simply staggering. I’m not 

talking about efforts to keep an institution out of trouble; I’m talking about a well-meaning community institution that has no intention of being unfair to members in their own town. These smaller 

institutions spend a disproportionate amount of money and time to 

just meet the reporting and manpower requirements of this new 

regulatory overkill. 

I personally know of two community banks that simply threw in 

the towel and sold out after being beat up by regulators about not 

having enough high power talent in their compliance position, a position they tried fervently to fill but were unable to attract someone 

of that caliber to relocate to their rural community. That bank was 

purchased by a larger one in a metropolitan city and no longer has 

the local service or long-time employees who understand that community. 

11 

If the community banking model becomes an endangered species 

as the megabanks take advantage of the consolidation caused by 

regulatory burden, it would be very detrimental to many communities, small businesses, and local public entities. 

As we have seen in the past, when a large institution buys out 

a smaller local entity, they tend to pick and choose the profitable 

pieces that fit their model and abandon the parts that don’t. In 

many cases, the pieces that are discarded are the locations in 

smaller markets, and there’s evidence of this today as some too-bigto-fail banks are simply closing local offices because they no longer 

fit their model. 

Jobs are lost as duties are moved to the acquiring office, and the 

local community knowledge and service is lost forever. If consolidation continues, as I wholeheartedly believe it will, and there is not 

a local entity to pick up the pieces, that local community will undoubtedly suffer as a result. It is often noted that small businesses 

are the job engine of this country. It is also a well-known fact that 

community institutions cater to those small business customers to 

meet their needs and help them grow their entities. Without a 

strong community banking presence in so many smaller and rural 

areas, the future outlook for those businesses decline as opposed to 

prosper. 

There are too many problematic provisions of Dodd-Frank to 

cover today, but there is one provision that I continually try to 

bring to light, and that is the repeal of Regulation Q. The ability 

of banks to pay interest on business checking will further strengthen the too-big-to-fail banks while being detrimental to the community banks and small business borrowers. This repeal has only negative effects for smaller institutions and businesses while providing 

the too-big-to-fail banks an opportunity to buy the deposits from relationship-based institutions. This provision along with the scores 

of other new regulations and the yet to be determined impact to 

the CFPB simply spell incredible difficulty for the community 

banking model. Unless there is at the very least an attitude change 

by certain regulators away from a ‘‘Gotcha’’ mentality and enforcement activities, this country will see hundreds and eventually thousands of the community banks that serve their area be forced to 

sell out to a larger entity with more resources to fight the daily 

battles of overzealous regulatory reform. 

I appreciate the opportunity to be here today, and I would be 

happy to expand on any of my comments or answer any questions. 

Thank you. 

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

69 of the appendix.] 

Chairwoman CAPITO. Thank you very much. 

Our next witness is Mr. Les Parker, chairman, president and 

chief executive officer, United Bank of El Paso Del Norte. Am I 

saying that correctly? Welcome. 

STATEMENT OF LESTER LEONIDAS PARKER, CHAIRMAN, 

PRESIDENT, AND CHIEF EXECUTIVE OFFICER, UNITED BANK 

OF EL PASO DEL NORTE, EL PASO, TEXAS 

Mr. PARKER. Thank you, Chairwoman Capito, and Representative Canseco. 

12 

My name is Lester Leonidas Parker. I am president, chairman, 

and chief executive officer of United Bank of El Paso Del Norte. 

We’re a $177 million minority community bank in a community 

of some 900,000 souls, primarily Hispanic, and we’re proud of that. 

For the past 7 years, our bank has been the principal SBA lender 

in our SBA district. And we have built a solid record of supporting 

small business. Indeed, we focus only on small businesses and professional practices and do very, very little consumer business whatsoever. 

I started in commercial banking in 1962, 50 years ago in September this year. I was fortunate, and America has been good to 

me, I was able to earn a college degree and go on to graduate 

school and such. I was a captain in the Army during the Vietnam 

conflict. And you will hear a little more about that later because 

it’s relevant. 

I have started three small businesses, two micros, and one partnership. I have also been fortunate to start three community 

banks, all of them successful, and I have cleaned up one bank that 

was about to be closed by the FDIC. My present bank was started 

11 years ago, and it’s owned by people from a broad cross-section 

within our community—the first time that has ever happened in El 

Paso. 

I believe the House of Representatives in Washington is the closest thing we have to the voice of the American people up on that 

hallowed hill. Because of that, I really am honored to be here before your committee. I believe you have the means to help ensure 

that communities across America are able to retain their major 

facilitator of economic growth, and that’s their local community 

bank. 

The business model of community banks focuses principally on 

the communities in which they are headquartered. The business 

model of the too-big-to-fail banks focuses nationally and internationally and has long-range objectives and desires that really 

don’t match up with those of community banks. 

We have as community banks a strong sense of duty, obligation, 

and commitment to those friends, neighbors, and fellow citizens we 

have in our community, and we think that is very, in fact, manifestly important. 

Our bank maintains very, very good ratings with the regulatory 

agencies, both State and Federal. We have very clean portfolios of 

loans and investments. We have the lowest nonperforming and 

past-due ratios in our entire area and have maintained those for 

several years now. We are diligent about running a very good bank 

that is a genuine service and a genuine resource to our community, 

and we have received a number of accolades because of that. We 

are a simple, non-complex organization, yet the direct compliance 

costs in the bank have increased 240 percent over the past 5 years 

far exceeding the growth of the bank, its loans, investments or deposits. That compliance cost figure includes only the direct cost of 

specific managers while working on regulatory compliance, the new 

cost of a skilled compliance officer, and the cost of myriad outside, 

third-party auditors and reviewers to ensure that our compliance 

efforts are adequate. It does not count the other costs of implemenVerDate Nov 24 2008 12:37 Aug 09, 2012 Jkt 075078 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\75078.TXT TERRIE
13 

tation, the annual training that I must do with all employees and 

the compliance activities that they have throughout each week. 

When we were examined by the Federal Reserve during the fall 

of last year, the examination preparation commenced in July as we 

began to provide huge amounts of data to them. We have less than 

800 loans in our bank; we have less than 3,000 accounts. The reason is because we’re a small business bank. A bank normally of our 

size would probably have 14,000 accounts. 

Everything is on computer, so we downloaded our entire bank, if 

you will, to the examiners in Dallas, Texas. They had almost 3 

months to massage that data. And when they came in, they had 

16 people who stayed for 2 weeks and set about to absolutely 

micromanage everything they could. It’s obscene. 

I have a friend who is a community banker in a small town south 

of Fort Worth. The town has 1,700 people. She has been with that 

bank since she was a clerk. She now runs it and owns it, and the 

bank is $40 million in size. She has 13 people, including herself. 

In her last examination, she had six examiners from the OCC who 

stayed a month. She has about the same small number of accounts 

and loans as we do. She’s also very well rated. I fail to see why 

that kind of emphasis is now put on small institutions. 

I see the red lights flashing, but let me tell you one thing. I had 

the pleasure of serving our county, and I commanded a combat nuclear outfit. I had enough firepower to take a small country off the 

map of the world. I can tell you, we had excellent ratings. We had 

a Presidential unit citation. We were overseen by the Department 

of Defense, the Department of the Army, the Defense Atomic Support Agency, and the entire staff of the United States Army. Everybody is nervous about nuclear weapons. I don’t like them personally, but I think they probably have a use somewhere. We had less 

than 20 percent of the regulation to control those monstrous weapons than we have in our little bank to control what we do. So I 

leave you with this: 40 years ago, I did not see problems in banks 

and banks falling like flies, and yet the level of regulation and the 

cost of regulation was far, far less than it is today. 

As I see it from my standpoint, we will see community banks 

continue to decline in number. We simply cannot afford the high 

costs of Federal regulation. And as one banker, I will tell you this, 

my major risks are not credit risks, risks of theft, risks of some 

robber coming in with a gun in my office; my number one risk is 

Federal regulatory risk. And I have a greater risk of harm to my 

bank, to my stockholders from the Federal Government than I have 

from anything else in this whole world. That is obscene. Thank you 

very much. 

[The prepared statement of Mr. Parker can be found on page 78 

of the appendix.] 

Chairwoman CAPITO. Thank you very much. 

Our next witness is Mr. Ignacio Urrabazo, Jr., president, Commerce Bank. Welcome. 

STATEMENT OF IGNACIO URRABAZO, JR., PRESIDENT, 

COMMERCE BANK, LAREDO, TEXAS 

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

Representative Canseco for letting me participate in this important 

14 

forum. My name is Ignacio Urrabazo, and I’m the president of 

Commerce Bank in Laredo, Texas. We’re a basic classical community bank situated in South Texas. Commerce Bank has about $550 million in assets, and it was established in 1982. We’re a subsidiary of International Bancshares 

Corporation (IBC). IBC is the largest bank, minority bank in the 

continental United States with about $11.7 billion in assets. 

By way of background, I’m currently on the FDIC Advisory Committee for community banking. I’m also on the executive board and 

I am the treasurer of the Texas Bankers Association. I serve in a 

variety of committees for the American Bankers Association, and 

I’m also a former chairman of the board for the National Bankers 

Association, which is the largest minority banking trade association. I have been in banking for over 42 years. 

This morning, I would like to focus on three things: fairness; the 

current regulatory climate; and the impact to banks and consumers 

from the regulators. 

As they say, a picture is worth a thousand words, so I have included in my pages a presentation that provides a visual of what 

compliance looks like today in our bank, and it’s complex, and I’ll 

leave it here for the record. 

There’s no need to rehash the causes of the unprecedented financial meltdown that occurred in 2008, 2009. I do want to say that 

the regulators were clearly a part of the problem who got very little 

blame. 

In my lifetime, the FDIC fund has been broken twice, several 

decades ago with the S&L crisis, and just recently with the 

subprime crisis. Unfortunately, the industry received virtually all 

the blame, and the regulated agencies by and large received a pass. 

As an old banker—not that old, but older—I have to tell you that 

the regulators failed every bit as badly as the industry, and they 

have never been called to judgment. 

As seen in prior economic cycles and prior periods of crisis, policymakers and regulators overreact to the cyclical problems that 

occur all the time. Congress’ holistic approach to fix everything in 

the financial sector has created unnecessary and inflexible rules. 

The Dodd-Frank Act, in my view, is a perfect example of a horrible 

overreach. The Dodd-Frank Act, which is 848 pages long, is an outline directed at the bureaucrats, and it instructs them to make still 

more regulations and create more bureaucracies; it, in fact, can be 

a multi-headed monster. 

This action by Congress is unprecedented. I would like to remind 

the committee, the laws that set up the American business—the 

banking system in 1864 ran for 29 pages. The Federal Reserve Act 

of 1913 ran for 32 pages. The banking act that transformed American finance from the Wall Street crash, commonly known as the 

Glass-Steagall Act, spread out for 37 pages. I ask you, how in the 

world will our community banking system survive under the 

weight of the Dodd-Frank Act? 

Community banks across the country will be destroyed by the 

regulators creating additional regulations on top of existing regulations. Community bankers are frustrated with the unknown and 

the additional costs required for compliance and implementation. 

This has come to banks when we’re trying to survive the worst ecoVerDate Nov 24 2008 12:37 Aug 09, 2012 Jkt 075078 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\75078.TXT TERRIE
15 

nomic crisis in the last 50 years and at a time when our interest 

margins are shrinking, not to mention the elimination of fee income through the Durbin Amendment and the elimination of overdraft fees. 

These fees are critical for the survival of community banking. It 

is a key noninterest income that helps provide many of our banks 

with the additional products and services that the consumers need. 

The Dodd-Frank Act has not been fully implemented, but we 

have already seen its effects. While the Dodd-Frank Act has some 

necessary provisions that are required for systematic risk and certain complex financial products, we again see that the good intentions for the short term will have unintended horrible consequences 

for the long term. 

Let me talk about some issues that I see having major consequences not only for community banks, but more importantly for 

the consumer. 

First, in the area of compliance and fair lending, we’re seeing examiners becoming totally inflexible and rigid in the interpretation 

of fair lending laws, all in the name of fairness and equality. In 

order for a bank to avoid a violation of fair lending laws and a referral to the DOJ, we have put in place very inflexible and rigid 

underwriting standards to avoid criticism. 

On the surface, this sounds very appropriate, but in the trenches 

we are now rejecting many long-time customers who pay well, but 

do not qualify under these new standards, because of the credit 

scores or the debt-to-income ratio. The same concept applies to the 

pricing of these loans. Some of these customers have had long-time 

relationships with the bank, but everybody has to fit in the box. If 

you don’t fit and the bank makes the loan, you become an exception. If you become an exception and create an outlier, you must 

justify the reason for making that loan, and then the examiner will 

ask for similar exceptions to other outliers that are in a protected 

class. 

This applies to mortgage loans and consumer loans. The result, 

exceptions create enormous fair lending risks, so banks stop making exceptions. Furthermore, the FDIC has stated as a policy, the 

FDIC does not want loan officer’s discretion in consumer lending. 

You must fit in the box. The bottom line is, we are declining loans 

at record levels, and worst of all, alienating our customers and 

damaging our reputation. 

In addition to the above, the costs involved in monitoring and living with such regulatory tests as regression analysis has become 

burdensome and unclear. Banks provide data, and the regulators 

will run regression analysis on women versus men; Hispanic versus 

White non-Hispanic; unsecured loans for women versus men; unsecured loans for Hispanic versus White non-Hispanic; vehicle loans 

for women versus men; vehicle loans for Hispanic versus White 

Non-Hispanic, and various other combinations. 

If there are no significant variances or a disparate impact in the 

underwriting standards or the pricing, then the regulator will continue to cut and slice the portfolio into other combinations, such as 

one branch against another branch or even one officer against another officer of different branches until the regulators have exhausted every conceivable iteration as they are clearly practicing 

16 

‘‘Gotcha’’ examination tactics. Smaller banks will be forced to hire 

outside consultants to gather and analyze the data at greater costs 

because they do not have the resources to handle these difficult 

and complex tasks internally. 

All banks are different, all consumers are different. It is very, 

very difficult to place everybody in the same box. Rules are a poor 

substitute for good judgment. Policymakers are now attempting, in 

effect, to force good judgment out of a process of creating rules that 

embody their view of what is correct or what is right. We have no 

discretion. 

The second issue, and I’m going to go quickly through this, is the 

CFPB’s review of overdraft programs and their impact on consumers. The CFPB has initiated new inquiries in overdraft practices and their impact on consumers, and they are soliciting feedback on a prototype ‘‘Penalty Fee Box’’ on the consumer’s checking 

account statement. Last year the Fed, the FDIC, and the OCC all 

promulgated their own guidance and rules to supervise overdraft 

programs. 

Many community banks incurred significant costs instituting 

new forms, new operating systems, new disclosures, and training 

to comply with Reg E and Reg DD to establish full transparency 

and ensure customer consent on the opt-in provisions, all based on 

consumer choice. Now, the CFPB wants to review the same programs. What this means for banks is new rules and new guidance. 

The overdraft programs serve as a safety net for consumers, and 

it’s a service that is widely demanded by our customers. It should 

be noted that the consumer has complete control and can revoke 

their opt-in status at any time. 

Overdraft protection satisfies a unique and important need for 

consumer credit marketplace. Restricting access will not eliminate 

the need that the consumers have for it, but it could limit their access to it as banks begin to realize it’s too burdensome and too expensive to maintain, and carries too much regulatory risk. I have 

included a recent study by Todd Zywicki for the record that thoroughly studies the overdraft protection system. 

The third issue, quickly, is that consumer complaints will now 

play a larger role with the CFPB and will have a significant impact 

on my costs and many possible dangerous consequences. The major 

concern to banks is the Unfair, Deceptive, or Abusive Acts and 

Practices, UDAAP section. Banks will clearly have to be familiar 

with customer complaint programs, if for no other reason than to 

prove that the bank takes such concerns seriously. Banks will have 

to identify patterns of complaints and establish procedures to review such patterns as well as individual complaints. Management 

systems will have to be established and monitored. 

Ridiculous and far-fetched allegations will surface to the bank. 

The definition of ‘‘abusive’’ will be solely at the discretion of the 

CFPB, the DOJ, and consumer groups. At IBC, we have recently 

spent several hundred thousand dollars to buy a consumer complaint system to help manage these complaints, which is a huge 

burden on the bank. 

Other areas of concern are higher capital requirements, costly 

record-keeping and reporting requirements, standardized plain vanilla products that will be required, changes in mortgage discloVerDate Nov 24 2008 12:37 Aug 09, 2012 Jkt 075078 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\75078.TXT TERRIE
17 

sures, escrow accounts, mortgage credits to curtail that QRM is implemented, municipal advisors. New rules in bank’s investment 

portfolio and other situations having to do with safety and soundness examinations have become extremely difficult. 

In summary, community banks are facing stiff challenges for the 

next few years. As interest margins shrink and fee income becomes 

more difficult to obtain, the regulatory burden will overrun small 

community banks causing them to either merge or consolidate with 

larger banks or just go out of business. 

Most large banks are not interested in small rural banks, and 

rural banks do not want to become a part of a large holding company; they are at a loss. 

At the national level, the decrease (sic) of banks has decreased. 

As one who has worked in community banks for over 4 decades, I 

maintain that despite policymakers’ good intentions in implementing regulations, they are ultimately detrimental to a bank’s 

ability to grow and create capital in other communities and to build 

communities through job creation. 

Thank you for involving us in this important forum where we 

can share the experience of community banks. I hope other perspectives, which are based on our day-to-day interactions with consumers, help illuminate the need to lessen the burden on community banks and consumers who already are negatively impacted. 

Without community banking, we will no longer be the America that 

created the largest economy in the world. We have already lost 

over 11,000 community banks since 1985; we cannot afford to lose 

any more. Thank you. 

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

88 of the appendix.] 

Chairwoman CAPITO. Thank you very much. 

Our final witness is Ms. Janie Barrera, president and chief executive officer of ACCION Texas, Incorporated. Welcome. 

STATEMENT OF JANIE BARRERA, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, ACCION TEXAS INC. 

Ms. BARRERA. Thank you very much. Good morning. 

On behalf of the board of directors and staff of ACCION Texas, 

welcome to San Antonio. We thank you for hosting this conversation on the challenges facing financial institutions in Texas. As a 

not-for-profit organization, we partner and work with a broad spectrum of voices and practitioners in economic development. I hope 

to share insight and expertise in the challenges and opportunities 

that face you as policymakers. 

San Antonio is the headquarters for ACCION Texas. We began 

our work here in 1994 and have now become the largest microlender in the United States, serving Texas, Louisiana, Arkansas, 

Missouri, Alabama, Mississippi, Tennessee, and Kentucky, some of 

the poorest States in our country. We have provided over 12,000 

business loans, and disbursed over $121 million to over 8,000 small 

businesses. ACCION currently has an active portfolio of $25 million, and we have a 95 percent repayment rate. The average credit 

score of our borrower is 575. We are also a registered Community 

Development Financial Institution, a CDFI. 

18 

This year marks our 18th anniversary. As we reflect on the challenges of financial institutions that are considered nontraditional, 

we recognize the importance of oversight and diligence. At the 

same time, we must remember that we need intermediaries that 

deploy funds to individuals who are not 100 percent ready for traditional banks. ACCION, along with the 800-plus CDFIs across the 

country, provide a solution by providing gap financing. With the 

funds we lend to business owners, our work creates a culture of 

commerce via banking and savings. 

Over our history, we have been significant beneficiaries of the 

U.S. Treasury CDFI Fund, the Department of Commerce, the Department of Agriculture, and the Small Business Administration. 

Since 1996, the CDFI Fund has awarded ACCION Texas over $8 

million in a combination of grants and loans for loan capital, all of 

which was deployed, on average, within 12 months of receipt. And 

since 2000, ACCION has received $3.5 million from the SBA for 

microloans and technical assistance. These funds, with other public 

and private financing, have been essential in our expansion beyond 

our initial office in San Antonio to 18 offices across our footprint. 

These tumultuous economic times have had a substantial impact 

on our lending, both positive and negative. While many perceive 

Texas as having a strong economy, small business still felt the 

brunt of low consumer confidence in sales and volatility in the market. As traditional credit markets have tightened and loan approval 

criteria have become more restrictive at the bank level, we have 

witnessed an increase in demand. 

ACCION’s loan originations in 2011 were almost $15 million, an 

increase of 14 percent from the previous year. At the same time, 

the number of applications received in 2011 increased by over 

1,000. This signaled to us that because of this increase, there’s a 

need. However, we were not able to help all the small business 

owners because of the drop in applicant quality. People waited too 

long to come to us, and the capacity to repay the loan was no 

longer there. 

We have seen a consistent annual growth in our portfolio. The 

ever-increasing demand for our services and the associated costs to 

keep up with the demand continue to provide challenges from a liquidity perspective. We continue to rely heavily on fund raising to 

support our growth since we are a financial institution without depositors. A current example is our pending $2 million CDFI Fund 

request to provide loan capital for continued expansion of our services in the Delta. We view our heavy reliance on fundraising as a 

significant risk for our organization. We are working hard to diversify our support base into new areas such as individual donors. But 

it is clear, to ensure that funding capacity exists for microentrepreneurs, Federal support plays a key role. 

Please allow me to describe ACCION’s role in economic development. 

ACCION is an alternative lender. The average credit score of our 

borrowers is 575, the average loan size is $15,000, and the loss rate 

is 5 percent. We make loans from $500 up to $250,000. And we are 

part of the SBA pilot loan program that guarantees loans up to 85 

percent. 

19 

We exist to combat predatory lending. And we exist to help individuals achieve the American dream through loans that will not 

rob them of the ability to create an opportunity for themselves. 

We are regulated by our designation as a CDFI and a CDC. 

ACCION currently adheres to compliance measurements that are 

required by Treasury and the SBA. 

ACCION supports the delineation between CDFIs and the traditional lending institutions. And ACCION is committed to being 

transparent and being accountable. 

It is my hope that this commentary will prove to be beneficial as 

you evaluate the current and potential state of challenges and opportunities facing organizations like ACCION. We, along with our 

borrowers, have benefited greatly in public and private financing. 

Thank you very much. 

[The prepared statement of Ms. Barrera can be found on page 38 

of the appendix.] 

Chairwoman CAPITO. Thank you very much. 

I would like to thank all of you for the depth of your testimony 

and your—we’re supposed to be reading your face and your voice. 

I think we have a good reading on that. I must begin with the 

questions. I’m going to kind of throw this out, so anybody who 

wants to answer this—some of you have alluded to this in your testimony, but it’s one of my little things that really gets me about 

the Dodd-Frank Act. In Section 1021(b)(3), it directs the CFPB to 

‘‘Ensure that outdated, unnecessary and unduly burdensome regulations are regularly identified and addressed in order to reduce 

unwarranted regulatory burdens.’’ In other words, if this bill is 

going to come in or the CFPB is going to come in and put new regulations on, you have to scrape out the old ones, the outdated, the 

outvoted, and no longer efficient burdens. 

We wrote a letter to Secretary Geithner asking him to delineate 

where he had actually identified burdensome and outdated regulations, and he gave us two, one of which was the creation of the 

CFPB, which we kind of couldn’t figure that one out, and the other 

one was changes to the Bank Secrecy Act, a similar obscure thing. 

So I would like to know—he did admit in his testimony that they 

had not really put this as a high priority and made this something 

that they really—this is one of the reasons—this is one of the ways 

that Dodd-Frank was sold to several Members of Congress. So, I 

would like to ask each of you in your institutions, in your examination processes or as you’re looking to meet the compliance regulations, has there been any change in terms of removing the old and 

putting in the new, or is it just putting the new on top of the old? 

So, anybody who wants to answer. Mr. Parker? 

Mr. PARKER. My experience has been, Madam Chairwoman, that 

it’s simply a matter of putting the new on top of the old. As with 

many of the laws that we see in the Federal Government, there’s 

no sunset provision for a lot of these regulations, and they simply, 

as we say out in West Texas, get piled higher and deeper just like 

a lot of stuff that we see out there. 

Chairwoman CAPITO. Ms. Martinez? 

Ms. MARTINEZ. I think that some of those regulations are as confusing to us as a community institution as they are to the examiners. A lot of times, they come in and they’re confused on what 

20 

they’re supposed to be examining us on. So they go back to the old 

rules, and then they have to visit the new ones because we’re very 

much informed on the new ones, so we want to comply with what’s 

up and standing in Congress at the time. And so, it makes it very 

confusing when we have to comply with it because they’re not 

trained. This is a lot—it’s a lot for them too. 

Chairwoman CAPITO. Would anybody else like to—yes, Mr. 

Urrabazo?. 

Mr. URRABAZO. Talk about some old rules, we had a recent examination where the flood insurance just popped out. That rule has 

been there forever, and we have complied with it as much as we 

could. But all of a sudden, they do a very detailed, excruciating examination of flood insurance on everybody who has real estate anywhere, so we had to do a lot of expensive work and compiling of 

data on an existing rule that was there but that for years and 

years was—maybe really looked at it—they kind of superficially 

looked at it, then all of a sudden, they just come in and do a fullblown examination on flood insurance. 

Chairwoman CAPITO. I can speak to that personally as I live on 

the 8th floor of an apartment condominium in Washington, D.C., 

and I refinanced like a lot of people across the country did, and I 

got hung up on whether I had flood insurance on the 8th floor in 

Washington, D.C. So it’s probably exactly the same thing. 

Mr. URRABAZO. Exactly what I’m talking about. 

Chairwoman CAPITO. And it then became a question of whether 

the condo association had enough reserves to be able to pay if the 

parking garage were to flood. Anyway, it’s exactly what you’re saying. And it took an extra 2 weeks because—actually, probably more 

than that, and a few lawyers, I’m certain, to get that all straightened out, which adds to the cost of everything in the compliance. 

Mr. HANSARD. Chairwoman Capito? 

Chairwoman CAPITO. Yes. 

Mr. HANSARD. One regulation you might pass on to the Treasury 

Secretary is the Patriot Act. I think all the banks have been affected by the Patriot Act, and at one time, it may have had its 

place. But to sit down and say that certain professions are high 

risk—and Congressman Canseco, I beg to apologize right now because an attorney is considered high risk in banking regulation. I 

agree some of them may be, but to make that broad statement is 

simply unfair. 

We have quit issuing money orders in our bank because of the 

regulation. We have a lot of people who are low-income individuals 

who come in and pay their bills with money orders. We quit issuing 

money orders because of the regulation, that we have to run basically a background check on them, and that background check is 

a list that the Federal Government has put out, not that anyone 

else has put out. And to tell you a real live situation, several 

months ago, I was in a convenience store trying to fill up my pickup truck with diesel, and for some reason my debit card wouldn’t 

work, so I had to go inside. Inside at the counter was a woman 

buying $5,000 worth of money orders with hundred dollar bills. She 

finished her transaction, and she went out to her car—and this is 

in Fort Stockton, Texas—and got into a solid black Mercedes with 

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21 

cense plates. And there is no regulation for that convenience store 

to get any type of identification nor is there for the United States 

Postal Service, which sells money orders, to require any kind of 

identification, but there is on banks. Those regulations are outdated. 

To open up a new account, we have to put our customers through 

all types of scrutiny. And it takes hours and hours and hours to 

go through the process that we have to take. My poor new accounts 

personnel who used to have to have one password basically to get 

into our new accounts system now have eight passwords because 

they have to get to OFAC and all these other things that we are 

required to have because of the Patriot Act. Money is not being 

laundered through the banks. It’s being laundered through private 

businesses; it’s not through the banks. In my 32 years of banking, 

I cannot tell you of a single instance that I have seen money laundering. And I would ask these other bankers if they have seen it. 

Chairwoman CAPITO. I’m going to ask one more question, then 

I’m going to yield to my colleague. And this will really warm 

everybody’s heart on the panel and in the audience, I think. The 

2010, 2011 edition of the Bureau of Labor and Statistics Occupational Outlook Handbook states that, ‘‘Increasing financial regulations will spur employment growth both of financial examiners and 

of compliance officers by 31 percent over the years 2008 to 2018.’’ 

In the list of the top 30 fastest growing occupations in the United 

States, in which I noticed home health aide was, for obvious reasons, as we’re all aging, in the top five. Compliance officers is one 

of the top five fastest growing—financial compliance officers is one 

of the fastest growing occupations in this country. 

So we have heard a couple of things. We heard from Mr. Parker 

that his cost has gone up over 200 percent, we heard from Mr. 

Hansard who said that he had five—or if you had to hire—you 

have your real estate person and a compliance officer you know 

you’re going to have to hire. Ms. Martinez said she only—you have 

eight people total at your bank, or at your credit union? 

Ms. MARTINEZ. No. We have 107 employees. 

Chairwoman CAPITO. 107. So are 8 in the compliance area; is 

that what your said? 

Ms. MARTINEZ. Pretty much. We have 13 managers who deal 

with compliance; each one is respective of their area. 

Chairwoman CAPITO. And what about you, Mr. Glenn? 

Mr. GLENN. We have one compliance officer, but there are about 

20 people who have—invest themselves at various levels. We estimate the cost of compliance, just in salary and compensation alone, 

to be about $600,000 a year. 

Chairwoman CAPITO. Okay. That’s money that’s not going to the 

small business owner or the consumer to buy a car or to send your 

child to college. Mr. McCauley, do you have a—quantify on that? 

Mr. MCCAULEY. Yes. Ten years ago, our direct compliance department consisted of four people, today it’s over 30, and that is direct. That’s not including the people in accounting and all that who 

support it. So it’s incredible. 

Chairwoman CAPITO. And I’m not sure if in your testimony you 

specifically said—Mr. Urrabazo? 

22 

Mr. URRABAZO. Yes. We have—the same thing as Frost, we had 

a smaller group, I can’t remember, maybe 7 people in compliance 

maybe 4 or 5 years ago. We now have 48 people working in direct 

compliance. And it also includes the BSA people and the money 

laundering people. But all compliance, in general, 48 people. Our 

budget in there, direct, probably is about $4 million to $5 million. 

Indirect is probably around $6 million or $7 million. 

Chairwoman CAPITO. And, Mr. Parker, I kind of skipped over 

you; you told us 200 percent more— 

Mr. PARKER. We have 37 people in our bank, and 9 of them are 

directly involved in compliance. 

Chairwoman CAPITO. If I had asked you that question 5 years 

ago, would that have been a different answer? 

Mr. PARKER. I’m sorry? 

Chairwoman CAPITO. If I had asked you 5 years ago what the 

proportion was of your compliance officers to your employees, 

would it—is that consistent? 

Mr. PARKER. It would not have been 25 percent. It might have 

been less than 10 percent. 

Chairwoman CAPITO. Is this an issue for you, Ms. Barrera? 

Ms. BARRERA. It’s is, Madam Chairwoman. Actually, I was just 

thinking about the fact that even though we’re a not-for-profit, not 

regulated, we have two people in compliance just so that we can 

make sure that we’re honoring the things we should be honoring. 

Chairwoman CAPITO. Yes. And how many total employees do you 

have? 

Ms. BARRERA. We have about 100 employees. 

Chairwoman CAPITO. A hundred employees. So you think about 

that, the diversion of resources into—now we have already heard 

the old regulations and the new regulations—it’s no longer just the 

new regulations—I think this is stymied, is part—I don’t think it’s 

the whole reason, obviously, but it does contribute to the inability 

to get the growth that we want to have. 

The other issue, and then—I’m just going to make a statement 

on this—has to be the talent pool. It’s not like you could walk into 

a bank and say, ‘‘Hire me as a compliance officer,’’ and then all of 

a sudden you’re going to be able to sit down and make a judgment 

as to whether your financial institution is compliant. There has to 

be a lot of training. If you’re lucky enough to get somebody who already has experience, you’re basically picking them off from one of 

your competitors, most probably, or somebody who has moved into 

the community, so this has to be a huge issue going forward. 

I think this is maybe a little bit about what Ms. Martinez was 

saying on the examination side, the same thing. The examiners 

have a whole new portfolio, and they’re not up to speed on everything they need to be doing. So it’s really—I sense your frustration, 

and I hope you sense ours. I think we have a lot of objective data 

showing this is a burden that—at the end of the tunnel which is 

supposed to be more financial growth, more lending, better protection for consumers who—and particularly those in the lower and 

mid-lower who can’t protect themselves—are these folks dropping 

out of the banking system altogether? They can’t get a money order 

at your bank and they’re going to the local five-and-dime to get it, 

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23 

ing myself—but the local 7-Eleven or something, what kind of a 

lifestyle change is that going to bring to those folks who really need 

the stability of a good financial—with the financial literacy and a 

financial understanding, which I think includes either being a 

member of a financial institution, credit union or a bank so that 

you have that stability. So with that, I’m going to let Mr. Canseco 

ask his questions. 

Mr. CANSECO. Thank you, Madam Chairwoman. And thank you, 

all of you, for participating in this panel. Just to follow up on what 

Madam Chairwoman was bringing up, I know that in some of our 

communities—Del Rio, Pecos County, and I don’t know about El 

Paso or Laredo—there is a drain on the talent pool in order to get 

those vital resources where you need—for compliance officers; is 

that correct? Yes? 

Ms. MARTINEZ. One of the things that is very challenging for us 

is, because we’re so remote from the bigger cities, we cannot have 

the pool of personnel that we normally require. So we end up hiring from the bottom up, and we train them. It’s very expensive to 

send them to outside training, so we concentrate a lot on webinars. 

It is great to have webinars, but you don’t get the same kind of 

input that you would get when you would go and really sit down 

in a classroom style. So it’s very expensive for those of us who are 

very remote from the major cities to send somebody for training 

and to maybe even develop that to be in management level positions. 

Mr. CANSECO. A lot of your compliance officers—and this is a 

question for anyone who wants to chime in—are really not producing anything for the bank other than working for the government; would that be a correct analysis? Weigh in on that, Mr. 

Parker or Mr. Urrabazo? 

Mr. URRABAZO. Congressman Canseco, let me just say that talking about personnel and qualified people, not only is it a problem 

to find them, not only is it a problem to take them to Laredo, 

Texas, but the biggest obstacle, even if you find some very highly 

qualified people, is it is very, very difficult to compete or to get 

head-on with the FDIC when they have a staff of statisticians with 

Ph.D.’s doing regression analysis on your data, and they can cut 

and slice that data in many, many ways. And when you go talk to 

them about any kind of analysis, our best person there with all 

kinds of background in compliance cannot compete against a Ph.D. 

with a statistics background, two or three of them at the same 

time, it’s impossible to beat them. 

Mr. CANSECO. We have talked a lot about compliance and new 

rules and the burden that it poses on your banks and the cost of 

that compliance, but one thing that I haven’t heard yet, and I 

would like all of you to weigh in on it, and that’s how this ultimately affects your customers because after all, that’s what you’re 

in business for; how does this cost of compliance affect your customers? 

Do you want to start, Mr. Glenn? 

Mr. GLENN. I guess the best example is the way they changed 

the way you process mortgage loans. We used to have a rule of 

thumb that the closing costs for a borrower were about 31⁄2 to 4 

percent of the loan amount. That would cover all of the outside 

24 

costs, including the origination fee. That number has gone up about 

50 percent, and it has also extended the amount of time that it 

takes for a member to close the transaction. It used to be you could 

close a mortgage loan in something like 30 days. It’s not unusual 

to see 75 to 90 days for a member to receive their money. That’s 

not good for the economy, and it’s not good for the consumer. I 

don’t know who it’s good for except the printers. I don’t know. 

Mr. CANSECO. Mr. Hansard? 

Mr. HANSARD. I don’t have a lot to add to that except that we 

have not seen any benefit to the consumer. The more regulation 

that we see, the more time that I have to spend on paperwork instead of being able to sit across from the desk and talk to that consumer. And as I said, I like putting my hands on the collateral and 

going out and visiting my customers, and that time is very, very 

limited. 

Mr. CANSECO. Ms. Martinez? 

Ms. MARTINEZ. I used to spend more time on developing programs for the members, new programs, new products and services. 

And now, I spend the majority of my time reviewing laws and regulations. 

Mr. CANSECO. Mr. McCauley? 

Mr. MCCAULEY. You talk about fair lending; there are several 

different elements of that. But we are relegated now to having to 

make everybody fit into a box. There’s no more flexibility, there’s 

no more risk-based pricing, there’s no more advantages to somebody to have a clean credit score. If I’m going to make a loan, I 

have to make it—either it’s an up or down decision, and there’s no 

flexibility based upon it. So you’re not really benefiting the customer. A lot of customers are getting turned down because they 

don’t fit in the box where before you had the flexibility to work 

with someone. The customer is not being benefited now because everybody has to fit in the box, and they all pay the same amount. 

There is no risk-based pricing, no reward for having a clean credit 

score, paying your bills, taking care of your business. So, no, there’s 

no benefit to the consumer especially at all. 

Mr. CANSECO. Mr. Parker? 

Mr. PARKER. We have seen loan products go away. The last bank 

I started is nearly a billion dollars in size now and had a thriving 

mortgage section in it. That’s gone. That’s a resource gone from our 

community. There are a number of other products, as Cliff 

McCauley said, that do no longer exist. We’re being told by people 

who have never been in business of any sort, who have never been 

in business anywhere, how to run a business because they know 

best because they have learned from books. 

When I taught on a university level, I can tell you, I taught people the basics. And I told them that when they went out to pursue 

their careers, they would then get the second part of their education. Unfortunately, we’re having regulations written by people 

which are then being checked by examiners, none of whom have 

ever been in the private sector, so they have no clue about the variety and the richness of the human animal that we serve in business. We are all different, and that’s what’s so wonderful about 

being in a country like America where we’re all mongrels of a sort. 

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25 

ferent desires. And you know what? Community banks used to be 

able to meet most of those before current regulations. That’s going 

away. That’s one thing. 

Two, I have for your edification this thick pile of papers—I didn’t 

enter it into the testimony—but this is just a sampling of all of the 

disclosures we must make. We have a joke in the bank that whenever the House Financial Services Committee comes into session, 

they ought to be required to read this before entering into any 

business whatsoever. I’ll tell you what, when we pass this out as 

required, it has been vetted, saucered and blowed, but our customers don’t read it. They throw it away. And, indeed, since only 

about—according to the national experts—13 percent of the population is functionally fully literate enough to understand this mess, 

I can understand why we see our trash cans fill up with these papers after we open accounts, after we do loans, this, that, and the 

other. That’s the consumer telling us what they think of this. 

Mr. CANSECO. Mr. Urrabazo? 

Mr. URRABAZO. I think it has been already discussed, but I want 

to give you some examples of how some of these compliance issues 

affect the consumer. I think I discussed that everybody has to fit 

very clearly in that particular box. And I’ll give you an example of 

a very good customer of the bank who has been with us for at least 

25 years, and he’s our maintenance person. He came in for a loan, 

a consumer loan, to buy a truck. He had had some credit problems 

a couple of years ago through some kind of divorce issue, so he 

couldn’t qualify under that particular issue. So I declined the loan, 

he didn’t fit in there, even though I know very well that—he works 

with us, and I’m the one who pays him, he’s our maintenance person, but he did not qualify under that box. I did not want to make 

an exception because I have to find some other exceptions to that. 

The funny thing about this, he’s a good customer of the bank, 

has been with us—paid us every time on time because I debit his 

account every month. After I pay him, I debit it out. So I have no 

problems with that. The funny thing about this is that the next 

day, I had another customer who came in for a renewal, and this 

person was marginal at best. I had had some problems in collecting 

from this gentleman for the past 3 or 4 years; it’s a $3,000, $4,000 

loan. And as I renew the note, he doesn’t come into this box anymore because I have the note, I cannot tell him to go away anymore. But what’s funny about this is when I gave him a price on 

the loan, he now has a lower price than the one I had before because now he has to fit into this little box. So before I was charging 

him, let’s say, 12 percent, and now I have to charge him 13 percent. And I can almost see his face when he left the bank and was 

being renewed laughing at the bank because he says how in the 

world can I be such a bad customer and they gave me a better rate 

now. This is the fallacy and the joke about all this. You will not 

fit everybody in that same box. 

Chairwoman CAPITO. Ms. Barrera? 

Ms. BARRERA. Congressman, I think the other issue, the question 

that needs to be asked, in terms of consumer protection is regarding the predatory lenders. What are the regulations there? How 

can we—you have heard examples already of people not being able 

to be served either by the banks or even by us. So our competition 

26 

really is the predatory lenders and pawn shops and people out 

there making loans if, can you breathe, here it is, and here’s your 

loan, and you’re going to pay 300 percentage points on it, or something on it because you’re just—it’s volume for them and 

scalability, right? So I think questions need to be asked along those 

businesses as well. 

Mr. CANSECO. Thank you. I will say one thing—what we’re hearing here is that the whole business model of a community bank, 

knowing your customer, working with your customer, accommodating to your customer into the needs of your institution in order 

to work together to build your community, is being eroded because 

of rules and regulations and laws such as Dodd-Frank. The ability 

to visit with a customer and work with that customer now having 

to fit into a box is going to really chase them away. And that’s a 

sad testament to what we have here. But I thank you all very 

much for your answers. And I yield back for the time being. 

Chairwoman CAPITO. If you all don’t mind, I would like to ask 

a couple more questions. I would like to know—I kind of alluded 

to this, Mr. Parker, when I asked you if I had asked you that question 5 years ago, what the difference might be. I would like to know 

if your relationship with your regulators has changed and—over 

the last, say, 3 or 4 years, and how—you have all alluded to this 

in your individual testimony, but if you could get a little more specific or have anything you want to add on that issue, on the changing, evolving relationship, are there—who said that—I think it was 

you again, Mr. Parker, who said that there were eight people in the 

bank for weeks and weeks—has it changed for you, Mr. Glenn? 

We’ll just go through the panel. 

Mr. GLENN. Our examiners have always been fairly cordial, but 

they are taking a much more exacting tack with us. And I think 

it’s—I view it more as a response to some heat they’re feeling from 

the legislature, and not all of that is unjustified, but they are looking at things closer. I had one odd thing happen during our last 

exam. Our credit union has about $100 million in investments. And 

all but three of those securities are Federal—all of them are Federal agency or Treasury securities, but we classify all of the securities, except for three that we hold, as ‘‘held material.’’ And one of 

the things that they told us we had to do was start classifying 

them as ‘‘available for sale.’’ 

The reason he said that we had to have this classification as 

‘‘available for sale’’ was because there might be a liquidity issue. 

And I said, ‘‘I have 20 percent liquidity. Exactly how much liquidity 

do I have to have?’’ And he couldn’t give me an answer to that, just 

that I needed to have these things ‘‘available for sale.’’ And I asked 

him, I said, ‘‘Now, let me make sure I understand this. The reason 

that you have them available for sale is to raise liquidity, but if I 

classify the investments as available for sale, I have to mark them 

to market every month and that can adversely impact my capital, 

and wasn’t that exactly some of the problems that caused some difficulties in our corporate credit unions?’’ And he didn’t have a response, but I still have to mark them to market—now classify them 

as available for sale until 10 percent of my portfolio is like that. 

Chairwoman CAPITO. Wow. Mr. Hansard? 

27 

Mr. HANSARD. I have a few comments, but I have to be careful 

about what I say. I have two branch applications in process right 

now. 

Chairwoman CAPITO. That’s another issue, but—not you specifically. 

Mr. HANSARD. At our last FDIC exam, we had 16 examiners in 

the bank for 2 weeks. One examiner, all he did was work on a trust 

exam. We have a very, very, very small trust department. It has 

one account that totals $200,000, and that examiner spent 2 weeks 

and grilled me for hours over that one account. What was interesting to me is that they had just left a $21⁄2 billion bank, which 

was the largest in their territory, and only 2 examiners were sent 

to a $21⁄2 billion bank while I had 16 examiners in mine. 

Ms. MARTINEZ. The area that we service is a low-income area. 

The majority of the people there, their credit scores average between 550 and 570, so they are very low credit scores. We currently 

don’t do risk-based lending. However, the examiners have been on 

my case for about 3 years that we need to do risk-based lending. 

My answer to that was that every single member who walks in 

is risky because of the risk we take with that person being that 

their credit scores are so low. We also have a low-income designation which, really, when an examiner comes in, they need to take 

that into account because of the area that we service. And a lot of 

times, I think they forget that. They forget that having a low-income designation is because you’re serving a different part of the 

country that requires probably more work on it, but they don’t realize that they still want to go back and make sure that we adhere 

to some of the regulations that they have, which we always do, and 

we document everything. 

I have been very blessed. The examiners that I have had, we are 

able to work with them, they always work with me. Just like Mr. 

Glenn was saying, one of the things that a lot of the times they 

don’t understand is the investment area, they don’t, when it comes 

to the investments, because we do agency securities. And they come 

in, they don’t understand it, so they just create a lengthy process 

on reviewing those. But I also have heard that some of the other 

smaller credit unions have had some issues, especially when they 

have that low-income designation. 

Mr. MCCAULEY. To answer your question, has the relationship 

with the regulators changed, I’m going to answer that on more of 

a global basis based upon work with other financial institutions, 

and the answer is unequivocally yes, whether it be—especially in 

the area of target exams, whether it be an overdraft, fair lending 

or safety and soundness, it’s primarily centered with the Federal 

regulators, and—bring in a group maybe that’s not within the territory of the district of that Federal examiner but from another 

State, another area, it’s almost as if they feel like the local group 

is, what we call here brother-in-law in the local institutions, they 

don’t believe that there isn’t a problem, and they come in with really an attitude of, we’re really going to get you this time. 

And I have heard that from many, many bankers, real estate target exams, from a group out of California saying, ‘‘You don’t understand what’s about to happen to you because we know everything 

because we saw it.’’ And so, yes, I think it has eroded, but it’s 

28 

mainly on the Federal level. From what I’m hearing, it’s the Federal regulators, and what is, I guess, really considered be a disconnect, and that there are edicts coming from the wizard behind 

the curtain in D.C. Nobody wants to own up to who that is, but 

from the standpoint—it’s mainly a Federal-centered issue. 

Chairwoman CAPITO. All right. Thank you. Mr. Parker? 

Mr. PARKER. I think I can answer your question directly, and I 

will tell you that we have two kinds of regulators, and I don’t say 

this because Commissioner Cooper is here. Our State regulators 

approach things very differently than their Federal friends do. The 

State regulators appear to take a little more common-sense approach. They are just as diligent. In fact, I haven’t seen a diminishment of diligence. I have seen some pretty good hard work from 

them. They call them as they see them, and they’re very fair. 

The Federal people, on the other hand, are a very different 

group. And they fall into two categories. One, they’re the safety 

and soundness people who come out, in our case from the Federal 

Reserve Bank in Dallas. They have become much more attuned to 

nitpicking. They will go back not only to current regulations, but 

we may be hit with a violation of the law, the regulation, the guidance, the SR letter, and then the commentary to the regulation, 

and I have to tell you, the last three of those have nothing whatsoever to do with the law. I finally got them to admit that, yes, indeed, they are merely opinion. 

I have talked in my testimony about some rather egregious examples, and I won’t go over that again. The ones that are particularly deadly are the compliance people. The consumer compliance 

people that we see are on an absolute mission, and they glory in 

the fact that they could refer you to the Department of Justice. And 

the comment from the Department of Justice is, ‘‘Go ahead, because we have all the lawyers in the world, and we have a lot more 

money than you do.’’ That’s the attitude, and that’s not proper. It’s 

particularly not proper coming from our government. 

One last thing I might tell you, and I mentioned this in my testimony, the last several exams—I have talked to the examiners—we 

have had good relations with these folks for years—and they are 

genuinely afraid—people in the regional and the field offices are 

genuinely afraid of the people in Washington, and I have never 

seen that before. That is some of what’s driving what we see today. 

Mr. URRABAZO. I would just like to basically repeat, I think Les 

Parker said it very clearly, I think there are different types of examinations. And, again, I think the State examiners are more practical, more realistic. They’re firm, but they understand the dynamics of our particular area, of our particular economies, whether it’s 

a booming economy in Laredo, it could be a recession going on as 

opposed to what the national is. So they understand, I think, the 

dynamics a little bit better. I think they understand the type of 

customer we have, the type of situation. In our case, we have a lot 

of deposits out of Mexico. They understand that. I see a difference 

then with the Federal examiners, whether it’s the Fed or the FDIC, 

and I do think that what Les is saying is very, very correct. I think 

they’re very, very skittish. I think they go back to the regional office for guidance, if you want to call it that, and sometimes even 

the regional office in Dallas refers this to Washington. And by the 

29 

time it gets to Washington for some clarification on a fair lending 

issue, it already has become a bad deal because nobody wants to 

make a decision on this. And then the referral to the Department 

of Justice is the last part of Washington to clean their hands on 

anything of this sort. 

I do know, though, that we also have various examinations, for 

instance, the safety and soundness exam, a compliance exam, the 

BSA/AML type of exam, an IT exam. We have all kinds of exams 

going on. We have the internal auditors going, and we have the external auditors. We have—everybody—any particular month, I’ll 

have somebody in the bank looking over some documents. But what 

amazes me, and I see the difference again between the Federal and 

the State, the Federal, for instance, I had a situation here a couple 

of years ago where they had one examiner stay one week in one 

type of investment that we had. We have what they call BOLI, 

bank-owned life insurance—it’s an investment type of vehicle that 

we use—a $7 million investment in there, which is really not that 

much. He spent one week reviewing that particular investment. 

Every day, in the afternoon, he would come to my office to discuss 

it. At the end, nothing happened; he just passed on it. And I’m 

there looking at this thing every day because you have to be very 

careful—now, I will say, though, they’re very professional, and they 

will never—there are never any arguments, but they were very 

professional in their approach, but I just don’t understand what 

they did in one week on a $7 million investment, what we call 

BOLI, what he did. I just don’t understand. I would have done that 

in 3 hours. 

Ms. BARRERA. Our Federal examiners are there to look at our 

funding, how did we use the funding and so on. So it’s a different 

kind of an exam, did we do with the funds what we said we were 

going to do. 

Chairwoman CAPITO. I want to take the opportunity—I have a 

lot of other questions on the qualified residential mortgage, on the 

appraiser regime that has come through Congress as well, the 

CFPB complaint process, I guess, on their Web site. They have 

thousands, I think, thousands of complaints on their Web site, how 

are they framing these, how are they following up on them, is it 

a fair process—is there any retaliation if you accumulate more 

complaints than anybody else or certain types of complaints. I 

think that’s something that we need to really—because as we all 

know, getting on the Internet and lodging a complaint is a really 

easy thing to do. And certainly we want to—you want to hear if 

things are going wrong. 

The other thing I want to say is I have a bill out there that talks 

about examinations. It has three components to it, first, the timeliness of the reports, because we have heard from the hearings that 

reports are not coming in, in a timely fashion. Also, they’re leaving 

the district office, so they’re leaving your financial institutions and 

going to the district office with one sort of mindset, and by the time 

they come back from Washington, they have a totally different 

viewpoint on it, which sort of alludes to what you all are saying, 

that Washington is playing a heavier role or changing the viewpoints of the local examiners. 

30 

Second, it has some examination standards that come out of the 

areas of our country that have had—really been devastated by commercial real estate and residential real estate, property values 

dropping to try to make sure that you don’t have to reclassify loans 

as long as the person is paying—I’m simplifying this a lot—but 

paying and all that. 

And third, the independent review process, where if you have an 

appeal, that you’re not appealing to the person who made the decision to overturn the appeal of their own decision. And we have set 

up an independent appeal process where an independent body 

would be able to oversee, would give you ease of—would give you 

a lot more objectivity, probably a lot more expediency, and you also 

would have—it’s human nature that you’re not going to want to 

overturn your own decision. So there have been reports of retaliation or some—not retaliation like we might think of it, but there 

are subtle ways to make decisions because you’re in a subjective 

world. So we’re trying to eliminate that. 

Lastly I’ll say, just for those of you who have a son or daughter 

who’s a bank examiner, we don’t think you’re bad people. It’s not 

about that. It’s not a personal thing. It’s about getting it right. And 

in our Georgia testimony, we did have the examiners on our panel. 

Today, we did not. But we are listening to them as well because 

they have a viewpoint to represent that we all, I think, in this 

room believe is very important at the same time. I know I have 

met many of you who started out as a bank examiner and then 

have gone into the banking profession, and then now as a head of 

the banking commission—am I saying—it’s commission, isn’t it— 

yes, here in Texas. So those are rich experiences I think for anybody to have in these kinds of positions, and I want to thank you 

for coming today. So, any final questions from my colleague? 

Mr. CANSECO. I don’t want to hog the microphone or the question 

queue, but I do have some questions, if I may. And just let me 

know, Madam Chairwoman, if I have overexceeded my time. 

Let me ask you, Mr. McCauley, the FDIC is conducting a study 

in review of what type of institutions should be classified as a community bank. Currently, the general definition is a bank with less 

than $1 billion in assets, with a few exceptions. Now, your bank 

does business all over Texas but still has a community-oriented 

model in serving your customers; what factors does the FDIC need 

to take into account when determining the definition of a community bank? 

Mr. MCCAULEY. This has been an age-old question on how do you 

define a community bank, and it has always been a moving target. 

The FDIC—it’s not about size. It is really about your business 

model. There are so many banks now; there are over 30 banks over 

$1 billion in the State of Texas today, just because of the asset 

growth and deposits that are in the system today. So you can say 

there are a lot of big banks that I would tell you are community 

banks. We’re just a big community bank. Look at the lines of business we’re in. We didn’t do subprime mortgage lending, we don’t 

do indirect lending. We don’t do a lot of the things that would categorize someone as a megabank. So the FDIC needs to take into 

account really looking at their business model, the lines of business 

that they participate in, I think their reputation with their cusVerDate Nov 24 2008 12:37 Aug 09, 2012 Jkt 075078 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 K:\DOCS\75078.TXT TERRIE
31 

tomer base, their long-term history of success within the lines of 

business that they choose to participate in and how well that they 

do it. You could look at some other metrics as far as their foreign 

activity and all of that, but I think that becomes—then you start 

getting more complicated on the definition. It’s really looking at the 

business model, the lines of business that they’re in and how they 

operate and how they support the communities that they’re in. 

Mr. CANSECO. So putting it in simplistic terms, it’s like being in 

6th grade and you have big kids and little kids and medium-sized 

kids? 

Mr. MCCAULEY. Yes. 

Mr. CANSECO. Okay. So I understand that Frost Bank has recently applied to become a State-chartered bank regulated by the 

State Department of Banking; do you feel this is a step that a number of community banks across the country could begin to take, 

given the greater knowledge that State regulators have about the 

areas that they serve? 

Mr. MCCAULEY. Let me speak about our decision. First of all, it 

wasn’t a hasty decision; this has been made over a long period of 

time. And it was really—we have always had a very good relationship with the OCC. We have been an OCC bank since 1898. So it’s 

not a decision that you make flippantly, to make this kind of a 

change. However, as we talked about a little bit earlier, there’s 

more of a disconnect now on the Federal level than there ever has 

been before. And while we have had that longstanding good relationship, we’re a Texas-based bank. We plan on being here for a 

long time. We have been here since 1868, and we plan on being 

around for another 150 years. And we felt to serve our market, 

serve our communities, our customers better as well as our shareholders, it would behoove us to have a regulator that was closer to 

home that understands our markets, that we could have an open 

and honest dialogue with. Commissioner Cooper is very available 

to speak to all of his member base. I think you have heard the testimony—and I hear this all over the State—that—try to say, ‘‘We 

really don’t like to be thrown under the same blanket as all banks’’; 

well, I don’t think that all regulators should be cast that way. Also, 

the State Banking Department has proven itself to be a fair and 

a communicative regulator. Now that we will also come under the 

direct regulation of CFPB being over $10 billion, balancing that 

Federal regulation with a State regulator we thought would be prudent. 

As to the trend of other banks, I couldn’t speak for them in their 

decision. I will say that I travel a lot. I have visited with literally 

hundreds of bankers since that decision has been announced, and 

everyone has been very supportive of our decision from both the 

national banks as well as the State banks. The only two negative 

comments came from attorneys, so I figured we probably made the 

right decision. 

Mr. CANSECO. Thank you. Let’s turn now to interchange fees, the 

Durbin Amendments. The final cap on those interchange fees for 

debit cards has been in place now for several months. While initial 

data show that—different results in revenue for large versus small 

banks, there’s great concern within community banks that merchants will eventually route transactions to the banks with lower 

32 

interchange rates. Do you share these concerns, and are you aware 

of any attempt to do this already? 

Mr. MCCAULEY. I absolutely share those concerns. Serving on the 

payments and technology committee for ICBA, we have had the opportunity to visit with many of the interchange providers, and they 

will tell you that it’s going to be incredibly difficult over time to 

have a bifurcated system, to have a two-tiered system. While, yes, 

we are over $10 billion, we are directly affected by the Durbin 

Amendment, and it has been a significant decrease in interchange 

revenue for our organization. I don’t think there’s a community 

banker that I have visited with around this country who doesn’t 

agree that it’s eventually going to affect them directly. The merchants will find a way to route these. They’re not going to pay a 

higher interchange fee for one institution versus another. I think 

right now there is probably kind of a cooling-off period, if you will, 

for the whole Durbin Amendment and nothing has happened. But 

I don’t think anybody’s confused that eventually it will, and it will, 

and I think every community bank agrees with that. 

Mr. CANSECO. The customers, ultimately it’s about the customers; how are the customers being affected by this? 

Mr. MCCAULEY. Interchange revenue historically was utilized to 

benefit the consumer, and it’s something that people don’t really— 

they have a hard time realizing. Free-checking programs were put 

in place as a give-back. That was a way to support the consumer 

by giving them fee exclusive programs, free-checking. What that 

did is it brought a lot of unbanked or underbanked individuals into 

the banking system, which was part of the Federal mandate and 

what banks were trying to accomplish. That wasn’t necessarily a 

profitable move for the banks, but it was something that we could 

leverage that interchange to those consumers. 

You’re going to see that change. Free-checking programs are gone. There may still be some in place by the banks under $10 billion or they have been grandfathered, but they will go away. Then, 

you’re eventually going to see fees. I think we—you saw Bank of 

America’s transparency was trying to do that; they removed that. 

But that was a shot over the bow that it’s going to happen. So not 

only do you have the free-checking product going; you’re going to 

have something that is going to the take place as far as the fee to 

the consumer. I don’t think I have seen a roll-back in prices by any 

of the retailers that are benefiting from this, and so the consumer 

is not winning at the retail level nor eventually at the financial institution level because there are no free loans. 

Mr. CANSECO. Thank you. How is my time? Okay. 

Mr. Urrabazo, I have spent a good deal of time speaking with 

Treasury officials over their proposed rule on the deposit interest 

reporting. They seem to be prepared to forge ahead, and I’m afraid 

they’re not listening to the concerns of a number of Texas banks. 

What are you currently hearing from some of your customers over 

your proposed rule, and what the effect is of a final rule going to 

have on banks throughout Texas? 

Mr. URRABAZO. First of all, we did fight that battle about 10, 15 

years ago, and we won it. The Treasury was trying to do the same 

thing, regulate the foreign deposits in our banks. Obviously, border 

banks are more effective than other banks across the country. So 

33 

the Treasury is only hearing a small group of banks, Florida, 

Texas, California, some of the money center banks in Chicago, 

maybe New York. The issue here is that there’s no benefit to the 

Treasury or America. If they’re trying to find the tax evaders—the 

U.S. tax evaders who are in Mexico, as they exchange lists one 

through the other, they’re not in Mexico. There are zero or very 

few. So the issue really is a much bigger global approach of what 

they’re trying to do, in my opinion. 

The problem here is that, again, going back to the short-term situation, we’re going to get affected detrimentally, especially in the 

border, as some of these Mexican citizens come to realize that their 

name will be set up in a list with an account number with an address and sent to their treasury in Mexico, and who knows what’s 

going to happen at that time. Given the situation in Mexico, I’m 

talking about the violence and the drug cartels, if that list gets out 

of hand to some of those people or has been—into the black market, and that particular customer of ours becomes aware that list 

is there, then all of a sudden, he’s susceptible to kidnapping and 

extortion and other kinds of information. And that’s what they’re 

afraid of. 

The tax consequences are minimal for the Mexican citizen in 

Mexico. The tax system in Mexico is very, very different than our 

taxing system. Over there, if they pay 15 percent on their income, 

that’s too much. So if you even take a scenario of, let’s say, a million dollars that a Mexican citizen has here and we pay him, let’s 

say, 1 percent, $10,000, and he’s going to pay 15 percent tax in 

Mexico for that $10,000, which is $1,500, that is not the issue. The 

tax is not the issue. The issue is security. And that’s why they’re 

so concerned about this. The Mexican press has really, really built 

it up over there, and many of our Mexican customers are coming 

in, asking questions, and they’re very, very afraid. So I think 

what’s going to happen is going to be capital flight. That’s the bottom line to all this, and all this money is going to go someplace else 

which is a safe haven. 

Mr. CANSECO. And who will ultimately pay the price for this capital flight, is it your customers? 

Mr. URRABAZO. Obviously, the banks. We don’t have enough 

money to lend, liquidity problems that we might have. And, certainly, we don’t have the ability to lend that money to our consumers, to our investments, to our small business people. We will 

not have that ability. We will have to shrink our portfolio significantly. So we’re deadly afraid of this. But, again, the bottom line 

is there is no benefit to the United States, zero. 

Mr. CANSECO. In your testimony, you described some of the frustrations you have with regulators over fair lending laws which can 

sometimes draw in the Department of Justice investigations; can 

you give us some further insight into the negative impact the regulatory approach over fair lending laws has over your bank, other 

community banks, and your customers. Very briefly, because I 

think I’m running out of time. 

Mr. URRABAZO. Yes. Again, the fair lending laws are extremely 

delicate, and very, very serious, and we’re very, very concerned 

about them, and we want to do the right thing. Fair lending sounds 

correct, but it’s very, very difficult to put into one particular area 

34 

and put it in the same box and be fair to everybody. It’s just very 

difficult. The issue is when it goes to Dallas, and then from Dallas 

it goes to Washington, and then from Washington it goes to the 

DOJ. And that’s where you have to have an extremely—a lot of 

professional people, a lot of expert people who know what they’re 

doing when it gets to those levels. And I’m talking about attorneys, 

etc., etc. I think that some of these cases are completely out of 

hand. When you talk about maybe 55 accounts that were in one 

particular branch that were out of whack with another branch by 

75 basis points, and you’re talking about an $11 billion bank and 

you’re talking about 55 accounts, 55 mortgages, that’s when it’s 

really out of hand. 

Mr. CANSECO. Thank you very much. One more question to Mr. 

George Hansard. Community banks provide the credit necessary 

for economic growth and job creation in communities such as Fort 

Stockton; have you given any thought to what your community 

would look like if there weren’t institutions such as yours to provide credit? 

Mr. HANSARD. I have given a lot of thought to it. If you just had 

the megabanks in Fort Stockton, Texas, all that you would see 

would be consumer loans, car loans, maybe credit cards, things like 

that. I believe that your small businesses that we work with every 

day would simply be nonexistent, the mom-and-pop operations that 

I think drive the communities, there wouldn’t be that emphasis. 

Mr. CANSECO. How would large banks fare in a community like 

Fort Stockton if they would come up and set up a branch there? 

Mr. HANSARD. I would hope not very well. No, in a community 

like Fort Stockton, I don’t believe that a large megabank would be 

well-accepted. Our model is all the bank that you’ll ever need. We 

believe that. We handle consumer loans, we help people get credit 

card loans, we do a lot of small mortgages that we keep in-house. 

These are mortgages that would not qualify for the secondary market. And if that was squeezed off, we have a low-income community, and it would be very, very detrimental to our consumers. 

Mr. CANSECO. And Fort Stockton is a community that wants to 

grow and has a solid business background, doesn’t it? 

Mr. HANSARD. Yes, sir. 

Mr. CANSECO. And would you agree that the cost of all these regulations that we have been talking about ultimately are paid by 

the consumers and businesses that rely on your bank services? 

Mr. HANSARD. I would say so. Anyone who doesn’t understand 

that needs to go back to school, I would think. 

Mr. CANSECO. Thank you, Mr. Hansard. I yield back. 

Chairwoman CAPITO. I think that concludes our hearing. I think 

we have gotten a lot of very good information to take back to Washington. I would like to thank a few folks that I didn’t thank in the 

beginning. I would like to thank my staff for putting this together 

and doing an excellent job. And I would like to thank Mr. Canseco’s 

staff, both his district and his D.C. staff, for working with us to 

make this successful. And I would like to thank everybody who 

works in this building and has helped us, as well. Thank you all. 

And I would really like to thank Mr. Hansard’s two young children 

who have sat through 2 hours of this. I know you’re proud of your 

35 

dad or you wouldn’t be here. You’re going to write a paper on this 

when you get home, right? 

With that, this hearing is adjourned. The Chair notes that some 

Members may have additional questions for this panel, which they 

may wish to submit in writing. Without objection, the hearing 

record will remain open for 30 days for Members to submit written 

questions to these witnesses and to place their responses in the 

record. 

[Whereupon, the hearing was adjourned.] 

(37) 

A P P E N D I X 

March 14, 2012 

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