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RISING REGULATORY COMPLIANCE COSTS 

AND THEIR IMPACT ON THE HEALTH OF 

SMALL FINANCIAL INSTITUTIONS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

MAY 9, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–122 

( 

(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: 

May 9, 2012 ....................................................................................................... 1 

Appendix: 

May 9, 2012 ....................................................................................................... 41 

WITNESSES 

WEDNESDAY, MAY 9, 2012 

Calhoun, Michael, President, Center for Responsible Lending (CRL) ................ 17 

Grant, William B., Chairman, President, and Chief Executive Officer, First 

United Bank and Trust, on behalf of the American Bankers Association 

(ABA) ..................................................................................................................... 8 

Levitin, Adam J., Professor of Law, Georgetown University Law Center .......... 15 

Templeton, Ed, President and Chief Executive Officer, SRP Federal Credit 

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

(NAFCU) ............................................................................................................... 10 

Vallandingham, Samuel A., Senior Vice President and Chief Information Officer, The First State Bank, on behalf of the Independent Community Bankers of America (ICBA) .......................................................................................... 11 

West, Terry, President and Chief Executive Officer, Vystar Credit Union, 

on behalf of the Credit Union National Association (CUNA) ........................... 13 

APPENDIX 

Prepared statements: 

Calhoun, Michael .............................................................................................. 42 

Grant, William B. ............................................................................................. 49 

Levitin, Adam J. ............................................................................................... 60 

Templeton, Ed ................................................................................................... 68 

Vallandingham, Samuel A. .............................................................................. 97 

West, Terry ....................................................................................................... 107 

(1) 

RISING REGULATORY COMPLIANCE COSTS 

AND THEIR IMPACT ON THE HEALTH OF 

SMALL FINANCIAL INSTITUTIONS 

Wednesday, May 9, 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 10:02 a.m., in room 

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

[chairwoman of the subcommittee] presiding. 

Members present: Representatives Capito, Renacci, Royce, Hensarling, Pearce, Luetkemeyer, Huizenga, Duffy, Canseco, Grimm, 

Fincher; Maloney, Watt, Baca, Scott, and Carney. 

Ex officio present: Representative Bachus. 

Chairwoman CAPITO. The hearing will come to order. Our understanding is that Ranking Member Maloney will be a little late, and 

she said to go ahead and start. So, I would like to welcome everybody. 

Over the last 10 months, the Financial Institutions and Consumer Credit Subcommittee has held a series of field hearings 

across this Nation. Although the focus of each hearing differed, one 

common theme emerged, which was that the pressure on small institutions is growing across the country. 

One of the most poignant comments I heard during these field 

hearings was from a community banker who said, ‘‘Every banker 

knows that they will eventually have to consider the option of selling their institution to an acquirer. Unfortunately, the current regulatory environment is forcing many bankers to make these decisions prematurely.’’ 

This morning’s hearing will provide all members of the subcommittee with the opportunity to learn more about the growing 

regulatory burden facing small- and medium-sized financial institutions. We are not here this morning to deregulate the financial 

services industry. Rather, we are here to learn about the unique 

challenges faced by these institutions and the impact it has on the 

communities they serve. We must strike the appropriate regulatory 

balance, and we must pay attention to the cumulative effect of regulatory burden. Outdated and unnecessary rules should be removed as new rules are implemented. 

This is not a partisan issue. Treasury Secretary Timothy 

Geithner echoed many of these concerns in an August 2010 speech: 

2 

‘‘We will eliminate rules that did not work. Wherever possible, we 

will streamline and simplify.’’ Unfortunately, little or no progress 

has been made on streamlining and simplifying, as many new rules 

and regulations are being implemented. 

I have some serious concerns that the growing regulatory burden 

for small financial institutions will lead to further consolidation in 

the industry. Between 1990 and 2005, the percentage of banking 

assets held by the 10 largest banks grew from 10 percent to 55 percent. Small, rural communities in States like West Virginia depend 

on community banks and credit unions. There is little or no incentive for larger institutions to serve these communities. If we do not 

take the steps to ensure the future viability of small financial institutions, the very communities that they serve will be adversely affected. Small-town America cannot have a resurgence without the 

local community bank and credit union there to spur their economic growth. 

I look forward to hearing from our witnesses, and I thank them. 

Their input will continue to help the subcommittee make informed 

decisions about the future of small financial institutions. 

Mr. Scott, would you like to make an opening statement? 

Mr. SCOTT. Sure, Madam Chairwoman. Thank you. 

This is an important hearing, and it is one in which I take a particular interest because I think there comes a time when you really 

have to speak up for the smaller banks and credit unions, and the 

fact that one size does not fit all. I have said that many times in 

the committee. 

While I am a strong supporter of Dodd-Frank, I am also a strong 

supporter of small financial institutions, because in so many communities, that is all they have. I think that we were smart to have 

exempted the smaller banks, I think below the $10 billion in total 

assets. And I led the fight on that, because the big problem that 

we ran into in terms of financial crisis was pretty much a fault of 

your larger financial institutions, not the small ones. 

And so as we move forward, we have to, I think, dance with sort 

of a delicate balance here. I truly want to find the proper mix of 

regulation of the financial institutions, while at the same time finding the right balance for consumer protection. 

The Dodd-Frank legislation was written and was mainly intended to protect consumers, and under a single regulator, in a 

way that levels the playing field so that it does not put a disproportionate hardship on community banks and credit unions. It was enacted while keeping in mind the burdens that many of our financial 

institutions already carry, particularly in our recovering economic 

climate. That is very important. 

I represent a State, the State of Georgia, which has led the Nation and still leads the Nation in the failure of small community 

banks. A combination of two things happened there. There was 

overleveraging of their portfolios on real estate, but there was also 

a failure on our part to really provide the proper types of supervision, of bank examinations. 

And so it is very important, as we look at Dodd-Frank and the 

Consumer Protection Bureau, we understand it is required to consult with the financial institutions so that we can get the proper 

3 

feedback from the smaller community banks on what effect the proposed rules would have on them, and small businesses, as well. 

Currently, the CFPB is working to reduce the regulatory burden 

of the new guidelines by developing a more simple and efficient 

method for mortgage disclosures. And under Dodd-Frank, financial 

institutions are permitted to consider seasonal income when approving mortgage loans. That is very important. Therefore, this authorization allows further access to credit for those who gain income on a seasonal basis, which is very much true in my State and 

many other States across this country, instead of a more constant 

income flow throughout the year. This is what I mean by a delicate 

balance and being sensitive to the particularities of individual communities. 

I believe that Dodd-Frank has already had a basically positive effect with small businesses and on small financial institutions. However, I look forward to learning more about its effects by questioning our expert witnesses this morning. And since our economy 

is still in recovery, this is an especially important and timely subject. 

Madam Chairwoman, again, I appreciate you having this hearing, and I yield back. 

Chairwoman CAPITO. I thank the gentleman. 

I would like to recognize the chairman of the full Financial Services Committee, Chairman Bachus, for 3 minutes for an opening 

statement. 

Chairman BACHUS. Thank you, Madam Chairwoman. And I appreciate the witnesses’ attendance. 

We are all confronted with a Dodd-Frank Act that was passed 

and signed into law 2 years ago that represents the most, I guess 

we call it ambitious, or most radical I would like to call it, changes 

in the regulation of financial institutions since the Great Depression. 

And I would disagree with my colleagues that it has been a positive for community banks and even regional banks. I am not even 

sure how many of the rules apply, but it is probably 900 or 1,000 

new rules. I noticed in the ICBA’s testimony that they said the 

rules are too numerous to list, and I think that is absolutely true. 

It would take probably 3 days of one person listing the changes. 

I know that these rules are not only imposed on the banks, but 

they are imposed on consumers and the economy as a whole. And 

I believe it is going to stifle economic growth and employment. So 

it is not only going to be bad for the banks, it is going to be bad 

for consumers and bad for the economy and, ultimately, bad for 

employment. And employment is really the number-one problem in 

this country, because you identify even more with your job than 

you do with homeownership. You never get to the dream of homeownership if you don’t have a job. 

All of us have heard time and time again from community banks 

and small business owners what these regulations mean. And, basically, they mean not only money, tremendous amounts of money, 

but your time and resources. Just the cost of data collection is astronomical. We are beginning to hear figures for small banks that 

one regulation alone is going to cost tens of thousands of dollars 

and will actually handicap them in making good loans. And, ultiVerDate Nov 24 2008 18:22 Sep 26, 2012 Jkt 075728 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\75728.TXT TERRIE
4 

mately, these costs are passed on to consumers and they divert private sector resources away from creating badly needed jobs. 

As you all probably have followed, we have made some progress. 

In the JOBS Act, we relaxed the SEC regulations. We passed a bill 

that Mr. Duffy had on making the CFPB better organized. But 

there is a long way to go. And I know Mr. Luetkemeyer, being a 

community banker, has the Communities First Act. But we will 

continue to work on this. 

And we know that every day, we find a new problem with DoddFrank, as far as the community banks. One of the things that you 

don’t discuss a lot of times, but you are aware of, is the rule with 

municipal advisors, but that is just one of literally hundreds. So, 

we are going to do everything possible to get some of these regulations pared back and repeal them. And I look forward to hearing 

from the witnesses. 

Thank you. 

Chairwoman CAPITO. Thank you. 

I now recognize Mr. Baca for 2 minutes for an opening statement. 

Mr. BACA. I want to thank the chairwoman and the ranking 

member for calling this hearing today. 

And I also want to thank the panelists for being here and offering their insights. We look forward to hearing your thoughts on 

this issue, so thank you very much for being here this morning. 

As we continue to work our way through this recovery, it is important to remember the health—and I state, the health—and the 

well-being of community banks and credit unions is protected—is 

protected. Because I think everyone here will agree that these institutions had very little to do with the problems that caused the 

collapse—and I state, the collapse—of 2008, yet, they are still feeling the impact. 

Over the past 2 years, I believe this subcommittee has examined 

the topic several times through a variety of different perspectives. 

I believe it is something that we have done a good job with, and 

I hope that we will be able to keep this practice going forward. 

But, obviously, a lot is being made of the costs associated with 

implementation of Dodd-Frank. It is clear that the implementation 

of rulemaking procedures hasn’t been the smoothest operation, as 

the Chair just indicated, and there is still some uncertainty about 

the costs going forward. But in the long run, it will be a savings 

and protection too, as well. I am proud of the work that has been 

done as far as Dodd-Frank, and I am quite certain that the costs 

of doing nothing in the wake of the economic collapse would have 

been much more tension than we have seen in the past. 

Remember, former Federal Reserve Chairman Alan Greenspan 

said to trust them; they know what they are doing. We did trust 

them, but they didn’t know what they were doing. That is why we 

needed the oversight and the accountability, and that is why we 

are where we are today. 

It has been said before, when we look at regulations, that we 

shouldn’t be focused on looking for overregulation. Instead, we need 

to focus on reforming bad regulations, and that is what we should 

be looking at, and the abuse. I think a discussion based around the 

facts is the best way that we can continue to rebuild our financial 

5 

sector into the vibrant and dynamic market it was before it collapsed. 

Again, I want to thank the Chair and the ranking member. I 

yield back the balance of my time. 

Chairwoman CAPITO. The gentleman yields back. 

I would like to recognize Mr. Royce for 11⁄2 minutes for an opening statement. 

Mr. ROYCE. Thank you, Madam Chairwoman. 

The observation I would just like to make here is that the consolidation toward larger and larger institutions increases the 

amount of systemic risk out there. If we want to look at one of the 

key factors that created and smashed the banking system of the 

United States, it was the Federal Reserve for 4 years in a row setting negative interest rates and creating an environment where everybody would go out and borrow against their homes and create 

that asset bubble, right? And you saw one-third of all transactions 

were people flipping homes. That is what happens when you do 

something like that, and we are now living with the consequences 

of it. 

But in order to try to deal with those consequences, there are unforeseen consequences of passing millions of regulations. And the 

Dodd-Frank Act—I just want to talk for a minute about the impact 

that is having on community banks. We have about 7,000 community banks in this country. The compliance costs for medium-sized 

banks compared to large institutions is 21⁄2 times the compliance 

costs for operating expense. And so, the consequence is they become less and less competitive. 

And on top of that, you created this cost-of-capital advantage for 

the systemically risky institutions by the fact they were bailed out. 

I was against that, but many thought it was a wise thing to do. 

We are now living with the consequences, in the fact that their cost 

of capital is less than the community banks that they compete 

against. And as a consequence of that, they are gobbling up their 

smaller competitors, and, again, they are increasing their systemic 

risk to the entire system. 

So at the end of the day, when you have a situation where for 

every employee who is helping a customer, you have 1.2 manhours 

spent on compliance, it is time to look again at Dodd-Frank and 

how we can adjust this. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

I would like to recognize Ranking Member Maloney for as much 

time as she may consume. 

Mrs. MALONEY. I thank the chairwoman for calling this hearing. 

And I apologize to my colleagues. I had a doctor’s appointment 

off the campus and was rushing back. And I regret that I was not 

here to hear the opening statements of my colleagues. 

I want to, first of all, thank the witnesses who are here today. 

This subcommittee has spent a great deal of time over the course 

of this Congress looking at the costs of regulatory compliance on 

small institutions. The implication is that all of this new regulation, including, I might add, the credit card bill which I authored, 

is costing financial institutions too much and that the benefit is not 

outweighing that cost. 

6 

And while I do think it is the role of this subcommittee to consider the costs to financial institutions of regulations and to always 

make sure that they are fair and appropriate, it is also critically 

important to examine the costs to consumers and to the overall 

economy of underregulation. 

After the Great Depression, we enacted three critical reforms 

that gave this country 70 years of financial growth and prosperity: 

we created the SEC; we created the FDIC; and we enacted GlassSteagall. These three reforms were viewed as regulatory burdens 

at the time, but it was only when we started rolling back these regulations, allowing unregulated areas to stay unregulated, and literally moving areas of regulation, particularly in derivatives on 

open exchanges off the exchanges, that we got into trouble. 

One of my most memorable days was when President Obama 

came to my district right after Dodd-Frank had passed the Senate. 

Many people were concerned. And he read this—I want to read 

what is in The New York Times. And he said the bankers were 

upset. They were thinking that this was going to cause havoc in 

the industry. And then he said—in 1932, right after they had enacted the FDIC, the SEC, and Glass-Steagall, which, by all accounts, have given us prosperity and growth in our country. 

Now, I am sympathetic to the cost of regulatory compliance. But 

laws like the Credit CARD Act have saved consumers as much as 

$10 billion, according to the Pew Foundation report, in the first 

year it was enacted. And when we passed the CARD Act—because 

there were many identified abuses that needed to be stamped out, 

abuses like anytime, any reason, over-the-limit penalty fees, billing 

gimmicks. These abuses kept the marketplace from functioning 

properly. 

Consumer complaints about credit cards flooded my office and 

the Federal Reserve. They got over 60,000 complaints on it. So, we 

implemented reforms to address these complaints in a way that 

was balanced, that would allow the marketplace to function more 

competitively. 

I might add that many institutions implemented the gold standard of the bill voluntarily, and then they were disadvantaged to 

other competitors. So it leveled the playing field for institutions 

and, I would say, gave consumers more tools to manage their credit. 

And in Dodd-Frank, we also took great care to minimize the compliance burden on small institutions. As far as the CFPB is concerned, for the first time there will be oversight of the shadow 

banking industry, those areas that were not regulated, which is a 

principal focus of the Bureau that does not affect financial institutions. In the area of the Deposit Insurance Fund (DIF), DoddFrank changes the formula for deposit insurance assessments so 

community banks will pay significantly less in premiums. And only 

the larger institutions will be required to help shore up the DIF, 

which will help provide a better cushion that will help banks of all 

sizes. And, finally, we made the $250,000 deposit insurance limit 

permanent. 

So while I am sympathetic to regulatory burdens and cost of 

compliance, I am also mindful of the cost of not implementing regulations, of deregulation. And we have to remember that during this 

7 

crisis, our economy lost over $17 trillion in household wealth, 

which all economists and all analysts said could have been prevented with better financial regulation. 

I want to make sure as the months and years pass since the fall 

of 2008, that we don’t forget how close we came to an economic collapse. We needed these reforms, and I am hopeful that these reforms will give us the same type of prosperity that the reforms 

after the Great Depression gave this country. 

Again, I thank the panel, and I thank my colleagues, and I yield 

back. Thank you. 

Chairwoman CAPITO. Thank you very much. 

I would like to recognize Mr. Duffy for 1 minute for an opening 

statement. 

Mr. DUFFY. I thank the Chair for having this hearing, and I appreciate the witnesses taking the time to attend. 

I am curious to hear from the witnesses as to whether your testimony is going to be consistent with what I hear back in central and 

northern Wisconsin, where we have a lot of small banks and credit 

unions who talk about just the cost of compliance with all these 

new rules and regulations and what it is doing to them with their 

ability to get dollars out the door to Main Street America, which 

is the lifeblood of growth in our economy. And I am curious to hear 

if you all have the same philosophy that I am hearing back at 

home. 

But also, we are hearing a lot about the unintended consequences of Dodd-Frank from the new rules and regulations, the 

consolidation that is taking place. But at one point, when I sit 

back, I wonder, was this really intended, to see this consolidation 

of our small banks? Maybe it is easier to regulate our small banks 

and credit unions if there is consolidation. And I have to tell you, 

when I see that, when I hear about that, that does not benefit rural 

America, small-town America. It actually, I think, makes it more 

difficult for our businesses and our communities to grow with this 

continued consolidation. 

And one of my concerns is, as we are going to hear the testimony 

about the concerns with regard to the new rules and regulations, 

there are some, with the overwhelming evidence that has come out, 

who turn a deaf ear to the problems that our small banks and credit unions are facing. 

I look forward to the testimony of the panel, and I yield back. 

Chairwoman CAPITO. Thank you. 

Our final opening statement is Mr. Canseco for 11⁄2 minutes. 

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

for holding this very important hearing. 

Back in March, this subcommittee held a hearing in San Antonio 

to examine the challenges facing community financial institutions 

throughout Texas. One of the witnesses at the hearing, a community banker from El Paso, summed it up best. He explained that 

in his previous life as an Army commander of a top-performing nuclear combat outfit, he felt that his crew, which had the capacity 

and firepower to trigger the end of the world, operated with greater 

discretion and wasn’t nearly as micromanaged as his loan officers 

in El Paso now are as they extend credit to families and businesses 

in west Texas. 

8 

I guess you can say we are officially living in a Dodd-Frank 

world. Despite all the assurances we have heard that Dodd-Frank 

will not impact small lenders, every day we are reminded that is 

simply not the case. 

Thank you, and thank you for holding this hearing. And I look 

forward to hearing from the witnesses. 

Chairwoman CAPITO. Thank you. 

And that concludes our opening statements. 

I would like to recognize each witness for the purpose of making 

a 5-minute opening statement. 

I will first recognize Mr. William Grant, who is chairman, president, and chief executive officer of First United Bank and Trust. 

And I would like to thank him for wearing the West Virginia tie 

for me. 

STATEMENT OF WILLIAM B. GRANT, CHAIRMAN, PRESIDENT, 

AND CHIEF EXECUTIVE OFFICER, FIRST UNITED BANK AND 

TRUST, ON BEHALF OF THE AMERICAN BANKERS ASSOCIATION (ABA) 

Mr. GRANT. Thank you very much. Chairwoman Capito, Ranking 

Member Maloney, and members of the subcommittee, my name is 

William Grant. I am chairman, president, and CEO of First United 

Bank and Trust. 

My bank is a community bank serving four counties in Maryland 

and four counties in West Virginia. For decades, and in my bank’s 

case for more than a century, community banks have been the 

backbone of all the Main Streets across America. We have a personal stake in the economic growth, health, and vitality of nearly 

all communities. 

Unfortunately, the cumulative impact of years of new regulations 

is taking its toll. While community banks pride themselves on 

being flexible and meeting any challenge, there is a tipping point 

beyond which community banks will find it impossible to compete. 

Over the last decade, the regulatory burden has multiplied tenfold, 

and, not surprisingly, more than 1,500 community banks have disappeared. 

As a banker, I feel like Mickey Mouse as the sorcerer’s apprentice in Disney’s famous cartoon film ‘‘Fantasia.’’ Just like Mickey, 

with bucket after bucket of water drowning him, new rules, regulations, guidances, and requirements flood into my bank, page after 

page and ream after ream. With Dodd-Frank alone, there are over 

7,500 pages of proposed and final regulations, and we are only a 

quarter of the way through the 400-plus rules that have to be promulgated. 

For my community bank, we very conservatively estimate nearly $2.5 million in hard dollar compliance costs per year and expect 

that Dodd-Frank will add another $275,000. As a billion-dollar 

bank, I am able to spread some of those compliance costs. That is 

not possible for the medium-sized bank of only $166 million with 

38 employees. 

At a meeting of community bankers just this week, I heard the 

same story over and over. Many believe that their compliance costs 

will increase 75 to 100 percent over the next 2 years as they add 

new staff, hire outside help, train employees, modify systems, 

9 

change reporting, and undergo new audits for compliance. For the 

industry, we believe the compliance costs conservatively exceed $50 

billion each year. Even a small reduction in the cost of compliance 

would free up billions of dollars that could facilitate loans and 

other banking services. 

The direct costs are just part of the story. Instead of money facilitating loans to hardworking people, it is being spent on consultants, lawyers, and auditors. Instead of investing in new products 

to meet the ever-changing demands of our customers, banks are 

paying for the changes to compliance software. Instead of our staff 

teaching children financial literacy in classrooms, my staff is learning about new regulations. Excessive regulation saps staff and resources that should have gone to meeting the needs of our customers. 

Before concluding, let me give you two examples of the problem 

we face. 

Many banks are being targeted by enterprising lawyers for not 

having vigilantly maintained paper signage on our ATMs. Our 

bank employees have to run around to all of our ATMs to ensure 

that stickers have not been removed by vandals. That is why ABA 

supports H.R. 4367, introduced by Representatives Luetkemeyer 

and Scott. And we appreciate that. 

Second, potential legal risks are magnified in Dodd-Frank and 

may force some banks out of some lines of business. At my bank, 

we used to offer mobile home financing loans, but no more, due in 

part to the very large legal risk and cost of refuting unfounded 

predatory lending lawsuits. Now, people in our rural area have one 

less option for mobile home financing. 

And this story may be about to repeat itself in the entire mortgage market area. Dodd-Frank requires lenders to show that borrowers meet an ability-to-repay test, which can be challenged in 

court for the entire life of the loan. The legal risk is enormous. 

Without a full safe harbor, banks will be forced to make loans well 

within the boundaries of the rule to limit litigation risk. Mortgage 

credit will contract, and many creditworthy borrowers will see their 

hopes of homeownership vanish. 

Again, bankers this week told me that they are considering ceasing their mortgage lending activities. This would be a chilling consequence of a misguided regulation. 

The consequences of excessive regulation are real. It makes it 

much harder to serve our customers and our communities, and it 

means a weaker economy and slower job growth. 

Thank you. 

[The prepared statement of Mr. Grant can be found on page 49 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. Ed Templeton, president and chief executive officer, SRP Federal Credit Union. 

Welcome, Mr. Templeton. 

10 

STATEMENT OF ED TEMPLETON, PRESIDENT AND CHIEF EXECUTIVE OFFICER, SRP FEDERAL CREDIT UNION, ON BEHALF OF THE NATIONAL ASSOCIATION OF FEDERAL CREDIT 

UNIONS (NAFCU) 

Mr. TEMPLETON. Good morning, Chairwoman Capito, Ranking 

Member Maloney, and members of the subcommittee. My name is 

Ed Templeton, and I am here to testify today on behalf of the National Association of Federal Credit Unions. Thank you for holding 

this important hearing. We appreciate the opportunity to share our 

views of the impact that rising regulatory compliance costs have on 

credit unions and their member owners. Today’s hearing could not 

be more timely or more important to our Nation’s credit unions. 

While the focus of today’s hearing is on small institutions, all 

credit unions are feeling the impact of increased regulatory burden. 

Last year, NAFCU surveyed its membership regarding regulatory 

burden; 96 percent of the survey respondents said their credit 

union spent more time on it in 2010 than they did in 2008, and 

they expect the trend to continue. Respondents went on to say that 

about one-seventh of their total staff time was devoted to working 

on compliance issues. 

My credit union is experiencing the same thing, as we recently 

doubled our compliance officers from one to two. Additionally, my 

staff and I spend much more time today focused on compliance 

issues than we did just a few short years ago. 

My written testimony outlines how the Dodd-Frank Act is creating new challenges and uncertainties for credit unions. The mandate of the new CFPB could lead to an overwhelming tide of new 

compliance burdens. It will be incumbent upon the Bureau and on 

Congress to ensure that the CFPB also meets its goal of streamlining regulation and protecting small entities in every action that 

it takes. If the CFPB and other regulators do not do this in a timely and effective manner, Congress must step in. Amending or eliminating outdated regulations must be a priority. 

One of our biggest concerns is that the Dodd-Frank Act mandated regulation be finalized so quickly and so often that community-based financial institutions simply won’t be able to comply. 

JPMorgan Chase has estimated that 3,000 employees will be devoted to keeping pace with regulatory change. While my credit 

union will be subject to a number of the same regulations, I have 

only two people devoted to this task, and I just hope we can keep 

up. 

One of the most immediate impacts on my credit union from the 

Dodd-Frank Act has been the debit card interchange provision. 

While my credit union was supposed to be unaffected by this provision, that has not been the case. We have seen our debit card interchange rate drop by almost 2 cents per transaction since its enactment. 

While you hear reports that small institutions have not been affected by these rules, my credit union has, and it is facing lost revenue to the tune of about $300,000 a year. And we are seriously 

concerned about the future. To put this into a personal perspective, 

that $300,000 could mean the loss of 10 jobs at my credit union. 

Further, in order to comply with the new routing requirements 

11 

stemming from the regulation, we had to replace hundreds of plastic cards at a cost of over $2 each. 

Challenges for credit unions come not only from Dodd-Frank and 

the CFPB but also from the National Credit Union Administration. 

While the government-wide review of regulation appears to be a 

step in the right direction, it will be up to the NCUA and other 

agencies to ensure that real changes are made and not just given 

lip service. 

Finally, regulatory burden also comes from a number of outdated 

laws on the books. We hope Congress will take steps to pass legislation that will help relieve some of these heavy burdens, including: 

H.R. 3467, which would remove an outdated and redundant ATM 

disclosure fee requirement; H.R. 3461, which would improve the 

exam process for credit unions; and H.R. 3010, which would modernize the Administrative Procedures Act. 

In conclusion, the greatest challenge facing credit unions is the 

cumulative effect of a rapidly growing regulatory burden. While one 

single regulation may not be particularly burdensome, the cascading of new regulation on top of old regulation is completely overwhelming to small institutions. We hope that agencies will consider 

how any one proposed change to a regulation may impact the total 

compliance burden from all regulations. 

Every dollar spent on compliance is a dollar that could have been 

spent to create jobs and provide additional services. NAFCU urges 

the committee to move forward with legislation that will provide 

regulatory relief from outdated laws and regulations for credit 

unions. We thank you for your time and the opportunity to testify 

before you today on these important issues to credit unions and, ultimately, our Nation, and welcome any questions you may have. 

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

68 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is a fellow West Virginian, and I want to welcome Sam Vallandingham here from Barboursville. He is senior 

vice president and chief information officer for the First State 

Bank. 

Welcome, Sam. 

STATEMENT OF SAMUEL A. VALLANDINGHAM, SENIOR VICE 

PRESIDENT AND CHIEF INFORMATION OFFICER, THE FIRST 

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

Mr. VALLANDINGHAM. Thank you, and good morning. 

Chairwoman Capito, Ranking Member Maloney, and members of 

the subcommittee, I am Samuel Vallandingham, senior vice president and chief information officer of The First State Bank, a $288 

million community bank in Barboursville, West Virginia. I am 

pleased to be here to represent the nearly 5,000 members of the 

Independent Community Bankers of America at today’s hearing. 

A surge of new financial regulation has changed the nature of my 

job and the community banking industry in recent years. The problem, which is already straining our ability to serve customers, only 

stands to get worse and potentially drive further industry consoliVerDate Nov 24 2008 18:22 Sep 26, 2012 Jkt 075728 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\75728.TXT TERRIE
12 

dation. We appreciate your raising the profile of this critical issue 

and hope that you will advance needed legislative solutions. 

Our written testimony contains detailed data on compliance expenses incurred by The First State Bank since 2008. Let me just 

share with you a few discrete examples that illustrate an alarming 

trend. I am currently spending as much as 80 percent of my working time on compliance-related issues, compared to approximately 

20 percent as little as 3 years ago. We have documented 921 compliance changes from a spectrum of agencies implemented since 

2008. While not all of these apply to my bank, we have to evaluate 

each one and determine its impact. In 2011 alone, Fannie Mae and 

Freddie Mac implemented 36 origination and 59 servicing rule 

changes. In mortgage servicing alone, we have gone from 1 collector 

to 31⁄2, and have incurred nearly $100,000 in incremental payroll 

expenses as a result of new compliance standards, not as a result 

of higher delinquencies. Webinar training expenses in the first 4 

months of 2012 are already double what they were in all of 2008. 

Other significant expenses include legal and audit fees, software 

upgrades, and in-house training. 

Every dollar spent on compliance is one that I can’t invest in my 

community. Every hour I spend on compliance is an hour I could 

be spending with small business customers, acquiring new deposits 

and making new loans, doing the work that won The First State 

Bank SBA Lender of the Year in 2001 and SBA Community Bank 

of the Year in 4 consecutive years. Compliance is almost all I do 

now. Many days, I feel like I am not a banker anymore. 

As expensive and wasteful as the current regulatory environment 

is, we only expect it to get worse in the future. The Dodd-Frank 

Act, which is only beginning to be implemented, is a source of particular concern. The most troubling provisions of the Dodd-Frank 

Act include new mortgage lending requirements that run the very 

serious risk of accelerating industry consolidation. The result would 

be higher costs and fewer choices for consumers, particularly in 

small communities. 

New CFPB rules are another source of risk. The CFPB must not 

contribute to our already daunting regulatory burden. It should use 

its authority to grant broad relief to community banks where appropriate. ICBA also strongly supports legislation passed by this 

committee and the House, H.R. 1315, to reform the CFPB to make 

it more balanced and accountable in its governance and rule-writing. 

ICBA is very pleased that this committee has recognized the 

scope and severity of the problem of excessive regulation. In addition to passing H.R. 1315, you are considering a number of bills to 

provide relief. The most helpful pieces of legislation include H.R. 

3461, the Financial Institutions Examination Fairness and Reform 

Act, which will go a long way toward improving the oppressive examination environment—a priority concern of community bankers 

and a barrier to economic recovery. We are grateful to Chairwoman 

Capito for introducing this legislation. 

Also, H.R. 1697, the Communities First Act, addresses many of 

the regulatory concerns highlighted in this testimony. Sponsored by 

Representative Blaine Luetkemeyer, the Act has over 90 cosponsors from both parties and the strong support of 37 State banking 

13 

associations. ICBA is grateful to this committee for convening a 

hearing on CFA at which our chairman had the opportunity to testify. 

Regulatory relief is a key community bank priority, and we are 

grateful to this committee for focusing on this topic today. I urge 

the committee to also consider a topic of equivalent interest to community banks: the need for a temporary extension of the FDIC’s 

TAG program. Extending TAG would serve the same goals as I 

have stressed in this testimony: preserving community bank viability; supporting small business credit; and deterring further industry consolidation. 

Thank you for the opportunity to testify today. I hope that my 

testimony, while not exhaustive, gives you a sense of what is at 

stake for the future of community banks and the customers we 

serve. We look forward to working with this committee to craft urgently needed legislative solutions. 

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

[The prepared statement of Mr. Vallandingham can be found on 

page 97 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. Terry West, president and chief executive officer, Vystar Credit Union. 

Welcome. 

STATEMENT OF TERRY WEST, PRESIDENT AND CHIEF EXECUTIVE OFFICER, VYSTAR CREDIT UNION, ON BEHALF OF THE 

CREDIT UNION NATIONAL ASSOCIATION (CUNA) 

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

Maloney, and members of the subcommittee, thank you for this opportunity to testify at today’s hearing. 

I also could probably repeat what I just heard from those gentlemen. As you are aware, credit unions face a crisis of creeping complexity with respect to regulatory burden. This means that more 

time and resources are spent complying with ever-changing regulation, with less time and fewer resources being put to use for the 

benefit of our members. Because of our not-for-profit cooperative 

structure, the cost of complying with regulation is entirely borne by 

our membership, who own the credit union. 

Over the last several years, our compliance costs have increased 

significantly because of the high number of new and revised regulations we continue to be subjected to. In addition, the complexity of 

the requirements imposed by the ever-changing regulations is simply staggering. My written statement includes a list of almost 130 

regulations, and this is just a small portion which have either been 

finalized, amended, or revised again since 2008. That is almost one 

every other week. The aggregate impact is overwhelming. 

And there are other areas that impact us as well. Just obtaining 

permits for a new building for an ATM or a building, and with it 

comes compliance requirements. So the Federal regulators are not 

just the ones that are doing compliance burden; local and State 

regulators are imposing it, as well. 

The latest surge of regulatory changes largely responds to the financial crisis. It was the actions of larger institutions and nonbank 

financial institutions which created the need for this regulation. 

14 

Credit unions were not a source of the problem; however, they continue to be disproportionately harmed by the resulting compliance 

burden. Most of the costs of compliance do not vary by size and, 

therefore, proportionately are a much greater burden for smaller 

versus larger institutions. Consolidation in credit unions is about 

300 a year. Most of them say the primary cause is compliance burden. 

When a rule is finalized or amended, employee and credit union 

resources must be used to determine how to comply with the 

change. Forms and disclosures must be changed. Data processing 

systems must be reprogrammed. Employees must be trained and 

often retrained. Credit union members need to be informed, sometimes causing them frustration and confusion. 

For those rules which are proposed, we have to spend resources 

determining how we would comply with a regulation even if it is 

not finalized in order to be prepared for sometimes extremely short 

implementation timelines. I received one yesterday. We have until 

September to put it in place. 

A recent and frustrating trend has been when regulators decide 

to revise or significantly alter a particular rule immediately after 

it has been finalized and other regulatory changes have just been 

implemented. This means that resources credit unions expend to 

comply with the first regulatory change are lost, and now additional resources must be expended to comply with the new change. 

Continuing an open dialogue with the credit union industry prior 

to a rule being created or finalized would hopefully eliminate some 

of this change and help constitute and reduce some of the most significant compliance costs. 

In recent years, one example where credit unions have had to 

make major overhauls to their products and services because of 

regulatory change is credit card disclosures. As described in my 

written testimony, credit unions and other card issuers have been 

through several regulatory changes in this area in the last 3 years, 

producing understandable confusion and questions for members as 

well as credit union employees. 

Now, after multiple changes, the CFPB is talking about changing 

them again. Even minor changes will require new forms, and reprogramming by multiple vendors. This takes time and resources. 

Credit unions need ample time to implement these changes. 

There is no end in sight. The best way I could call it is: always 

increasing, never decreasing. As far as we know, there has been no 

effort to examine the cumulative effect of regulatory burden on 

credit unions, despite the high volume of changes over the past few 

years and the equally daunting volume of anticipated changes in 

coming years. We have encouraged our prudential regulator to take 

into consideration the cumulative impact on regulations for credit 

unions, but we have been told there is nothing they can do about 

regulations other agencies impose. If every regulator takes this approach, who has the responsibility to reduce it? 

We encourage the subcommittee to use its authority to provide 

meaningful relief in this area for all credit unions. The CFPB was 

granted the authority by Congress to exempt classes of entities 

from its rules to help address the disparity in compliance burden. 

The Bureau is supposed to take into consideration the impact of its 

15 

regulations on small credit unions and banks, as well as review its 

regulations and address those which are outdated, unnecessary, 

and unduly burdensome. 

Chairwoman Capito, we encourage the subcommittee to closely 

monitor the rules the CFPB considers and urge the Bureau to exercise those authorities to the fullest extent by statute. Credit unions 

work every day to service the needs of over 95 million members. 

Now emerging from the financial crisis, we face a regulatory burden crisis that, if continued, can weaken our ability to provide 

high-quality, low-cost financial services and products to our members. Because of our structure, costs are borne by the credit union 

member-owners. We appreciate the attention you have given to this 

and urge Congress to encourage the CFPB to use its authority to 

minimize or eliminate these regulations on small institutions. 

And I would be happy to respond to any questions. Thank you. 

[The prepared statement of Mr. West can be found on page 107 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. Adam Levitin, professor of law, Georgetown University Law Center. 

Welcome. 

STATEMENT OF ADAM J. LEVITIN, PROFESSOR OF LAW, 

GEORGETOWN UNIVERSITY LAW CENTER 

Mr. LEVITIN. Good morning, Chairwoman Capito, Ranking Member Maloney, and members of the subcommittee. My name is Adam 

Levitin, and I am a professor of law at Georgetown University, 

where I teach courses in financial regulation. 

Today, there are almost 15,000 banks and credit unions in the 

United States. All but 88 of them are community banks or credit 

unions, meaning they have less than $10 billion in assets. Those 

88 megabanks, however, have just shy of 80 percent of all the assets in the United States banking system. Put another way, less 

than 1 percent of the banks have four-fifths of the assets. The community banks are the ‘‘99 percent’’ of the banking world. 

This was not always the case. A decade ago, the megabanks held 

two-thirds of the assets in the banking system. Twenty years ago, 

they held but one-third of the assets. As community banks’ share 

of assets has declined, so, too, have the number of community 

banks. Over the past 2 decades, nearly 13,000 banks and credit 

unions have simply disappeared. Almost all of that decline has 

been from small institutions with less than $100 million in assets. 

Community banks and credit unions have been steadily losing 

ground for well over 2 decades, much of which was during an extended period of financial deregulation. This is a shame because 

smaller community-based depositories have a long and proud history in American banking. They are the centerpiece of lending to 

local small business. They often provide fairer and simpler products to consumers. And for rural communities in particular, they 

are often the only provider of financial services. 

Small banks face three fundamental business model problems, 

none of which have anything to do with overregulation. Therefore, 

changing regulations on the margin is unlikely to change the fundamental position of community banks. 

16 

The first problem community banks face is that they lack economies of scale that large banks have. This is a particular disadvantage in areas that can be highly automated, such as credit card 

lending. Thus, less than half of community banks issue credit 

cards—half of banks in general issue credit cards, and around 90 

percent of card issuance is done by the largest 10 banks. 

Second, community banks generally lack the geographic reach of 

megabanks. This limits their ability to diversify their deposit base 

and their lending portfolios and to attract customers. Customers 

who travel or relocate frequently place a premium on having better 

branch and ATM network coverage. 

Third, as Mr. Royce noted, community banks have a cost-of-funding disadvantage relative to megabanks. Megabanks are able to access cheaper funding because they have the scale of operations to 

access capital markets via securitization, and because they are able 

to get a too-big-to-fail discount from their creditors. Investors don’t 

demand as high a return from banks they think are likely to get 

bailed out. Cheaper debt enables megabanks to operate with greater leverage and, thus, generate higher returns on equity. On top 

of this, community banks frequently do not offer as broad a range 

of products or services as megabanks. 

I mention these structural problems in the community banking 

business model because it is important not to lose perspective. Focusing on community banks’ regulatory burdens is nibbling around 

the edges. It will not change the fundamental position of the community banking business. The type of regulatory relief being 

sought by community banks is simply not going to be a game 

changer. 

If Congress truly wishes to reverse the decline of community 

banks, there is a clear path for doing so: Eliminate ‘‘too-big-to-fail.’’ 

Force the megabanks to slim down. Once we do that, community 

banks will be viable as an industry. 

The other point I wish to make this morning is that it is critical 

to pinpoint which regulations we are talking about. It is important 

to be precise about this rather than blasting regulation as a general concept. 

Let me emphasize that almost none of the increased regulatory 

burdens to date on community banks have anything to do with the 

Dodd-Frank Act or the CFPB. While the Dodd-Frank Act has become the flagship of financial regulatory reform, most of its provisions have little or no bearing on small banks. Derivatives regulation is really not a small-bank issue, for example. 

Of the few provisions that do bear on small banks, many of them 

have not yet gone into effect, so they cannot be blamed for small 

banks’ travails. Moreover, virtually all of the CFPB rulemakings in 

progress could have been undertaken before Dodd-Frank by Federal bank regulators. And had that been done, they would have occurred without CFPB’s required small-business impact review. 

Finally, it bears emphasis that a few Dodd-Frank Act provisions 

are actually quite beneficial to small banks, including some that 

are likely to reduce their regulatory burdens. First, the creation of 

the CFPB levels the regulatory playing field between small banks 

and nonbanks in the consumer finance space. This means that everyone is going to be playing by the same rules. Second, DoddVerDate Nov 24 2008 18:22 Sep 26, 2012 Jkt 075728 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\75728.TXT TERRIE
17 

Frank has given the CFPB authority to exempt classes of financial 

institutions from some of its rules. We will see if the CFPB exercises that authority. 

Third, the CFPB has shown from its very beginning a deep commitment to be cognizant of the concerns of small depositories. The 

CFPB rulemakings on things like mortgage lending disclosures are 

going to help reduce regulatory burdens for small banks by streamlining paperwork. 

Finally, the Durbin Interchange Amendment is the single best 

piece of legislation for community banks in the past 2 decades. The 

Durbin Amendment regulates debit card interchange fees but only 

for depositories with more than $10 billion in assets. What has resulted has been two-tiered pricing: one set of fees for big banks; 

and a higher set for small banks. This helps offset the small banks’ 

disadvantages from lacking economies of scale. 

There are real regulatory burdens on small banks that can be reduced: the ATM signage requirement that was mentioned before; or 

the annual Gramm-Leach-Bliley privacy notices. But these are targeted, small-bore reforms. The longstanding business model problem with community banks should not serve as cover for a broader 

agenda of financial deregulation. 

Thank you. 

[The prepared statement of Professor Levitin can be found on 

page 60 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our final witness is Mr. Mike Calhoun, president of the Center 

for Responsible Lending. 

Welcome. 

STATEMENT OF MICHAEL CALHOUN, PRESIDENT, CENTER 

FOR RESPONSIBLE LENDING (CRL) 

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

Maloney, and members of the subcommittee. I appreciate the opportunity to address the issue of regulatory burdens on community 

financial institutions and what we can do to reduce it. 

CRL is the policy affiliate of Self-Help, which is a community 

lender offering retail banking services, mortgage loans, small business loans, and community facility loans. While Self-Help is relatively small, it has an impact like other community lenders. It is, 

for example, the largest SBA lender in North Carolina as well as 

the largest charter school lender in North Carolina. 

I have previously served as general counsel for Self-Help, as well 

as heading up our business lending and secondary market programs, so I have had a firsthand view of the regulatory challenges 

that small lenders face. I also saw Self-Help lose most of its mortgage business to the deceptive products that dominated lending 

leading up to the housing crisis. And I have seen the severe impact 

of that crisis on all depository institutions, especially small ones. 

As shown by CRL’s research, effective consumer protection and 

financial stability are two sides of the same coin. Our report issued 

just this week on credit card companies found that those companies 

that engaged in the most abusive practices faced the largest increases in losses during the recession, including a number of them 

18 

going out of business. We observed similar results with mortgage 

lenders. 

There are four steps that I will outline today that regulators can 

take to implement protections to increase effectiveness and reduce 

regulatory burden. 

The first is one of the most important regulations that is pending, the definition of Qualified Mortgages (QM), which will largely 

define the scope of lending. It is critical that there be bright-line 

standards that set up a broad QM market. This will give lenders 

both the certainty that they need to make sure that they are originating a QM loan and the ability to provide broad access to credit. 

This type of standard, though, is necessarily tied with a rebuttable presumption rather than an absolute immunity for QM loans, 

and let me explain why. Bright-line, broad QM standards will necessarily permit some unaffordable loans to be included within that 

standard. For example, the primary tool that regulators will likely 

use is the so-called debt-to-income ratio, what percentage of a borrower’s income is going to pay their mortgage and other debts. For 

example, a typical figure used is 43 percent. However, for borrowers on smaller incomes or those who have high debts, such as 

medical expenses, a 43 percent loan, or 43 percent of their income—and that is before taxes—goes to mortgage and other debt 

would be unaffordable. Without a rebuttable presumption, the only 

alternative is you have to have much tighter qualified mortgage 

standards, which would in turn unnecessarily cut off the credit 

that our economy needs. 

CRL and Self-Help have worked at the State and Federal level 

on mortgage regulations for over 15 years. It was predicted that 

many of those would cause floods of regulation and floods of litigation. None of them did, including the signature North Carolina law 

passed in 1999, which has far stronger remedies and far stronger 

assignee liability than the QM ability to repay rules do. 

Let me move onto the other recommendations. The second one is 

related to QM, and that deals with the Qualified Residential Mortgage (QRM). And to us, the clear path there is that they should 

make those the same definition so there is one set of standards to 

apply. That would greatly simplify compliance while still providing 

the necessary safeguards against reckless lending. 

Third, the regulators should continue their focus on nondepository lenders. In the mortgage market, these lenders led the race to 

the bottom during the crisis and had regulatory advantages over 

the depository lenders. These lenders generally need to be subject 

to oversight so they do not unfairly compete against small community lenders and do not provide unfair products. 

And finally, we need to look for ways to make regulations more 

efficient where possible. One example recently was just with the 

Bank Secrecy Act providing for electronic filing of reports, where 

that greatly increased the efficiency. 

In closing, the regulatory burden to small financial institutions 

means that rules should be clear and efficient. At the same time, 

though, we must remember that the greatest damage to small institutions came from the lack of oversight of lending practices that 

led to the housing crisis and the economic collapse and created an 

19 

unlevel playing field for community depository institutions. In sum, 

our rules must also be effective and apply to all lenders. 

I thank you, and I look forward to your questions. 

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

42 of the appendix.] 

Chairwoman CAPITO. Thank you. 

I would like to thank all of the witnesses. 

We will proceed with 5 minutes of questioning for each Member, 

and I will begin with mine. 

I think you have all testified that there is obviously an increased 

regulatory burden with Dodd-Frank as we moved through the last 

several years. In my opening statement, I mentioned that Secretary 

Geithner had expressed a desire to scrape out the old regulations 

while the new, more efficient, and better ones would be coming in. 

The President mentioned that, I believe, in his State of the Union 

Address last year, when he mentioned regulation in a general and 

broader sense. 

I would like to ask—I will start with you, Mr. Vallandingham. 

You mentioned that 80 percent of your time is spent on compliance. 

Are you finding that any of these older regulations that are less 

relevant have been removed and been replaced, or are they still in 

place? And could you give me an example, maybe, of something 

that you think would be wise to move out as antiquated or outdated? 

Mr. VALLANDINGHAM. To date, my experience has been that I 

have not seen any regulations removed. I continue to see the piling 

on of additional regulations. And as many of the people who testified today indicated, implementation times are not realistic, and 

they just—it seems like we are trying to hit a moving target. 

In terms of things that I think could be updated, there are good 

examples where technology has surpassed former regulation like 

Reg E and some of the other—especially in UCC on check clearing, 

as we start to clear image checks. 

So there are a lot of things, I think, that could ultimately be revised, but the truth is that we don’t see anything being removed. 

And most stifling, in my opinion, is in the mortgage area, we continue to see just piling on and piling on. And it is really increasing 

the cost to the consumer; it is eliminating dollars that we could invest. And so, that is my experience. 

Chairwoman CAPITO. Mr. Grant, do you have a comment on that? 

Mr. GRANT. I would agree with what Mr. Vallandingham said. 

We are not seeing any rollback of any significant amount of regulations. 

I would offer up what we in our bank have as the poster child 

of regulations that just are ineffective, and that is the 3-day right 

of rescission on certain types of mortgage loans. And maybe it was 

well-intentioned when it went through in the 1970s, but it basically 

mandates that distributions cannot be made at the closing table. 

There has to be a 3-day right of rescission. And I can tell you, in 

the last 30 years, out of a couple hundred thousand mortgages that 

we have done at First United, we have only had one person exercise that right of rescission, yet, it remains as a thorn in the side 

at the closing table. When people want to waive that right so they 

can close the transaction, they are unable to do so. 

20 

And that is just at the head of a very long list of similar types 

of regulations. 

Chairwoman CAPITO. Okay. 

In terms of your own institutions, have you—there is a statistic 

out there that says one of the top 10 fastest-growing occupations 

in America is bank examiner and compliance officer. Have you 

yourselves had any recent hires that would kind of back up that 

statistic? 

Yes, Mr. West? 

Mr. WEST. One of the things we have done is add, in the last few 

years, a senior VP of risk management. They are almost impossible 

to find. And the price range is $300,000 to $350,000 a year just for 

one person. 

On top of that, we have two information security officers. We are 

about to add a third one because we are a large credit union, so 

therefore, we have to stay on top of it. We have added—in our bank 

secrecy area, we had five people; we just added another one. We 

added $200,000 worth of software to assist them and still added 

more bodies. 

So we are adding people every day, it seems, who are taking 

more time. I was listening to the 80 percent. My mortgage department VP—and we are a large mortgage processor; we sell and service to Fannie Mae—spends probably 40 percent of her time now on 

compliance. 

And we want to do it right, as a credit union. The challenge we 

have is, the frequent changes are so much, we will change this and 

suddenly Fannie Mae changes another rule. So it is not just coming 

out of Dodd-Frank, it is other entities we may do business with and 

the cumulative impact. It just becomes onerous, and then trying to 

understand it. 

We also do international wire transfers. Recently, the new remittance rule came out on it. It is 116 pages long. We do about 160 

in a high month. We now have had to go through—yesterday, we 

did something I will rarely do; I increased the price on them to 

help cover the cost of it. And we sit in our boardroom and try to 

say, let’s find a way not to charge fees. And yet yesterday we said, 

we don’t have a choice, we are going to have to do something. It 

is just too costly to comply with this. 

So we find every part of the institution is spending more time on 

compliance. My board and I track it quarterly. Sometimes my 

board now says, when do you do other stuff? 

Chairwoman CAPITO. Thank you. We will leave that comment as 

my final comment. 

Mrs. Maloney is recognized for 5 minutes. 

Mrs. MALONEY. First of all, many of these regulations came into 

effect because of the financial crisis, but during the financial crisis, 

from the community that I represented and many others I have 

heard from my colleagues, the real backbone that kept providing 

loans and support and adjusting mortgages and working were the 

smaller banks. You did a fantastic job during that period, and I 

want to express my gratitude. 

A cornerstone of Wall Street reform is providing regulators with 

authority to require regulations of the nonbank firms that compete 

with banks in the financial services marketplace—the brokers, the 

21 

AIGs, the swaps, the this, that, and the other. But they were not 

subject to comparable regulation before the crisis. One of the things 

that Dodd-Frank did was bring all these nonregulated competitors 

into the same regulation of community banks and other banks. 

Do you agree that more strictly scrutinizing and regulating your 

nonbank competitors will directly benefit banks of all sizes? I 

would like to ask Mr. Grant and Mr. Templeton and Mr. Calhoun. 

Mr. GRANT. Certainly, we applaud the efforts to regulate the 

nonbanking sector. I would agree with the Congresswoman that an 

awful lot of the crisis that hit our country so hard came from the 

nonbanking sector. And we would encourage that that be the primary focus of the CFPB, remembering that our institutions seated 

at this table already have prudential regulators with a multitude 

of regulations and they are in our shops for extended periods of 

times regulating. 

We are a little bit concerned by some of the dialogue coming from 

the CFPB indicating a desire to go and look at areas on which our 

prudential regulators have already spent a lot of time. I know the 

Congresswoman has a lot of thoughts regarding overdrafts. And, 

certainly, we have seen a wealth of regulation and guidance that 

has come from the Federal Reserve, and subsequently from the 

FDIC. And now, we are being told that may be an area of focus 

by the CFPB. Our sense is, we have already heard a loud and clear 

message from our regulators on how we should proceed on that, 

and it is going to be somewhat confusing if now there is another 

set of regulations. We would rather those efforts go toward the 

nonbanks. 

Thank you. 

Mrs. MALONEY. Mr. Templeton? 

Mr. TEMPLETON. I think there is general consensus that a lot of 

the economic problems we have had in the past couple of years 

have come from a lot of businesses outside of mainstream financial 

regulation. So I support regulation of nondepository institutions, 

and that is, I think, a great way to define it. 

An illustration of unintended consequence: When the licensing of 

mortgage loan originating officers began, it began globally; it didn’t 

carve out those working in a depository institution. So we spent, 

I don’t know how many hours, trying to get our officers licensed, 

filling out the paperwork, butting our head up against the brick 

wall, trying to figure out how you do this. It was all uncharted territory, a prime example of it having an unintended consequence. 

I think looking at the nondepository business segment is a grand 

thing to do and bring them up to the standards that are already 

in place of the rest of us. 

Mrs. MALONEY. Mr. Calhoun? 

Mr. CALHOUN. I think the mortgage example is probably the 

most striking, where the nondepositories led the charge into the 

kinds of exotic products that really fueled the housing bubble and 

added to the crisis. And the challenge is, if you have overhead built 

into a lending department, what do you do? We offered just fully 

documented loans, fixed-rate. And somebody else is out there selling tricked-up loans with teaser payments that don’t cover your insurance or taxes. It is hard to compete in that market, and it is 

a very tough business decision at that point. 

22 

Unfortunately, a lot of institutions got pulled down and had to 

go head-to-head with those same products because they had a 

structure built that they had to stay in business with. We lost the 

vast majority of our mortgage lending leading up to the crisis because we didn’t have those same kinds of reckless products. 

Mrs. MALONEY. I want to say that I don’t think anyone supports 

unnecessary regulation. Everybody wants to be efficient and to 

streamline and to move to electronic filing and other things that 

you have put forward. And I, for one, would join with the chairwoman in reaching out to the Treasury Department on exactly 

where they are in reviewing all of these regulations to see if some 

are unnecessary. But they also have to be looked at in terms of the 

cost, as well as the benefits, that eliminating them might pose to 

particular banks or to the financial system overall. 

I think all of us would like the 70 years of financial growth that 

we had after the Great Depression with reasonable regulation. 

And, certainly, bringing in unregulated areas would hopefully have 

prevented the crisis that we went through, if they had been regulated from the beginning. So it is an important point, and you need 

to get the right balance. But I certainly would join my colleagues 

in reviewing these and pushing to have some oversight on what we 

could do. 

And I just want to know how the compliance costs would differ between a bank that is at $9.5 billion and a bank that is at $10.5 

billion. If anyone wants to put it in writing for me, I would like 

to see the difference. 

My time has expired, so I thank you for your testimony. You 

have gotten my attention. Thank you. 

Chairwoman CAPITO. Thank you. 

Mr. Hensarling for 5 minutes. 

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

you for calling this hearing. 

I recall at the passage of Dodd-Frank almost 2 years ago, I predicted that the big would get bigger, the small would get smaller, 

and the taxpayer would get poorer. And now, as we look at the 

asset share of our largest financial institutions, as we look at the 

consolidations of our smaller community financial institutions, and 

as we look at the Federal debt, unfortunately, those words did 

prove to be prophetic. 

Professor Levitin, have you ever been a community banker? 

Mr. LEVITIN. I have not. 

Mr. HENSARLING. Okay. Have you ever been employed at one of 

the larger financial institutions that you referenced in your testimony? 

Mr. LEVITIN. No, but I have done legal work for them. 

Mr. HENSARLING. Have you ever been an officer in a credit 

union? 

Mr. LEVITIN. No. 

Mr. HENSARLING. Do you have an academic background in economics, or is it in law? 

Mr. LEVITIN. I would say it is in both, actually. 

Mr. HENSARLING. Okay, and what is your background in economics? 

Mr. LEVITIN. I have taken courses in economics. 

23 

Mr. HENSARLING. Okay. You state in your testimony that ‘‘The 

Durbin Interchange Amendment is arguably the single best legislative development for small banks in the past 2 decades.’’ There are 

a number of community financial institutions in the Fifth District 

of Texas that I have the honor of representing, and when I hear 

from them, they have a decisively different opinion than yours. 

When I hear from Jeff Austin, vice chairman of Austin Bank, 

‘‘This price control amendment and the Federal Reserve rule will 

dramatically harm my financial institution and its customers.’’ 

From Elaine Schwartz, COO, Wood County National BankQuitman, ‘‘This will significantly affect our ability to offer this important customer benefit.’’ From Joe Sepulva, vice president, Citizens National Bank, Malakoff, Texas, ‘‘Deprived of interchange revenue and placed at a competitive disadvantage, community banks 

will potentially exit the market, and large banks will increase their 

market share.’’ 

And then I guess we heard testimony from you, Mr. Templeton, 

I think it was, that your credit union has now seen the average 

debit interchange rate go down 1 to 2 cents per transaction. Yes, 

here is your testimony, ‘‘while my credit union was supposed to be 

unaffected by this provision.’’ 

And so, Professor, everybody is entitled to their own opinion, but 

those who are actually running these financial institutions seem to 

believe that they have encountered significant harm. 

I would be curious, Mr. Templeton, if you are stuck with the 

Durbin Amendment unchanged, what are the prospects for your 

members going forward? 

Mr. TEMPLETON. Probably noticeably would be our—the first 

thing we have already done is we have pulled back our involvement 

in the community education system. With the loss of revenue, we 

had one person whose full-time job was to go into our school systems and educate our youth on financial education, and we have 

already pulled back on that program as a prerequisite and as a result of the interchange. 

Now, could I say precisely that the interchange made that go 

away? I am not going to try to tell you that. But I am going to tell 

you, when you start looking at your income statement and you are 

looking at where can you cut, when you see the expenses coming, 

the things that don’t yield you a dollar in the near term have to 

be reassessed, which is what we did. 

But my $300,000 is what we are looking at lost in the first 12 

months following the Durbin at the rate we are on right now. I 

can’t tell you exactly where it is coming from because it is all so 

new. We are still trying to get the data together. There are a lot 

of moving pieces. But the monthly numbers are dropping, although 

the dollar volume of transactions and the number of transactions 

are rising. 

Mr. HENSARLING. Earlier— 

Mr. LEVITIN. Mr. Hensarling, may I— 

Mr. HENSARLING. I am afraid not. We have limited time here. I 

have less than a minute. Hopefully, you will have the opportunity 

to speak with other Members. 

Mr. Cordray, who has been appointed, perhaps under a questionable process, to chair the CFPB, testified at a March hearing that 

24 

there can be products that are legally fair yet abusive. And he went 

on to say, in response to a question from me—I asked him, ‘‘Could 

a product be abusive to one individual consumer yet not abusive to 

another consumer?’’ Answer from Richard Cordray, ‘‘I think the law 

seems to pretty clearly contemplate that. Yes.’’ 

So when you think in terms of the regulatory burden to be imposed by the CFPB, knowing that one product could be abusive to 

one of your customers yet not abusive to another, what is that 

going to do to the availability and pricing of credit and new products, Mr. Grant? 

Mr. GRANT. It is certainly going to curtail it significantly. As I 

indicated in my oral testimony, we are sensitive to litigation risk, 

and we are going to back up and go into the safest parts of the safe 

harbor without being close to the edge where we could be subject 

to the interpretation that you just referred to. 

Mr. HENSARLING. I would love to pursue this further, but unfortunately, I see I am out of time. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

Mr. Scott for 5 minutes. 

Mr. SCOTT. Yes, I would like to deal with the issue of the fact 

that we are here to discuss the financial reform law in terms of 

how compliance costs will force cutbacks—cutbacks on lending, is 

what I am hearing, cutbacks on investment activities—it could 

raise fees charged to customers for banking services, and could possibly even lead to further consolidation of the banking industry. 

We hear a lot of claims, as I have heard, about this, but I have 

to note that most of the provisions of the Dodd-Frank Act and our 

financial reforms either do not apply to small banks in the first instance or they have carve-outs or burden mitigation provisions that 

result in small banks effectively being exempt. In my opening 

statement, I mentioned about the exemption for those smaller 

banks with the $10 billion reduction. 

Could any of you respond and identify what particular specific 

provisions of our Wall Street financial reform or the implementing 

rules adopted thereunder have increased your burden for your institutions, and then describe specifically the details of the form and 

the magnitude of this burden? 

Mr. Vallandingham, could you start with that? 

Mr. VALLANDINGHAM. First, let me say that, as many former regulations have been implemented, over a period of time they become 

best practices and forced down, even though exemptions exist. One 

particular example would be risk assessments, as presented by Mr. 

West. Sarbanes-Oxley was the legislation that implemented risk 

assessments, and it is now the buzzword of the financial industry 

and forced down on all financial institutions. 

In my institution alone, we have a committee of eight senior executives who meet monthly to talk about risk assessments on new 

products introduced, upgrades to software, several discussion 

points that are mandated annually. So, the first thing I would say 

to you is, yes, while we have an exemption, they don’t always 

apply, because they become best practices and ultimately get forced 

down anyway. 

25 

Some of the mortgage-related things have a direct impact on me. 

When I look at things like the escrow provisions, the retention of 

portions of the securitized loans, those are things that would dramatically impact my ability to serve my community. Ultimately, if 

I were to have to retain a portion of those credits, that would limit 

how many loans I could make. My institution is very active in 

mortgage lending. We service over 6,000 loans. And that certainly 

would impede our ability to serve that market. 

So, those are provisions that I think would have direct impact on 

me and have concern for my day-to-day business. 

Mr. SCOTT. Let me just get a mirror of this from each of you. 

What particular regulations would you suggest we eliminate? What 

would be the priority if, collectively from the six of you, you could 

leave this committee with, shall we say, a hit list, of what they 

would be to give us some guidance, and why? 

Mr. TEMPLETON. If I may address that, there is a bill that I think 

has a lot of merit. It is H.R. 4361, which removes the placard requirement on ATMs. And I think Mr. Scott is familiar with that 

bill. 

Mr. SCOTT. Yes. 

Mr. TEMPLETON. It is an arcane piece of legislation. It places a 

requirement on financial institutions that technology has replaced. 

And it is putting all financial institutions—not just financial institutions—anyone who operates an ATM machine, be it a convenience store, restaurant, bar, casino, financial institution, everyone 

is at risk if a vandal removes the labels. 

So, H.R. 4361 would be a great start. 

Mr. SCOTT. Okay, the ATM, and I agree with that. As you know, 

we are working on that. 

What would be another one? My time is running short. 

Yes, Mr. Grant? 

Mr. GRANT. I know that there will be some degree of regulation 

coming out on the QM and the QRM. My suggestion and plea 

would be that you look at that very, very carefully and recognize 

that several of us come from small, rural areas. And to try to put 

us into a plain vanilla product is going to result in significant disservice to our ability to tailor solutions to our mortgage customers. 

Mr. SCOTT. All right. Okay. And a third one? 

Mr. GRANT. The third one—I would be happy to interject. The 

municipal advisor rule is going to have a significantly chilling effect if we have to register tellers and customer service officers 

under that particular rule. 

Mr. SCOTT. Would everybody agree that those would be the top 

three? Good. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

Mr. Renacci for 5 minutes. 

Mr. RENACCI. Thank you, Madam Chairwoman. 

Professor Levitin, you state in your testimony, ‘‘While there are 

areas in which regulatory burdens on smaller financial institutions 

can and should be reduced, it should be a surgical operation.’’ 

Can you give me some examples of those areas that should be 

reduced or eliminated? 

26 

Mr. LEVITIN. Sure. First, I would just incorporate the suggestions 

that were just made. All of those are reasonable regulatory reforms. 

Another one I would add would be eliminating the annual 

Gramm-Leach-Bliley privacy notice disclosure. Currently, financial 

institutions are required, even if their privacy policy is not 

changed, to mail out a privacy policy disclosure. As a general matter, I am not sure that anyone really reads those disclosures, and, 

certainly, if there is no change annually, there is no reason to impose that cost on small financial—on any financial institution. 

Mr. RENACCI. You also say in your testimony, ‘‘As it happens, 

however, few of the regulatory burdens of Dodd-Frank actually fall 

on small banks and credit unions.’’ We have small banks and credit 

unions here talking about some of their burdens. Do you agree with 

that? Is that an opinion or have you actually sat in a bank and 

watched what is going on there? 

Mr. LEVITIN. I can tell you with great certainty that almost none 

of Dodd-Frank applies to small financial institutions for two reasons. First of all, of the 16 titles in Dodd-Frank, several of them 

simply do not apply to community banks. Derivatives regulation is 

not a community bank issue, for example. 

Second, Dodd-Frank itself, most of the provisions and regulations 

have not gone into effect yet. If you listen to the regulatory burdens 

that have been cited so far by the gentlemen on my right, they 

have been about pre-Dodd-Frank rules, pre-Dodd-Frank statutes, 

servicing requirements by Fannie Mae and Freddie Mac which are 

not part of Federal law—these are private contractual arrangements—about the way Federal bank regulators have implemented 

their examinations and what they are requiring in terms of loss reserving and write-downs. These are not Dodd-Frank problems. 

These are problems that exist outside of Dodd-Frank. 

Mr. RENACCI. You teach at Georgetown, though, correct? 

Mr. LEVITIN. That is correct. 

Mr. RENACCI. If somebody threw 2,000 pages of regulations about 

your teaching in front of you, would you have to prepare and spend 

some time and energy and money to prepare for that? 

Mr. LEVITIN. Sure. There would be some time and some money. 

But, also, if I knew that, of those 2,000 pages, only perhaps 150 

to 200 actually applied to me as opposed to other teachers at 

Georgetown, it would certainly reduce the burden on me. 

Mr. RENACCI. But you would be concerned about what is in the 

2,400 pages. 

Mr. LEVITIN. There is a table of contents for Dodd-Frank which 

makes it pretty obvious. It doesn’t take a huge amount of time and 

money to go through and figure out what applies and what doesn’t. 

Mr. RENACCI. It is interesting because I was just back in my district last week and I had a regional bank tell me that the CFPB 

had 11 people there for 13 days. Don’t you think that would cost 

some money, to be prepared for that and also paying attention to 

what is going on? 

Mr. LEVITIN. I am kind of surprised to hear that about a community bank, because the CFPB doesn’t have examination authority 

over them. 

Mr. RENACCI. It was a regional bank, but— 

27 

Mr. LEVITIN. Okay. If they are over $10 billion, that is a different 

situation. 

Mr. RENACCI. Mr. Grant? 

Mr. GRANT. If I may, I would like to just interject one point possibly about unintended consequences. 

We have recently been told that the Volcker Rule may apply to 

our bank. One of the things that we do from time to time is buy 

into investment pools to satisfy our requirements under the Community Reinvestment Act. And there is some thought that the way 

Dodd-Frank is drafted, with some of the Volcker pieces, we might 

actually be subject to some of those prohibitions. 

Mr. RENACCI. I want to move on to another question. The original intent of regulatory reform was to consolidate some of the agencies. However, Dodd-Frank actually managed to create several new 

bureaucracies, including the Financial Stability Oversight Council, 

the Consumer Financial Protection Bureau, and the Office of Financial Research. 

I would like to ask the panel, do you think the Dodd-Frank Act 

minimized or at least rationalized our patchwork regulatory system? And just give me a description of this regulatory overlap. 

Mr. West? 

Mr. WEST. I would say it has not minimized; it has added to it. 

And I wanted to clarify, the only exemption that credit unions have from Dodd-Frank is if you are under $10 billion, you are exempt from the interchange rule. However, on the CFPB enforcement, we still get that through our Federal regulators. So we are 

not exempt from anything but the interchange rule, that we have 

been told so far. 

Mr. RENACCI. Mr. Grant, on the question? 

Mr. GRANT. Yes, it is just adding more patches to the patchwork 

quilt, if I can use your phrase. And we are not seeing a rollback 

in any significant way. 

Mr. RENACCI. All right. Thank you. 

I yield back. 

Chairwoman CAPITO. Thank you. 

Mr. Watt for 5 minutes. 

Mr. WATT. Thank you, Madam Chairwoman. 

And let me apologize first to the witnesses. I did get everybody’s 

testimony. I was here for the testimony of everybody except for Mr. 

Grant. We have an oversight hearing of the FBI going on in the 

Judiciary Committee, on which I also sit, so I have been trying to 

hear testimony over there and testimony over here and questions 

over there and questions over here. So I have been kind of back 

and forth. 

Are there any advantages of—Professor Levitin talked about the 

leveling of the playing field between community banks and previously nonregulated entities. Perhaps Mr. Grant and Mr. 

Vallandingham and Mr. West could comment on whether you see 

that as an advantage or a disadvantage or no impact? 

Mr. GRANT. Certainly, the regulation of the nonbanking industries is a positive thing. We have long talked about how unlevel the 

playing field was through good and bad times. To the extent DoddFrank reaches out and levels that playing field, that is a good 

thing. 

28 

We are just concerned about the additional burden of regulations 

coming our way. And we already have prudential regulators, and 

have for a long, long time, unlike some of the nonregulated aspects 

of the business. 

Mr. VALLANDINGHAM. First, I want to say, as Congressman 

Renacci said, there are 2,500 pages of legislation. It makes it hard 

to point out which ones are— 

Mr. WATT. You just had a chance to answer Mr. Renacci’s questions. I am questioning now, so if you don’t mind— 

Mr. VALLANDINGHAM. I agree. But it makes it hard to point out 

the positives and negatives. 

And first I want to say, the first one I would repeal is Durbin. 

I think— 

Mr. WATT. That was Mr. Scott’s question. I am trying to get to 

my question now. 

Mr. VALLANDINGHAM. I understand, but— 

Mr. WATT. Okay. 

Mr. VALLANDINGHAM. —I want to make sure that— 

Mr. WATT. Thank you. We have a limited amount of time. 

Mr. VALLANDINGHAM. The point is, there are some positives in 

the bill. And the Deposit Insurance Fund assessment was one of 

them. The extension of $250,000 FDIC— 

Mr. WATT. But as between you and the nonregulated, previously 

nonregulated, that was the question I asked. 

Mr. VALLANDINGHAM. Okay. And on that point, the shadow banking environment was an unlevel playing field. They were out there 

doing things that we weren’t allowed to do, even though it was 

against the law, because nobody was watching them. 

Mr. WATT. And that was a substantial competitive disadvantage 

to you? 

Mr. VALLANDINGHAM. Absolutely. 

Mr. WATT. Okay. 

Mr. VALLANDINGHAM. Not just in consumer lending, but in mortgage lending as well. 

Mr. WATT. Okay. 

Mr. West? 

Mr. WEST. I was going to say, I think the number one value in 

that is to the consumer themselves, because so many of those programs absolutely abuse the consumer. For us, I would hope that it 

is going to help us in some way be able to reach out to them before 

they go out to agencies like that and get that service. It is a bit 

too early to tell. But, absolutely, it is good for the consumer. 

Mr. WATT. Okay. 

There is a lot of work going on behind the scenes and discussions 

going on behind the scenes that I am aware of about this Qualified 

Mortgage definition and the rule. I think there has been a fairly 

substantial consensus reached between consumer groups and banking groups about what that definition should be, that it should be 

broad. 

Do you all agree with Mr. Calhoun? Mr. Grant and Mr. 

Vallandingham, in particular. I am not excluding Mr. Templeton, 

but these are questions that relate to community banks, not— 

Mr. TEMPLETON. Absolutely. 

Mr. WATT. —credit unions, so I am not— 

29 

Mr. VALLANDINGHAM. Yes, I do think the definition of a Qualified 

Residential Mortgage should be very broad. There are oftentimes 

borrowers who come into our facility and don’t qualify for a secondary market mortgage, yet we still intend to make that loan. 

And it may not be because of their credit quality but because of the 

nature of the property. 

Mr. WATT. And if that occurs, Mr. Grant, won’t that address this 

concern that you were raising about rural—because the standards 

will be pretty broad to enable that to be taken into account? 

Mr. GRANT. Yes, if the standards are very broad and allow for 

the individual attributes in the rural markets and markets really 

all over the country, then, yes that could help out. 

Mr. WATT. So you all basically agree with Mr. Calhoun’s testimony on the QM and the QRM, that they should be consistent? 

Mr. GRANT. I would think so. And we just need to see what the 

final details look like. The devil is in the details. 

Mr. WATT. All right. Thank you, Madam Chairwoman. I yield 

back. 

Chairwoman CAPITO. Thank you, Mr. Watt. 

Mr. Duffy for 5 minutes. 

Mr. DUFFY. Thank you. 

Let’s not make a mistake here; we all understand that our financial institutions are highly regulated. We had a crisis, and we all 

believe we had to look at new reforms to address the cause of that 

crisis to make sure it doesn’t happen again. We need to learn from 

our mistakes. And so, I am in favor of that. I think it is important, 

though, to use a scalpel as opposed to a hatchet, going through the 

regulatory process. 

I want to ask all of our bankers and our credit unions on the 

panel, I am concerned because I keep hearing from my banks and 

my credit unions that Dodd-Frank is having an impact on their 

ability to effectively engage in the banking process, but I think it 

was Mr. Levitin who said that we are just nibbling around the 

edges if we deal with Dodd-Frank. And I guess I want to be clear; 

I want to go after the biggest meat here. 

Do you all believe that we are just nibbling around the edges 

when we are discussing Dodd-Frank? 

Maybe I will start with Mr. Grant. 

Mr. GRANT. I agree with the position of the professor. When you 

talk about economies of scale, small banks’ compliance costs are 

going up 75 to 100 percent, that further impedes the economies-ofscale disadvantage that some of us obviously have. 

I think Dodd-Frank casts a pall across all of the community 

banking industry. 

Mr. DUFFY. But do you agree that when we are trying to address 

the rules in Dodd-Frank, we are just nibbling around the edges? Do 

you agree with that statement? 

Mr. GRANT. No, I don’t. 

Mr. DUFFY. Okay. 

Mr. Templeton? 

Mr. TEMPLETON. I think we are nibbling on the edges, because 

I don’t know that we really know what the meat of the matter is 

going to be because many of the regulations haven’t been rendered 

yet. So from what we have seen on the edges, if the edges are a 

30 

precursor of what the middle is going to be, I am terrified to death. 

How are we going to keep pace? And one of the big things is the 

rate of change through that process. 

Mr. DUFFY. Mr. Vallandingham? 

Mr. VALLANDINGHAM. I would say we are nibbling on the edges. 

The Communities First Act lists a number of regulatory relief initiatives that we think would be beneficial to the banking industry. 

The SEC registration bill that you all passed certainly was beneficial. One institution told me it saved them $250,000 a year. 

So, I think that we are nibbling on the edges. The pendulum 

swings, and it went way too far, and we continue to be overburdened. We are trying to hit moving targets. There is no allowance 

for implementation periods. You either have it right or you don’t. 

And the regulators are coming in and fining us and just hitting us 

hard. They don’t give you any leeway whatsoever. 

Mr. DUFFY. And so, do you say that our focus on Dodd-Frank and 

all the rules that are coming out is—there is too much focus there, 

and looking at just Dodd-Frank, we are nibbling on the edges, the 

real meat is not there? 

Mr. VALLANDINGHAM. I think Dodd-Frank has some provisions 

which need work. I think there are other regulations that have provisions that need work. The Communities First Act is obviously a 

good start. 

Mr. DUFFY. Mr. West? 

Mr. WEST. I would agree. I think we are nibbling on the edges. 

I commented earlier; there are 127 regs I listed. Those came from 

15 different agencies. So, it is not just Dodd-Frank; it is some of 

everything coming at us. 

And I want to go back and reemphasize, while we are exempt 

from interchange, every single rule we have seen come out yet applies to us as a credit union. When we are talking about the QRM 

mortgage, we are a large mortgage lender to serve our members; 

it applies to us. 

So we haven’t—and his point, that what is coming is what 

alarms us, because so few rules have actually been written yet, and 

now with Mr. Cordray in place as the Director of the CFPB, we anticipate there will be a tremendous volume coming at us, and trying to keep up with it. 

I would also cite, the president of CSX in Jacksonville— 

Mr. DUFFY. But just quickly, so you are saying that—DoddFrank—you are talking about the CFPB— 

Mr. WEST. Yes. 

Mr. DUFFY. —and you are concerned about the rules, but that is 

still—we are just nibbling around the edges? 

Mr. WEST. Absolutely. There is a huge volume coming. 

Mr. DUFFY. Under Dodd-Frank or elsewhere? 

Mr. WEST. Dodd-Frank and elsewhere. 

Mr. DUFFY. Okay. But if you look at the CFPB, which falls under 

Dodd-Frank, you look at interchange, are you telling me that is not 

where the real money is at, it is elsewhere? 

I think Mr. Levitin was saying, don’t really be concerned about 

Dodd-Frank, look at what is happening with regard to the deregulation that took place that allowed the bigger banks to improve 

their market share within all of your markets. 

31 

Mr. WEST. I would still say Dodd-Frank is going to have a huge 

impact on us going forward. 

Mr. DUFFY. Huge impact. 

Mr. WEST. I think that answers your question. 

Mr. DUFFY. Yes. 

And I guess, just to be clear, if you look at the CFPB, which was 

going to exclude community banks and credit unions, it is very 

clear that the rules may not be enforced by the CFPB but you are 

still going to be forced— 

Mr. WEST. That is right. 

Mr. DUFFY. —to comply with those rules. 

Mr. WEST. That is correct. 

Mr. DUFFY. We had Chairman Bernanke in here last year, and 

when he was talking about the interchange change, he also indicated that it more than likely will have an impact on our small 

community banks and our credit unions, as well. 

So whenever these rules come out, and we set up exemptions for 

small community banks and credit unions, it seems like they never 

really go through, and all of the rules come to bear on our small 

community banks and credit unions. And when you look at economies of scale, you are less able to bear the brunt of those regulations as compared to the larger banks, which means you guys are 

disadvantaged to a greater extent. 

My time has expired, so I yield back. 

Chairwoman CAPITO. Mr. Carney from Delaware. 

Mr. CARNEY. Thank you, Madam Chairwoman. And I want to 

thank you for holding this hearing today, and also thank the panelists for coming and sharing your thoughts with us. 

I hear from my community bankers—we don’t have a lot of community bankers in our State; it is a small State, but we have a few. 

In fact, I spoke with one of the leaders of that organization yesterday. I hear this and we hear it as Members all the time about all 

these regulations that are impacting your businesses and your ability to lend to the small businesses and consumers in our district. 

And so, I am really delighted this morning that we are hearing 

more specifics about what you would change and how you would 

change it. And then, to the extent that you could provide me with 

additional information in writing, that would be helpful. 

I would like to just take a few minutes to address a couple of 

questions. 

The first is, Professor Levitin, in your statement, you say that 

what we need to do to level the playing field here for smaller community banks is to make the big banks smaller and weaker so community banks can compete. Is that really what we need, in terms 

of our financial system writ large? 

Mr. LEVITIN. I think you— 

Mr. CARNEY. And how would you do that? 

Mr. LEVITIN. I think you characterized it a little differently than 

I did. 

Mr. CARNEY. I probably did. 

Mr. LEVITIN. I don’t think I used the word ‘‘weaker.’’ I think I 

was talking about the need to slim down the large banks, put them 

on a diet, if you will. 

32 

Mr. CARNEY. So how do you do that, and what do you mean by 

that? 

Mr. LEVITIN. There are numerous ways that can be done, everything from very direct, blunt tools such as taxation to more indirect 

things such as what you do in terms of capital requirements. 

The bigger point here, though, is if you look at the community 

banking business, if you take sort of the big-picture view of this, 

this is like a patient with a tumor, and right now what we are discussing is a broken arm. The broken arm hurts right now, but even 

if you fix that broken arm, there is still a tumor there. 

So if you are concerned about the long-term viability of community banking, that will not be changed by changing ATM signage 

regulations or any of the other things that— 

Mr. CARNEY. So you have to make the larger banks smaller 

and— 

Mr. LEVITIN. We have to go back to a world where we do not 

have too-big-to-fail banks. 

Mr. CARNEY. Okay. The clock is ticking. Do any of the community bankers or credit union folks have a quick view of that? 

Mr. Grant had his hand up first. 

Mr. GRANT. Certainly, we strongly support eliminating ‘‘too-bigto-fail,’’ making that stick. And certainly, investors should take the 

loss. But I guess I would have a slightly different view. Our country needs banks of all sizes, whether it is community banks, small 

community banks out in the middle of Kansas, to the large money 

center banks. If we go after tearing down the large banks in this 

country, that void will have to be filled. It will be filled with nonAmerican banks— 

Mr. CARNEY. Exactly. 

Mr. GRANT. —because there are customers out there who need 

the really large banks. So, there has to be a balance. 

Mr. CARNEY. Mr. Vallandingham, did you want to quickly add to 

that? 

Mr. VALLANDINGHAM. Certainly. We support the too-big-to-fail 

initiative. I think that they have outgrown their statutory limits. 

They basically have created systemic risk on our economy and ultimately need to be dealt with. We saw that in the economic bailout. 

Community banks didn’t participate on that. 

We do serve an important role in the financial system. Most of 

your too-big-to-fail banks are not interested in a less-than-$250,000 

commercial loan— 

Mr. CARNEY. Right. 

Mr. VALLANDINGHAM. —which is how I became SBA Lender of 

the Year 4 years in a row, because we serve that market. 

Mr. CARNEY. Good. 

Mr. VALLANDINGHAM. So, ultimately— 

Mr. CARNEY. Let’s talk about that market. The time is ticking. 

Mr. Westmoreland—who is not here today—in the full Financial 

Services Committee laments all the time about the 60-or-some-odd 

banks in his district that have failed. And as I understand what 

has happened there, it is because of real estate lending of some 

kind of another. And yet, I hear from all of you about concern over 

the QM and QRM standards. And it seems to me that those were 

33 

created by Dodd-Frank, or the process to create those regulations 

was initiated by Dodd-Frank to address that problem. 

Is there a better way to do it? 

Mr. VALLANDINGHAM. I will go ahead and take that. 

Mr. CARNEY. Please. 

Mr. VALLANDINGHAM. We are kind of hitting the problem with a 

sledgehammer. In reality, what was— 

Mr. CARNEY. So what does the scalpel look like? I have 20 seconds left. 

Mr. VALLANDINGHAM. The outliers were the subprime and the 

Alt-A loans that were being securitized and sold in investment 

banking houses. Those have nothing to do with Qualified Residential Mortgages or the Freddie-Fannie market. 

Mr. CARNEY. But the lending standards, right? Have you read 

the financial crisis inquiry report? There was pretty loose lending 

going on out there by a lot of folks. 

Mr. VALLANDINGHAM. But it wasn’t the community banks, it 

wasn’t the smaller financial institutions. I didn’t make any 

subprime loans— 

Mr. CARNEY. So you all shouldn’t have lending standards and the 

rest of the market should? That doesn’t make a lot of sense to me. 

Mr. VALLANDINGHAM. No, but—and I understand your point of 

view. 

Mr. CARNEY. Do you know what I mean? 

Mr. VALLANDINGHAM. I will say that—no, I was saying that I understand your point of view. But, ultimately, we weren’t the ones 

causing the problem, so we shouldn’t bear the brunt of the regulation. When you look at my portfolio, it was very low-risk. I run a 

delinquency rate that is less than 2 percent in Michigan, which has 

an average of 16 percent. 

Mr. CARNEY. I don’t have any time left. I would like to have a 

longer discussion about this because— 

Mr. VALLANDINGHAM. Absolutely. 

Mr. CARNEY. —it seems to me it is a very important issue. Thank 

you very much for your testimony and your help today. 

Mr. RENACCI [presiding]. I recognize Chairman Bachus for 5 minutes. 

Chairman BACHUS. Thank you. 

Chairwoman Capito mentioned that financial examiners are one 

of the 10 fastest-growing occupations. In fact, if you look at the 

2011 to 2013 edition of the Bureau of Labor and Statistics Occupational Outlook Handbook, it states that, and this is a quote from 

a government document, ‘‘Employment of financial examiners is 

projected to grow 27 percent from 2010 to 2020, faster than the average for all other occupations.’’ 

That means that you are going to have to hire people to answer 

those questions and to handle those reviews—and we have talked 

about this—and I think everybody agrees that their compliance 

staffs have doubled or that they are much bigger, but they are 

going to get bigger still. We are about a third of the way through 

the implementation. 

Can any of you give me just sort of some specifics on before 

Dodd-Frank and some of the other bills that have passed? I actuVerDate Nov 24 2008 18:22 Sep 26, 2012 Jkt 075728 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 K:\DOCS\75728.TXT TERRIE
34 

ally voted for the subprime lending bill, and I don’t think it was 

a bad bill. But just give me some numbers. 

Mr. GRANT. Yes. Just to give a little longer historical perspective, 

in our own shop, when I came to the bank over 30 years ago, Congressman, I was actually the bank’s first compliance officer, and I 

spent maybe about an hour a week staying up with regulations. We 

now have over six full-time equivalents involved in some level of 

full-time compliance work. And over two-thirds of our staff spend 

an hour or better a day in compliance-related entities. 

As I mentioned in my testimony earlier, at over a billion, we can 

spread some of that cost. But I have a very good friend who has 

a small bank out in the middle of Kansas. The total size of his 

bank is $72 million. He, a couple of years ago, or a year ago, had 

23 employees. He now has 25 employees. The last two expensive 

hires have been compliance officers. And we bankers and credit 

union people look at something we call an efficiency ratio that says 

how efficiently you are running, so the lower the number, the better. And his particular bank went from an efficiency ratio of 64 to 

72 just because of those hires. 

Thank you. 

Chairman BACHUS. Thank you. 

Anyone else? 

Mr. TEMPLETON. Congressman, as you were talking about the 

labor stats, the 27 percent increase, that is exactly what I was 

thinking. That simply translates into a 27 percent increase in examination time, but exponentially it is even more than that when 

you dial in the improvements in technology and what they can do 

quicker. 

It is going to become an ongoing process of examination. And a 

part of that process should be some type of risk evaluation, particularly technology: Do we need to spend as much time here as we do 

there? And I think that is something I would encourage you, to the 

extent possible, to look into, is risk-based examinations. 

Mr. VALLANDINGHAM. In preparing for the hearing, I documented 

the increase in our payroll. It was close to a half-million dollars, 

so almost about a 25 percent increase just since 2008. Most of that 

was in loan review compliance, where we are getting ready to add 

another compliance officer, as well as people who do post-closing reviews. In talking with mortgage originators, we do two compliance 

reviews before it ever gets to underwriting that we never did before 

because of all of the excess compliance that has been put on us in 

the last few years. 

So, yes, we are seeing a definite increase in labor, time, and outside third-party resources, where we have employed more reviews 

from our third-party compliance people as well as our auditors. We 

are employing special reviews that we haven’t had in the past, including risk assessments. So, we are seeing it in every aspect of our 

business. 

Mr. WEST. We are seeing the same thing. We tried to put a dollar number on compliance, and we stopped at well over $2 million. 

And the reason we did was because the fingers reached so far out, 

we stopped spending time on it and said, we have more important 

things to do. We are still going to have to comply. 

35 

But we have added—I just mentioned a moment ago that we 

have added two information security officers. We are about to add 

a third. We added a new senior vice president of risk management. 

We added an entire vendor management department during all of 

this. And the reason for that is because you have contracts with so 

many critical outside vendors, your responsibility over them is even 

tighter now. 

So the costs just keep coming. Our regulators have increased 

their budget for the last 2 years. Most of it is to hire more examiners. 

Mr. CALHOUN. And, Mr. Chairman, Self-Help has five examiners 

coming next week. So, I can identify well with this. 

I think, though, two things in context. One is, we have to remember, though, we have had and have not finished processing through 

record levels of bank failures. And it is a job of the regulators to 

see, are there other at-risk institutions? And there are more at-risk 

institutions over these last few years than we have seen in 70 

years. So hopefully, some of that will subside. That is not going to 

address all of the issues, by any means, that you have heard today. 

And the second, and it has been alluded to here, is we do need 

to get to a point of less uncertainty. It is very hard right now to 

build the business model when there are so many parts out there 

that you don’t know what they will be. And I will just go back to 

my point. We need, for example, to tie down this QM definition, 

which will affect a huge part. We have agreement that there needs 

to be broad, bright-line standards. 

And I would urge again that we then simplify and not add on 

to that with yet another standard with QRM, which is not required 

under the statute. That is totally discretionary. They should use 

that same definition. That would be one place where it would give 

the market some clear direction of where to go. 

Chairman BACHUS. I thank you. And I know Mr. Luetkemeyer 

and the chairman have legislation, I think, that will address many 

of these concerns. But we appreciate it. And we will probably have 

a hearing on ‘‘too-big-to-fail,’’ which is too-big-to-manage and 

maybe too-big-to-exist. But that will be for another day. 

Mr. Grant, I started out where you were, and I guess I am still 

there, that we need all sizes. But if that means we are going to 

have a bailout fund, I am not sure that is where I would remain 

if those were my two choices. 

Mr. GRANT. And I would agree with you. 

Chairman BACHUS. Thank you. 

Mr. RENACCI. Thank you. 

I recognize the gentleman from Texas, Mr. Canseco, for 5 minutes. 

Mr. CANSECO. Thank you, Mr. Chairman. 

Last month, the firm of Davis Polk issued their Dodd-Frank status report regarding rulemaking in the wake of Dodd-Frank. The 

report noted that out of an estimated of 400 rules to be written, 

only 100 have been finalized thus far. 

So, as financial institutions that are responsible for pricing risk 

and making sound loans, how are your business and your customers affected when there are still 300 rules yet to be finalized 

by Dodd-Frank? 

36 

Mr. Grant? 

Mr. GRANT. There is certainly an effect both in our communities 

and the banks and with our customers. And it is causing us to feel 

a tug to contract from lending, to stay out of areas where there is 

risk. There is also a large level of confusion. Customers are surprised that we are now requiring so much more documentation, so 

much more demonstration of creditworthiness to the nth degree. 

So certainly, we are concerned. You are exactly right; we are just 

partway through the rulemaking process. And it is just those concerns of uncertainty, added costs, added requirements that are 

coming our way. 

Mr. CANSECO. Mr. Templeton? 

Mr. TEMPLETON. Thank you. And I echo what Mr. Grant said. It 

seems like everybody, starting with me and going through the regulator, is in the ‘‘CYA’’ business today. We can’t seem to do business while making sure we dot the i’s and cross the t’s. And, in 

many cases, we are trying to dot i’s and cross t’s that don’t exist; 

we are trying to figure out where might they be. 

There is no commonsense approach to mortgage lending today. 

We sell all of our nonportfolio items, and getting appraisals today 

are just ludicrous. We live in an area where you might have a 

house with an acre-and-a-half lot surrounded by neighborhoods 

that have quarter-acre lots, and you can’t get comps on it. Loanto-value on the appraisal is 50, 60 percent, and the underwriters 

are saying, we don’t know about it because we can’t get a good 

comp. 

Debt-to-income ratio, I looked at one this week, 51 percent loanto-value and 18 percent debt-to-income ratio, a retired person, and 

the underwriters won’t take it because they can’t get comps on the 

property. Two years ago, 3 years ago, everybody would have been 

clapping and cheering and clamoring to get that loan. Today, everybody is saying, oh, we shouldn’t do it. 

So I think it is the fear, the ‘‘CYA,’’ the ‘‘I may make a mistake,’’ 

that has people just running scared right now. 

Mr. CANSECO. Mr. Vallandingham, would you agree with that? 

Mr. VALLANDINGHAM. I absolutely would. We are focusing our resources on making sure that we don’t suffer regulatory enforcement 

and making sure that we cross every ‘‘t,’’ dot every ‘‘i,’’ and we are 

not out building business, we are not growing our deposit base so 

that we can turn around and lend that in our communities. 

As I indicated in my testimony, I have gone from probably 20 

percent of my time focused on compliance-related issues to almost 

80 percent of my time focused on compliance issues. And so, instead of being out there investing in my community and building 

relationships and investing in small business, I am back in my office making sure that we have updated this policy and that the 

boards reviewed it and approved it and that we have implemented 

these new procedures or sent out new disclosures for things that 

we have been doing for 107 years. 

Mr. CANSECO. Mr. West? 

Mr. WEST. I agree with all that they have said. 

As a member-owned cooperative, as I mentioned earlier, every 

time we have an expense, ultimately it costs our members in some 

way. And what we have seen more is the confusion on members’ 

37 

faces. And we talked about mortgage loans. They often ask, ‘‘Why 

do I have to go through this? Why can’t I get my loan sooner?’’ And 

we explain, these are regulations, we want to do this properly. 

So it is an education on their part, and then it is an education 

on our employees’ parts. Last year when the SAFE Act came out, 

we worked diligently to comply with it. Our initial cost, hard cost, 

just right out the gate, was $100,000 to register our employees. 

This year, it is about $75,000 to re-register them. 

The thing that happened, though, we had to stop delivering a 

couple of new products we had planned, to stop and deliver the 

SAFE Act timely. So we actually delayed giving new services to 

members last year for that. 

The numbers you quoted, 300 more coming, that is what we 

worry about. And so far, we have not found any part of this law 

that does not affect us except for the interchange. And we are like 

him; we have had some reduction in transaction prices. 

Thank you. 

Mr. CANSECO. Thank you. 

One very brief question for all four of you: How can you make 

a 5-year plan with the uncertainty that exists under Dodd-Frank? 

Mr. WEST. It is almost impossible. 

Mr. GRANT. I would agree that it is nearly impossible. 

Mr. CANSECO. Mr. Grant, let me ask you a very quick question. 

Alluding to what Professor Levitin said, in your opinion, is DoddFrank the tumor or the broken arm? 

Mr. GRANT. I believe it is the tumor. 

Mr. CANSECO. And Mr. Templeton? 

Mr. TEMPLETON. Tumor. 

Mr. CANSECO. Mr. Vallandingham? 

Mr. VALLANDINGHAM. I will agree with that. 

Mr. CANSECO. Yes. 

And Mr. West? 

Mr. WEST. I would agree with that. I think there are some other 

tumors out there, too, though. 

Mr. CANSECO. All right. Thank you. My time has expired, so 

thank you very much. 

I yield back. 

Mr. RENACCI. Thank you. 

I recognize the gentleman from Missouri, Mr. Luetkemeyer, for 

5 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

I thank the panel for enduring the morning here. We are getting 

close to the end. 

And I just wanted to also thank you for some of the kudos that 

you gave some of the legislation that I am working on. The ATM 

bill—I know that Mr. Grant and Mr. Templeton both mentioned 

that. It is an issue I think is very important. We are going to continue to push on that. I know Mr. Vallandingham talked about the 

Communities First Act a number of times. And there are a number 

of provisions in there we are very excited about, that can hopefully 

give some relief to certain things. I know Professor Levitin also 

made reference to the privacy disclosure provision that is in there, 

and I appreciate the heads-up on that. 

38 

One of the things that is concerning to me is, during the course 

of your testimony, I think two of you—I think Mr. Grant made the 

comment, and I think I saw Mr. Vallandingham’s head nod whenever you talked about ceasing mortgage lending activities. This is 

something that is very concerning to me, because when I was back 

in my district over the last 2 or 3 weeks, I have talked to some 

bankers, and they are very concerned, and a couple of them have 

talked about and are considering stopping mortgage lending altogether. 

Can you give me some rationale on why you are thinking about 

that or considering that and elaborate on it a little bit? 

Mr. GRANT. At our bank, we have not had any serious discussions regarding that, but coming back from a meeting of community bankers this week, there are some who already have decided 

to exit it. 

And the reason why is, the regulatory risk and the litigation risk 

far outstrips the commoditized pricing that you really find in mortgages today. And the thought that you might book a loan today and 

5 years, 10 years from now you might be subject to scrutinization 

on whether or not you should have ever made the loan. 

So I think a lot of the smaller banks are just— 

Mr. LUETKEMEYER. Mr. Vallandingham? 

Mr. VALLANDINGHAM. In my testimony, I pointed out that in 

2011 alone, there were 39 origination guide changes by Freddie 

Mac and 59 servicing changes. 

When you look at provisions like the escrow requirements that 

a lot of smaller financial institutions would have to take on, the 

QRM provisions as well as some of the compliance-related—some 

of the compliance changes that occurred, with the good faith and 

the truth-in-lending, they require multiple compliance reviews, and 

if you don’t meet certain tolerances, you lose money on the transaction and you can’t reprice. 

Those are all things that, looking at the cost of compliance and 

the risk of regulatory reaction, as well as some of the other provisions, it just makes it impossible. They just say, it is too complicated. We don’t even let our consumer lenders do mortgages anymore. We have mortgage-only originators, because they have become so complicated that it is impossible for a consumer lender, 

who traditionally has done these loans, to comply with all of the 

compliance associated with it. 

Mr. LUETKEMEYER. What you are saying is kind of interesting 

from the standpoint that you don’t make any money unless you 

loan money out, and yet you are considering stopping activities 

that are lending money out because of the complication and the 

cost and the liability that you could incur because of that activity. 

Is that what you just told me? 

Mr. VALLANDINGHAM. Our financial institution is willing to take 

on the task, but there are many smaller financial institutions. 

There is no way they could absorb the cost of some of these functions, especially in the servicing side. 

Mr. LUETKEMEYER. Right. 

I know that Mr. Templeton and Mr. West, as well, have talked 

about this morning, besides Mr. Grant and Mr. Vallandingham, 

39 

some difficulties with the regulators in trying to get them to understand your concerns and your problems. 

What is the attitude of the regulators whenever you talk to them 

and explain to them some of your concerns? Would you like to have 

some common sense in this, or where is the rationale or the reason 

for this regulation? 

Mr. VALLANDINGHAM. I will start. In a recent conversation with 

a regulator at a community event, I asked, ‘‘Is there any cost-benefit analysis done on the implementation of regulations?’’ And they 

laughed and said, ‘‘No.’’ 

And my point is, in any business you make the decision whether 

there is a benefit to the cost of the implementation. If the benefit 

is so small but the cost is so high, what is the point? And most regulations that come down the pike, they just say, ‘‘Well, that is what 

it is, and you have to comply.’’ 

Mr. LUETKEMEYER. It is interesting that Mr. Calhoun made the 

comment about the uncertainty that is causing difficulty in putting 

together a business model. And I think that Dodd-Frank and all 

the regulatory environment that we are in today makes that uncertainty very difficult to try and deal with. And it seems that you discussed that. 

Mr. Grant, do you want to comment on that? 

Mr. GRANT. Yes. I think, to the points that are made and why 

we would support the exam bill, it is to try to have some consistency of regulation. As it is, we actually have a pretty good relationship with our regulators. But when I talked to community bankers 

at a recent meeting, it is all over the board. There are some who 

are scared to death because the regulators just are very, very aggressive. And to the point made earlier, there doesn’t seem to be 

any cost-benefit. So, just consistency is what we had need. 

Mr. LUETKEMEYER. Thank you. 

I have one more question before my time runs out. I will ask Mr. 

West, because he has been adamant during the discussion here 

about explaining all the additional costs that he is incurring. 

How are you passing on those costs? Are you eating those costs? 

Are you passing them on to your consumers? Are you passing them 

on to your shareholders? How are you able to survive with those 

additional costs? 

Mr. WEST. We have thin margins. We so far have not—and we 

purposely have not passed it on to the consumer, particularly in 

this economic environment. We have absorbed it, other than the 

one that I mentioned earlier on wire transfers. We did increase 

that by 100 basis points. It will be effective in a couple of weeks. 

A couple of times on mortgages, we could have actually lowered 

the rate in the market just a hair, and we didn’t because of some 

of the points that they are making. 

Mr. LUETKEMEYER. So, in essence, you did raise the cost to consumers? 

Mr. WEST. A little bit. 

We, by nature, try not to charge fees. And what we spend a lot 

of time on, will we be forced down the road to change our business 

model and add fees when we don’t want to? Because as a cooperative, all of our members have to share in the cost. So that is what 

worries us most right now, how do you deal with this ongoing in 

40 

the future. So, we haven’t had to do it large-scale, but we are worried about it. 

Mr. LUETKEMEYER. Thank you very much. 

Thank you, Mr. Chairman. 

Mr. RENACCI. Thank you. 

I want to thank all the panel today for their testimony. 

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. 

This hearing is now adjourned. 

[Whereupon, at 12:01 p.m., the hearing was adjourned.] 

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