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PRESERVING CONSUMER CHOICE 

AND FINANCIAL INDEPENDENCE 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

MARCH 18, 2015 

Printed for the use of the Committee on Financial Services 

Serial No. 114–8 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

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 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

ROBERT DOLD, Illinois 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

March 18, 2015 ................................................................................................. 1 

Appendix: 

March 18, 2015 ................................................................................................. 59 

WITNESSES 

WEDNESDAY, MARCH 18, 2015 

Bosma-LaMascus, Peggy, President and Chief Executive Officer, Patriot Federal Credit Union, on behalf of the National Association of Federal Credit 

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

Fenderson, Tyrone, President and Chief Executive Officer, Commonwealth 

National Bank, on behalf of the American Bankers Association (ABA) .......... 5 

Levitin, Adam J., Professor of Law, Georgetown University Law Center .......... 11 

Miller, Patrick, President and Chief Executive Officer, CBC Federal Credit 

Union, on behalf of the Credit Union National Association (CUNA) .............. 6 

Williams, J. David, Chairman and Chief Executive Officer, Centennial Bank, 

on behalf of the Independent Community Bankers of America (ICBA) .......... 8 

APPENDIX 

Prepared statements: 

Bosma-LaMascus, Peggy .................................................................................. 60 

Fenderson, Tyrone ............................................................................................ 109 

Levitin, Adam J. ............................................................................................... 121 

Miller, Patrick ................................................................................................... 135 

Williams, J. David ............................................................................................ 186 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Green, Hon. Al: 

Written statement of Hilary O. Shelton, Director, NAACP Washington 

Bureau & Senior Vice President for Policy and Advocacy ......................... 225 

Pittenger, Hon. Robert: 

Letter from Ira M. ‘‘Don’’ Flowe, Jr., Chief Credit Officer, BlueHarbor 

Bank ............................................................................................................... 232 

Bosma-LaMascus, Peggy: 

Additional information provided for the record in response to a question 

posed by Representative Sherman during the hearing ............................. 234 

(1) 

PRESERVING CONSUMER CHOICE 

AND FINANCIAL INDEPENDENCE 

Wednesday, March 18, 2015 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The committee met, pursuant to notice, at 10 a.m., in room 

HVC–210, Capitol Visitor Center, Hon. Jeb Hensarling [chairman 

of the committee] presiding. 

Members present: Representatives Hensarling, King, Royce, 

Lucas, Neugebauer, Pearce, Posey, Fitzpatrick, Westmoreland, 

Luetkemeyer, Huizenga, Hurt, Stivers, Mulvaney, Hultgren, Ross, 

Pittenger, Barr, Rothfus, Messer, Schweikert, Dold, Guinta, Tipton, 

Williams, Poliquin, Love, Hill; Waters, Maloney, Sherman, Lynch, 

Green, Cleaver, Himes, Kildee, Delaney, Sinema, Beatty, Heck, and 

Vargas. 

Chairman HENSARLING. The Financial Services Committee will 

come to order. Without objection, the Chair is authorized to declare 

a recess of the committee at any time. 

Today’s hearing is entitled, ‘‘Preserving Consumer Choice and Financial Independence.’’ I now recognize myself for 3 minutes to 

give an opening statement. 

I would say of all the priorities of our committee, I know of not 

one that is more urgent than providing some regulatory relief for 

our community financial institutions. It is not an exaggeration to 

say that they are literally withering on the vine. We are losing 

more than one a day and they are not perishing of natural causes. 

The sheer weight, volume, cost complexity, and uncertainty of Federal regulation is a burden that is killing them off. And as they die, 

unfortunately so do the dreams of millions and millions of our fellow citizens, hardworking taxpayers who rely upon these community financial institutions to help buy a pickup truck to drive to 

work, maybe help fund the first kid in their family to ever go to 

college, or to start a small business and achieve their American 

dream of financial independence. 

It is not an exaggeration to say that every single week, we hear 

from another financial institution that is having trouble meeting 

the needs of their customers. I have one here from a bank in Arkansas who says that due to the Qualified Mortgage (QM) rule, 

they have had to cease funding mobile homes, ‘‘which have long 

been a source of homeownership for low- to moderate-income consumers in our markets.’’ 

Here is one from a credit union in California who says that due 

to Federal regulation, one of their members can no longer wire 

2 

funds to a family member in the Ukraine. Here is one from a bank 

in Massachusetts, that writes, ‘‘We have experienced a spike in 

loan declines to women.’’ Further investigation identified that 

women attempting to buy the family home to settle their divorce 

and stabilize their family were being declined at a high rate due 

to the Dodd-Frank Qualified Mortgage rules and the ability-to-pay 

rules. 

Regrettably, these are not exceptions. We hear from these banks 

and credit unions every day and we understand how the Federal 

regulation can adversely impact low- and moderate-income Americans. 

Now some, particularly those on the other side of the Capitol, 

have said community financial institutions are doing just fine. In 

fact, they have said, ‘‘Regulators have been doing a pretty good job 

of protecting community banks.’’ I suspect many of our witnesses 

will disagree with their statement. And I believe that assertion is 

just wrong, dangerously wrong and out of touch with low- and moderate-income Americans. 

Much, but certainly not all, of this regulatory burden has emanated from Dodd-Frank. I am not a fan of Dodd-Frank, but even 

I can find some good in it: what Dodd-Frank attempted to do on 

Section 13(3) of the Fed; what it has done to help eliminate the 

credit rating agency’s monopoly; what it has done to make balance 

sheets less opaque. 

So if I can find some good in it, I hope that my friends on the 

other side of the aisle can admit that maybe it has done some 

harm. I know Barney Frank has found at least a half dozen different areas where he would amend his own law. He said it right 

in front of us, right in front of this committee back in July. So I 

would ask all my Democrat colleagues to have an open mind as we 

enter into this, and I invite all Members to engage in the bipartisan effort of regulatory relief for our community financial institutions; find some common ground. 

I will reserve the right to have an exception to the rule, but the 

rule is going to be that if any Member brings us a legitimate bipartisan piece of legislation to provide needed regulatory relief to community financial institutions, we will mark it up. Time is of the essence, so let’s get started. 

I yield 4 minutes to the ranking member. 

Ms. WATERS. Thank you, Mr. Chairman. Today we gather to supposedly discuss preserving consumer choice. And while the principle itself is an important one, I am highly skeptical that any of 

the issues or solutions we will consider today can be described as 

a serious effort to do so. History tells us that opposed to virtually 

every effort to sensibly correct private sector failures have cried 

wolf in our position to reform; saying that the regulation would end 

by hurting the very people it tries to help by removing their 

choices. It is a talking point that has existed for as long as this 

government has tried to protect consumers and the broader economy. 

For example, in 1934 New York Stock Exchange President Richard Whitney opposed the creation of the Securities and Exchange 

Commission, arguing that it would destroy the markets and businesses Congress sought to protect. 

3 

As recently as March 2007, just months before the economic collapse, representatives of industry and the Bush Administration argued in front of this very committee that reforms to the toxic 

subprime market would harm access to credit for first-time home 

buyers. Over time, these regulations, like those that prohibit child 

labor, mandate seatbelts, and protect consumers from poor quality 

foods, drugs, and toxins in our environment, among others, have 

shown that markets and industries function better when consumers know that products need basic standards, and that means 

protecting consumers from unsafe and unsound financial products, 

no matter how profitable they are to lenders or how cheaply they 

can be offered to borrowers. 

The irony is that by weakening regulations and consumer protections put in place after the Great Recession, this committee would 

affect choice and financial independence, but in the wrong way. It 

would invite a return to a recent time when hardworking Americans were choosing whether to pay for medication or their mortgage, and when they were choosing between taking their family to 

a homeless shelter or spending one more night in the car. A free 

market system with ample consumer choice only works when businesses compete on cost and quality. 

I don’t know how much they can cut corners or bend the rules. 

That is true whether they are talking about faulty exploding toasters or faulty exploding mortgages. Mr. Chairman and Members, I 

welcome your invitation for bipartisan legislation. As you know, I 

have met with you and I have tried. We have worked hard and continue to work hard for community banks. Unfortunately, there are 

those who wish to include too-big-to-fail banks in anything that we 

try for our community banks. We have witnessed a time when consumers had no protection. We have witnessed a time a time when 

not only did consumers have no protection, but the fact of the matter is, we had one of the most important things happen in DoddFrank, and that is the development of the Consumer Financial Protection Bureau, which has taken into consideration concerns of 

community banks, and has made modifications. And we have said 

on this side of the aisle, where there are technical changes or concerns, we are willing to work with them. 

And so I am pleased to hear the offer that has been made by the 

chairman today and I look forward to working with them in any 

and every way that we can to deal with real issues and not just 

talking points. 

Chairman HENSARLING. The gentlewoman yields back. The Chair 

now recognizes the gentleman from Texas, Mr. Neugebauer, the 

chairman of our Financial Institutions Subcommittee, for 2 minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman, for holding this important hearing. There was a recent Harvard University study that 

appropriately described what I knew when I was a community 

banker, that their competitive advantage is the knowledge and history of their customers and the willingness to be flexible. 

Unfortunately, this big regulatory burden that we have placed 

over our community financial institutions is taking away their 

flexibility. And every Member here has been back to their district 

and has heard from their financial institutions on how they are 

4 

maybe not able to provide the same services, or make some of the 

same loans that they made in the past. 

What we are also hearing is, alarmingly, that we are seeing a lot 

of consolidation in our community financial institutions. I think 

when you look at the credit unions and the community banks, that 

nearly 2,200 consolidations over the last 4 or 5 years, and why is 

that important to our communities? Because when you look at the 

community financial institutions, they are the primary supplier of 

credit for our small businesses. They are, in many cases, the only 

source for mortgages in those particular markets. 

If you look at, in my district, for example, production agricultural 

loans. Community financial institutions make over 75 percent of 

the production agricultural loans in this country. And so we have 

to move away from the government knows what financial products 

are best for you, and go back to the scenario where the customer, 

the consumer, the borrower and their lender are working out the 

best solutions for them. And we also need to preserve our community financial institutions which are such an integral part of our 

community. 

And so, Mr. Chairman, I thank you for holding the hearing 

today. And I look forward to hearing from our witnesses on this 

very important subject. With that, I yield back. 

Chairman HENSARLING. The gentleman yields back. 

We will now go to our witnesses. 

Our first witness is Mr. Tyrone Fenderson, the president and 

CEO of Commonwealth National Bank, testifying today on behalf 

of ABA. He received his bachelors degree from Faulkner University 

and completed the graduate programs at the Louisiana State University and Troy University. He was named to Birmingham Business Journal’s top 40 under 40 list in 2006. 

Our second witness is Mr. Patrick Miller, the president and CEO 

of CBC Federal Credit Union, testifying today on behalf of CUNA. 

Prior to joining CBC, Mr. Miller worked for 22 years in the financial services industry. Mr. Miller is a graduate of Hiram College. 

At this point, I will yield back to the gentleman from Texas for 

our next introduction. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. It is my pleasure 

to introduce David Williams, the chairman and CEO of Centennial 

Bank in Lubbock, Texas, testifying today on behalf of ICBA. He is 

a Lubbock native, second generation of family. Their family has 

been in banking for a very long time. David knows a lot about community banking. And another special relationship that I have is 

that not only is David a personal friend, but about 38 years ago 

Mr. Williams helped this young homeowner from Lubbock, Texas, 

start a development company and took a chance. I think that is the 

spirit of community banking, so we are delighted to have Mr. Williams testifying today. 

Chairman HENSARLING. And the gentleman’s recommendation is 

that he took a chance on you? 

Our next witness, Peggy LaMascus, is the president and CEO of 

the Patriot Federal Credit Union in Chambersburg, Pennsylvania, 

and she is testifying today on behalf of NAFCU. This Thursday is 

Ms. LaMascus’ 45th anniversary in the credit union industry. We 

5 

all know she must have started at the age of 10. Ms. LaMascus is 

a graduate of the Huntington College of Business. 

And finally, Professor Adam Levitin is a professor of law at 

Georgetown University Law Center, and he has testified before us 

before. Before joining the Law Center, Professor Levitin worked as 

an attorney in private practice and clerked on the U.S. Court of 

Appeals for the third circuit. He holds degrees from Harvard Law 

School, Columbia University, and Harvard College. 

Each of you will be recognized for 5 minutes to give an oral presentation of your testimony. And without objection, each of your 

written statements will be made a part of the record. For those 

who have not testified before, there is a green light, yellow light, 

and red light system, not unlike the lights you encounter on the 

highways, and they mean the same thing. We would appreciate you 

keeping to the 5-minute limit. 

At this time, Mr. Fenderson, you are recognized for your testimony. 

STATEMENT OF TYRONE FENDERSON, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, COMMONWEALTH NATIONAL BANK, 

ON BEHALF OF THE AMERICAN BANKERS ASSOCIATION 

(ABA) 

Mr. FENDERSON. Chairman Hensarling, Ranking Member 

Waters, my name is Tyrone Fenderson, and I serve as president 

and CE0 of Commonwealth National Bank in Mobile, Alabama. My 

bank is one of the small community banks that I hear members of 

this committee often speak of. We are a $60 million institution that 

works every day to serve the needs of our customers of Mobile. 

I appreciate the opportunity to be here to represent ABA and to 

discuss how the growing volume of bank regulations, particularly 

for community banks, is hurting the ability of banks to meet the 

needs of consumers and our communities. ABA appreciates the 

leadership of many members of this committee in addressing this 

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

our customer’s needs despite the ups and downs in the economy. 

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

new rules, guidance, and seemingly ever-changing expectation of 

regulators. 

It is this regulatory burden and the fear of even more regulation 

that often pushes small banks to sell to banks many times their 

size. In fact, today there are 1,200 fewer community banks than 

there were 5 years ago. This trend will continue unless some rational changes are made to provide relief to America’s hometown 

banks. 

Regulation shapes the ways banks do business and can help or 

hinder the smooth functioning of the credit cycle. Every bank regulatory change directly affects the cost of providing banking products and services to customers. Even small changes can reduce 

credit availability, raise costs, and drive consolidation. Everyone 

who uses banking products and services is impacted by changes 

and bank regulation. 

Let me briefly share a story that a banker recently shared that 

illustrates the impact these rules have on communities. The bank 

located in Texas recently had to take all lending discretion away 

6 

from its loan officers. Due to the fears of inadvertently violating 

fair lending regulations, it now must rely solely and exclusively on 

a numbers-driven model to underwrite their loans. This has meant 

turning away loans that they otherwise would have made. In one 

case, this meant turning down a 30-year customer who had never 

been late on a payment for a loan to repair the heat in his daughter’s home. 

Stories such as this are common in hometowns across the country. This is why it is so important for Congress to take steps to ensure that the banking industry’s ability to facilitate jobs and grow 

our economy exists. 

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

bipartisan legislation that would enhance the ability of community 

banks to serve our customers. We support legislation that would require regulators to tailor their regulatory approach so that it only 

applies where the bank’s business model and risk profile require it. 

Regulators should be empowered and directed to make sure that 

rules, regulations, and compliance burdens only apply to segments 

of the industry where it is warranted. 

Some of the bills introduced by this committee are also an important first step. Representative Barr’s American Jobs and Community Revitalization Act, H.R. 1389, contains provisions that would 

reduce the burden on community banks in ways that make it easier 

to meet customer’s needs. 

A few key provisions include ensuring that loans held in portfolio 

are considered Qualified Mortgages; requiring a review and reconciliation of existing regulation; providing a longer exam cycle for 

highly-rated community banks; and streamlining currency transaction reports for seasoned customers. 

Additionally, legislation introduced by Representatives Luetkemeyer, Neugebauer, and Barr contains measures that would help 

American hometown banks get back to serving our communities. 

Some of these provisions of the bill would eliminate mailing the 

privacy notices when no changes have been made to privacy policies; allow highly-rated, well-capitalized community banks to file 

short-form call reports; establish an effective appeals process to the 

definition of a rural area; and ensure proper oversight of the CFPB. 

ABA stands ready to help and work with Congress to address this 

important issue. I would like to thank you for your time, and I will 

be happy to answer any questions that you may have. 

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

109 of the appendix.] 

Chairman HENSARLING. Thank you. 

Mr. Miller, you are now recognized for your testimony. 

STATEMENT OF PATRICK MILLER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CBC FEDERAL CREDIT UNION, ON BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION 

(CUNA) 

Mr. MILLER. Thank you, Chairman Hensarling and Ranking 

Member Waters. Thank you for the invitation to testify today for 

the Credit Union National Association. I am Patrick Miller, president and CE0 of CBC Federal Credit Union located in Oxnard, 

California. America’s 100 million credit union members rely on 

7 

their credit unions for safe and affordable financial service products. As member-owned, not-for-profit institutions, credit unions 

continue to provide tremendous benefits in terms of lower interest 

rate loans, higher returns on deposits, low or no-fee products and 

services, and financial counseling and education. Because credit 

unions actively fulfill their mission as Congress intended, consumers benefit to the tune of about $10 billion annually. 

However, since the beginning of the financial crisis, credit unions 

have been subjected to more than 190 regulatory changes from 

nearly 3 dozen Federal agencies, totaling nearly 6,000 pages. These 

new rules, usually aimed at curtailing practices that we don’t engage in, impact us because we have to do several things: assess the 

rule and determine how to comply; change internal policies and 

controls; design and print new forms; dedicate additional resources 

to retrain staff; update computer systems; and finally, help our 

members understand all these changes. 

And we have done this over 190 times in just the last few years. 

Obviously, this takes time and money, both of which could be far 

better spent serving our members. After all, every additional dollar 

spent on compliance is a dollar that cannot be loaned to a member. 

Regulatory burden is not just about the dollars and cents of running a credit union. We serve hardworking members, your constituents, and this constant onslaught of regulations directly affects 

their ability to borrow. Not every member and every loan fits arbitrary rules imposed by regulators. Without the flexibility to determine the appropriate services, credit union members lose out. After 

the CFPB issued a QM rule, we originated about half the amount 

of our borderline mortgage loans that we would have made before. 

For example, we had to deny 50 families a home loan, who we 

feel were qualified borrowers, simply because we feared regulatory 

scrutiny on non-QM loans. I should be able to evaluate the ability 

to repay of my credit union members in Oxnard, California. The decision should not be left to someone in Washington. 

Overregulation has real-world consequences for our members. 

Credit unions should not be required to comply with rules more appropriately suited for too-big-to-fail institutions. I agree with members of this committee who said that too-big-to-fail has turned into 

too-small-to-survive. Small financial institutions are consolidating 

at an alarming rate due to the weight of regulatory burdens and 

the high cost of compliance. Jobs are lost, communities are underserved, and the consumer is left with fewer options. For example, 

regulations that adversely affected my credit union are the CFPB 

mortgage servicing rules. These rules were created because of companies like high-risk mortgage servicers and Wall Street banks, not 

credit unions. Our credit unions have never had any loan servicing 

complaints, yet the pages and pages of new rules make it more onerous and expensive to service home loans. 

Outsourcing costs are outrageous and would cost our credit union 

more than $100,000 per year. This is an unnecessary expense, and 

since credit unions are member-owned, this extra cost affects our 

members directly. 

While I can share numerous other stories with the committee, I 

also want to focus on just a few of the more than two dozen recommendations for statutory changes found in my written testiVerDate Nov 24 2008 10:53 Sep 18, 2015 Jkt 095065 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\95052.TXT TERRI
8 

mony. For example, we encouraged Congress to ensure the CFPB 

uses exemption authority to a much greater extent than it has to 

date. Members of this committee have acknowledged that the Bureau has such authority, but we believe it is now being used sufficiently. We ask Congress to clarify and strengthen these exemption 

instructions as they pertain to smaller depository institutions like 

credit unions. 

We also urge the committee to actively engage in the debate over 

data security. Credit unions and their members are greatly impacted by the weak merchant data security practices that have allowed several large-scale breaches. At my small credit union, we 

dedicate $575,000 a year to cybersecurity because protection of 

data is of the highest priority, particularly when merchants are not 

doing their part. The negligence of those that don’t protect their 

payment information costs my industry money, and shakes the confidence of our members. These fees would be significantly reduced 

if those that accept payments were subject to the same standards 

as those that provide cards. 

Frankly, I am concerned about the security of the vast amount 

of consumer data being collected by the CFPB and other regulators. 

More needs to be done on this issue, and we encourage the committee to act. 

My written testimony also includes two recommendations related 

to the Federal Home Loan Bank System: one would permit credit 

unions to join the System; and the other would give us parity with 

banks and extend the community financial institution exemption to 

include credit unions under $1 billion in assets. 

Credit unions did not cause the crisis, but you wouldn’t know 

that based on the hundreds of rules to which we have been subjected. Since you believe we are not the problem, please work with 

us to remove the barriers that keep us from serving our members, 

your constituents. Congress can do a lot more to remove barriers 

for credit unions and we are grateful for the committee’s desire to 

address these issues. Thank you again for the opportunity to testify 

today. 

[The prepared statement of Mr. Miller can be found on page 135 

of the appendix.] 

Chairman HENSARLING. Mr. Williams, you are now recognized for 

your testimony. 

STATEMENT OF J. DAVID WILLIAMS, CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, CENTENNIAL BANK, ON BEHALF OF 

THE INDEPENDENT COMMUNITY BANKERS OF AMERICA 

(ICBA) 

Mr. WILLIAMS. Chairman Hensarling, Ranking Member Waters, 

and members of the committee, I am David Williams, chairman of 

the Centennial Bank in Lubbock, Texas. I am pleased to represent 

the Independent Community Bankers Association of America, and 

6,400 community banks, at this most important hearing. Centennial Bank, chartered in 1934, is a $740 million bank. It 

serves rural and urban markets in the Panhandle, South Plains, 

and central Texas. Our mission is to build successful and meaningful lifetime relationships with our customers. This long-term culVerDate Nov 24 2008 10:53 Sep 18, 2015 Jkt 095065 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\95052.TXT TERRI
9 

ture, typical of thousands of community banks across the Nation, 

is at risk today. 

In recent years, Centennial Bank has seen the nature of our 

business fundamentally change from lending to compliance. Regulatory burden reaches the level of overkill when it injures the customer or consumer it was intended to protect. 

Please consider the following examples: A startup small business 

owner, or farmer, may have business-related debt on their credit 

report that will disqualify them under QM’s 43 percent debt-to-income (DTI) limitation. Business formation should be encouraged, 

not punished. Minority borrowers are more likely to exceed the DTI 

limitation according to a Federal Reserve study of lending in 2010. 

As a small creditor under the CFPB’s definition, my bank is not 

subject to the debt-to-income limitation and we serve these customers, but many other community banks do not have small creditor status. 

Even as a small creditor, my bank is significantly limited by QM. 

Here are some examples of loans that are not QM even for small 

creditors. Low-dollar loans are common in many parts of the country for rural and refinancing. Both the QM closing fee—excuse me, 

but the QM closing fee cap is often a challenge when making these 

loans. Balloon loans, which were used to manage interest rate risk 

on loans that can’t be sold into the secondary market, are non-QM 

unless they are made by lenders in predominantly rural areas, beginning in 2016. 

For banks like mine that serve both rural and urban markets, 

it is nearly impossible to meet the ‘‘rural lender’’ definition. In our 

New Mexico market, regulatory barriers to mortgage lending are 

pushing would-be homeowners into the rental market. In Clayton, 

New Mexico, for example, an average renter now pays $800 to $900 

a month, though he or she could purchase a much nicer home for 

$80,000 with a monthly mortgage payment of $400. I believe the 

disparity between rents and mortgage payments in this market is 

directly attributable to the overly stringent underwriting required 

by the new mortgage rules. 

I hear these stories again and again from community bankers in 

Texas and around the country. These are not isolated anecdotes. 

Numerous empirical studies, which I cite in my written statement, 

have reached the same conclusion. The good news is there are 

readily available solutions to this pending crisis. ICBA’s plan for 

prosperity is a robust regulatory relief agenda with nearly 40 recommendations that will allow Main Street and rural America to 

prosper. A copy of the plan is attached to my written statement. 

This committee’s work in the last Congress set the stage for enacting meaningful regulatory relief in Congress. We are encouraged 

by the bills that have been introduced so far, many of which reflect 

our plan for prosperity. Chairman Neugebauer’s Financial Product 

Safety Commission Act, H.R. 1266, would changes the structure of 

the CFPB so that it is governed by a five-member commission. This 

would create a system of checks and balances that is absent in the 

single director form of governance. 

I want to highlight the CLEARR Act, H.R. 1233, introduced by 

Representative Luetkemeyer, which contains provisions addressing 

mortgage regulatory relief, capital access, and reform of oversight 

10 

and supervision. The CLEARR Act has been endorsed by 34 State 

community bank associations. A key provision of the bill, automatic 

QM status for any mortgage held in portfolio, is also contained in 

the Portfolio Lending and Mortgage Access Act, H.R. 1210, introduced by Representative Barr. 

A portfolio lender that holds 100 percent of a credit risk has 

every incentive to thoroughly assess the borrowers financial condition. This is a simple, easy-to-apply solution to the threat of QM. 

These bills, among others before the committee, are all a part of 

the solution to regulatory burden. We strongly encourage this committee to complete the work that was done in the last Congress, 

and enact meaningful regulatory relief for community banks. 

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

your questions. 

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

186 of the appendix.] 

Chairman HENSARLING. Ms. LaMascus, you are recognized for 

your testimony. 

STATEMENT OF PEGGY BOSMA-LAMASCUS, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, PATRIOT FEDERAL CREDIT 

UNION, ON BEHALF OF THE NATIONAL ASSOCIATION OF 

FEDERAL CREDIT UNIONS (NAFCU) 

Ms. LAMASCUS. Thank you. Good morning, Chairman Hensarling, Ranking Member Waters, and members of the committee. 

My name is Peggy LaMascus, and I am testifying today on behalf 

of NAFCU. Tomorrow will mark my 45th anniversary with credit 

unions, having started at Westvasamco Federal Credit Union on 

March 19, 1970. For the last 33 years, I have been the CEO of Patriot Federal Credit Union, a community credit union in Chambersburg, Pennsylvania, serving over 51,000 members in 3 counties in 

Pennsylvania and Maryland. 

The entire credit union community appreciates the opportunity 

to expand on the topic of regulatory relief. The impact of the growing compliance burden is evident as the number of credit unions 

continues to decline. Since the second quarter of 2010, we have lost 

1,200 federally-insured credit unions, 96 percent of which were 

below $100 million in assets. 

Many institutions simply cannot keep up with the new regulatory tide and have had to merge out of business or be taken over. 

Many others have had to cut service to their members. Credit 

unions and their members need regulatory relief, both from Congress and their regulators, including NCUA and the CFPB. Our 

members at Patriot have been directly impacted by regulations. For 

example, we hear from members who are angered by the outdated 

six transfer limitation from Federal Reserve Regulation D. This includes a homebound, disabled member who managed her finances 

primarily through phone and electronic services because of the difficulty of leaving home to come to a branch. She is one of our many 

members feeling the burden of this outdated requirement. 

Other members can no longer make international remittance 

transfers with us. Patriot opted to stop doing them because the 

new CFPB requirements were too costly and burdensome to comply 

with for the limited number we make annually. One of the greatest 

11 

challenges credit unions face is the major disconnect between the 

regulatory agencies in Washington, and the real world credit 

unions and their members live in. 

While regulators have taken some small steps toward relief, too 

often arbitrary assets thresholds don’t actually consider the risk or 

complexities of institutions. Regulation of the system should match 

the risk to the system. My written testimony outlines NAFCU’s updated, five-point plan for credit union regulatory relief, as well as 

our new top 10 list of regulations that need to be amended or eliminated. 

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

new proposal is an improvement over the initial proposal, but the 

problem with the regulation remains. The proposed rule is extremely costly, and NCUA has not demonstrated why credit unions 

need a broad brush regulation. 

Despite NCUA’s estimate that a limited number of credit unions 

will be downgraded, the proposal would force credit unions to hold 

hundreds of millions of dollars in additional reserves to achieve the 

same capital cushion levels they currently maintain. These funds 

could otherwise be used to make loans to consumers or small businesses. 

Ultimately, we believe legislative changes are required to bring 

about comprehensive capital reform, including allowing credit 

unions access to supplemental capital. NAFCU also believes that 

field of membership rules for credit unions should be modernized 

on both the legislative and regulatory fronts, and I have outlined 

ideas for those in my written testimony. 

Additionally, cost and time burden estimates issued by regulators are often grossly understated. We believe Congress should 

require periodic reviews of actual regulatory burdens of finalized 

rules, and ensure agencies remove or amend those rules that vastly 

underestimated the compliance burden. 

Some credit unions have reported to NAFCU that it has taken 

them over 1,000 hours to comply with CFPB’s new mortgage requirements. There are also a number of bills outlined in my written 

statement that NAFCU supports and we would urge action on. My 

statement also highlights areas where regulators can provide relief 

without congressional action. 

In conclusion, the growing regulator burden on credit unions is 

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

in order for credit unions to survive and meet their mission of serving their members’ needs. We thank you for the opportunity to 

share our thoughts with you today. I welcome any questions you 

may have. 

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

60 of the appendix.] 

Chairman HENSARLING. And, Professor Levitin, you are now recognized for your testimony. 

STATEMENT OF ADAM J. LEVITIN, PROFESSOR OF LAW, 

GEORGETOWN UNIVERSITY LAW CENTER 

Mr. LEVITIN. Chairman Hensarling, Ranking Member Waters 

and members of the committee, good morning. Thank you for invitVerDate Nov 24 2008 10:53 Sep 18, 2015 Jkt 095065 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\95052.TXT TERRI
12 

ing me to testify today. My name is Adam Levitin, and I am a professor of law at Georgetown University, where I teach courses in 

consumer finance, among other topics. 

I am glad to see the committee show interest in the problems facing community financial institutions. Community banks and credit 

unions play an important role in their communities and in the 

American financial system. They are key sources for small business 

and commercial real estate and agricultural credit, and they are essential for preserving consumer choice in the financial services 

marketplace. 

There is no question that as an industry, community financial institutions are ailing. The number of community banks in the 

United States has fallen nearly in half over the last decade. This 

is the continuation of a long-term trend. Indeed, for the past couple 

of decades community banks have disappeared at a steady rate of 

around 300 a year, and similar situations exist for credit unions. 

The central problem that community banks face, however, and 

the main reason they are disappearing is not regulation and is not 

the CFPB. Community banks have been disappearing at the same 

steady rate for decades before the CFPB came into existence, much 

less before its regulations became effective. CFPB regulations have 

only been in effect for the past 1 or 2 years. It is hard to blame 

new regulations for a decade’s old trend. 

The CFPB has actually repeatedly put a friendly sum on the regulatory scale to ease regulatory burdens for community banks. My 

written testimony outlines no fewer that 10 CFPB regulatory exemptions for small financial institutions. This is on top of key statutory exemptions. Additionally, the CFPB has a proposed rulemaking that would expand some of the exemptions to potentially 

cover nearly all community financial institutions. 

The CFPB has also taken pains to create multiple channels for 

smaller financial institutions to communicate their concerns to the 

Bureau, including voluntarily establishing a community bank advisory board, a credit union advisory board, and an office of financial 

institutions. All of this is in addition to the special rulemaking requirements with which the CFPB must comply under the Small 

Business Regulatory Enforcement Fairness Act. 

The real problem that community banks face is not the CFPB or 

regulation; instead, it is the cold, hard truth of the market. Size 

matters in consumer finance. Community banks lack the economies 

of scale necessary to compete in the key consumer finance market 

of mortgages and credit cards. Increasingly, economies of scale matter for deposits because mobile banking and security issues are 

driving up technology costs. In short, community banks face a serious structural disadvantage in the consumer finance marketplace. 

Members of this committee have proposed a number of bills that 

would address various aspects of CFPB regulation. I address some 

of these bills in detail in my written testimony. With one exception 

related to mortgage servicing, I believe them to be ill-advised, because they are either premature, unnecessary, or, in some cases, 

would actually encourage predatory lending or restrict access to 

credit. 

These bills would also add to regulatory uncertainty. Any 

changes that are made now by statute would call for a further 

13 

round of regulations and more uncertainty for the industry. Most 

critically, though, none of these bills are responsive to the real 

problem faced by community financial institutions. Focusing on the 

weedy details of CFPB regulations instead of addressing the unequal playing field between community banks and mega-banks is 

like worrying about electrolysis and chin hairs while ignoring a 

malignant tumor. It just misses the point. 

If this committee really wants to help community financial institutions, the single best thing it could do would be to pass legislation that would tax or break up the mega-banks. Additional regulatory exemptions for community banks are insufficient to save this 

industry because no amount of regulatory exemptions will sufficiently level the playing field for community banks. 

Moreover, these exemptions will come at the cost of consumer 

protection. American families’ financial security should not be put 

at risk to subsidize private corporations, even community banks. If 

Congress truly cares about community banks, it needs to take action to break up the too-big-to-fail banks, to benefit from the implicit taxpayer guarantee, and pose a serious threat to financial 

stability. Until and unless this is done, community banks will 

never be able to compete on a level playing field. The only way to 

save the community banking industry in the long run is to break 

up the mega-banks. Thank you. 

[The prepared statement of Mr. Levitin can be found on page 121 

of the appendix.] 

Chairman HENSARLING. The Chair now yields himself 5 minutes 

for questions. Ms. LaMascus, you are sitting right next to the law 

professor who says regulation is not your problem. Do you agree 

with that assessment? 

Ms. LAMASCUS. No, I don’t. I do believe that there should be an 

exemption for credit unions or a general exemption for small institutions. The CFPB does provide some exemptions for small institutions; however, they vary based on each rule. I understand the arguments that each rule deserves its own consideration for its impact on small institutions. We think the CFPB could provide better 

relief if it would provide one general exemption for small institutions, such as credit unions, for most of the regulations. 

Chairman HENSARLING. Ms. LaMascus, you mentioned in your 

testimony a member of your credit union whom I believe is disabled, and after triggering the six-transfer limitation under Reg D, 

this disabled member has to find some physical way to walk into 

the credit union. Did I understand you correctly? 

Ms. LAMASCUS. She has to have someone who helps her get to 

the credit union. Of course, we are an accessible credit union, but 

it is difficult. She has to find— 

Chairman HENSARLING. Do you happen to know if this member 

somehow works on Wall Street, because supposedly these regulations were designed to rein in Wall Street. Is she part of the Wall 

Street— 

Ms. LAMASCUS. No, no, she does not work on Wall Street. 

Chairman HENSARLING. Do you have a branch on Wall Street? 

Ms. LAMASCUS. No. 

Chairman HENSARLING. Do any of you all have a branch or credit 

union or bank on Wall Street? You don’t. 

14 

Mr. LEVITIN. Mr. Chairman? 

Chairman HENSARLING. It is my time, Professor Levitin. I am 

sure you will have plenty of time to have your views heard. 

So we understand that there has been a decline in our community financial institutions but the statistic I have shows it has been 

greatly exacerbated over the last few years. I think the rate of decline has almost doubled. I also see that there have only been four 

de novo bank charters since Dodd-Frank came about. 

Isn’t part of the problem here that the regulations are really 

helping commoditize credit? So we have the thesis that regulations 

are not your problem, your problem is scale. You are told you have 

to know your customer for purposes of law enforcement. Apparently, it is not good enough to know your customer for purposes of 

credit extension. If you are denied the ability to engage in relationship banking, which I assume the regulations are causing us to 

lose relationship banking, and I assume you are having more difficulty competing. Mr. Williams, I see your head nodding. Do you 

have an opinion on the matter? 

Mr. WILLIAMS. Yes, Mr. Chairman. Recently we merged with another bank to achieve economies of scale for reasons that I would 

disagree on. Regulatory burden clearly is a major cause of that. 

And we provide credit to rural Americans and the QM rule is affecting that, certainly in west Texas. And to farmers and small 

business folks in that area and clearly it is disqualified applicants 

that we would have once approved. 

Chairman HENSARLING. Mr. Fenderson, do I understand it properly that your bank is one of the few federally-chartered minorityowned banks; is that correct? 

Mr. FENDERSON. Yes, sir, we are one of the three national chartered banks owned by African-Americans, predominantly. 

Chairman HENSARLING. Do I understand that you primarily 

serve underserved areas around the Mobile, Alabama, area? 

Mr. FENDERSON. That is correct. 

Chairman HENSARLING. And do I also understand that when the 

QM rule came out, you had to suspend mortgage lending to your 

underserved population, is that correct? 

Mr. FENDERSON. When the regulation burden started, we had to 

pull back and suspend mortgage lending in order to understand it. 

We have 27 full-time equivalent employees, and as an institution 

in a metropolitan market, we simply did not have the staff and had 

to add compliance staff. 

Chairman HENSARLING. So as a minority-owned bank, serving an 

underserved population, if you have to suspend mortgage lending, 

where do these people go? 

Mr. FENDERSON. To alternatives, which means we don’t get a 

chance to make that money, and it means that they have to find 

other alternative sources, which sometimes are not very friendly 

with the price. 

Chairman HENSARLING. I assume some of them may not have the 

ability to actually find the credit necessary to buy that home that 

they wanted to buy? 

Mr. FENDERSON. That is correct. 

Chairman HENSARLING. And you also don’t have a branch on 

Wall Street; is that correct? 

15 

Mr. FENDERSON. We do not. 

Chairman HENSARLING. Okay. The Chair now recognizes the 

ranking member. 

Ms. WATERS. Thank you, Mr. Chairman. First, I would like to go 

to Mr. Levitin. A recent Harvard working paper states that community banks share banking assets, and the lending market has 

been in a fast decline since the passage of the Dodd-Frank Act and 

echoes the concerns of the industry that recent financial reforms 

and the establishment of the Consumer Protection Financial Bureau are the cause. Are you familiar with that study, Mr. Levitin? 

Mr. LEVITIN. I am. 

Ms. WATERS. And do you agree with the conclusions? 

Mr. LEVITIN. No, I think it is a— 

Ms. WATERS. Why not? 

Mr. LEVITIN. It is not really a scholarly study, let’s start with 

that. 

Ms. WATERS. What you do mean it was not scholarly? 

Mr. LEVITIN. Well, how to count the ways. I think one of the 

most simple things is the way it treats the data. The article looks 

at—it says, well, community banks have been shrinking since the 

Dodd-Frank Act, therefore it is because of the Dodd-Frank Act. 

That is bad logic, that is what is called an ex post ergo—ah, I am 

going to get my Latin wrong, but point being, just because something happens afterwards doesn’t mean it is an effect. 

Rather, what the article completely ignores is that there has 

been a long-term trend with community banks shrinking, and that 

the article is not actually able to show any cause and effect with 

the Dodd-Frank Act, much less when the regulations under the 

Dodd-Frank Act actually go into effect, which has only been in the 

past year. 

Actually, it is ironic because in the last year, the fourth quarter 

of the last year, community banks grew 28 percent over the previous year. They actually had a great end of the year as compared 

to the large banks, which did not. So I think it is really hard to 

say that regulation is causing all the problems of community 

banks. 

Is it possible that there is a regulation or two that needs to be 

tweaked? No doubt. I would not make such an absolute argument 

against it. But I think it is just a serious mistake to claim that regulation is the problem for community banks. I would note for the 

chairman’s benefit, Regulation D is not a CFPB regulation and has 

been on the books without changes for many, many years. So the 

problem that you discussed with Ms. Bosma-LaMascus is not one 

caused by any new regulatory changes. 

Ms. WATERS. All right. Thank you very much. I think I would 

like to go to Ms. Peggy Bosma-LaMascus. I see that you have mentioned as the various to credit unions that Congress—to correct 

these barriers, Congress should make several improvements to the 

Federal Credit Union Act. One you list is to restore credit unions’ 

business lending authority, increase the member business lending 

cap. Would you make more loans, mortgage loans if we did that? 

Ms. LAMASCUS. Yes. 

Ms. WATERS. I can’t hear you. 

Ms. LAMASCUS. Sorry. Yes. 

16 

Ms. WATERS. Do you realize that there are many Members, particularly on this side of the aisle, who support that? 

Ms. LAMASCUS. Yes. 

Ms. WATERS. And have you worked with the banks so that you 

could have an effort to come together to support the credit unions 

being able to increase business lending? A lot of you say we should 

work together more. Can the banks and the credit unions come together around something like this? 

Ms. LAMASCUS. I can’t necessarily speak for my brethren who 

are down the line here. 

Ms. WATERS. Have you talked to them about it? Have you tried? 

You have been around for a long time. In 40 years, have you ever 

talked to the banks about coming together and stop opposing your 

ability to expand business lending? 

Ms. LAMASCUS. Representative Waters, actually today, we have 

many issues on which we are very much in agreement, and, in fact, 

I believe we are all in agreement that if Congress could require realistic and robust cost-benefit analyses of proposed regulations, documentation, that we would all be able to give much more targeted 

feedback so that the result would be smarter regulation. 

I believe that we are all supportive of changes to Reg D, such as 

increasing that limitation from six. It makes sense in today’s lifestyles with so many people using electronic technology. I believe 

that we are all in agreement on changes that need to be made to 

the— 

Ms. WATERS. Thank you very much. I just wanted to mention 

that because that is one of the issues that I care a lot about. 

Mr. Miller, you talk a lot in your testimony about what is wrong 

with the Consumer Financial Protection Bureau, and you mentioned everything from they should go before the Appropriations 

Committee to have a five-member mission, et cetera. What and 

why do you think those issues are important to what you need to 

have done to eliminate your ability to make loans? 

Mr. MILLER. We feel that generally, the structure of how the 

CFPB was created creates a situation where there is regulation 

without representation from all relevant stakeholders. We believe 

a larger board of three to five members—I would prefer five members—who are appointed would allow for diversity of perspectives, 

and opinions, and deliberation, and debate before decisions are 

made, before rules are rolled out. 

Ms. WATERS. Thank you very much. 

Mr. MILLER. We think transparency and the appropriations process and budget process would make sense too. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Neugebauer, chairman of our Financial Institutions Subcommittee. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. Mr. Williams, in 

your testimony you talked about the QM rule and debt-to-income 

ratio and low-dollar, high-cost loans. I was just thinking as you 

were saying that, and then you mentioned about people not able to 

access homeownership, and continue to rent. I was thinking about 

Hart, Texas. I was wondering if that single mom maybe works at 

the Hart Cafe part-time, and she has another part-time job, but 

she has saved up some money over the years, and she would like 

17 

to quit being a renter and wants to be a homeowner. If you can’t 

make that loan, who is going to make that loan to her? 

Mr. WILLIAMS. Congressman, I can’t say who would make that 

loan. We couldn’t make the loan or we would have difficulty, because it is a small community, it is going to be non-conforming— 

it is a non-conforming property because it is not an urban. We 

wouldn’t have comparables for the appraisals. It would be a very 

difficult loan to make. We would try to find a way to do it. We do 

have portfolio lending services, but under the QM rule, we could 

not make a qualified loan. 

Mr. NEUGEBAUER. And so particularly, I believe, in Hart, you are 

the only bank, is that correct? 

Mr. WILLIAMS. Yes, sir, that is correct. 

Mr. NEUGEBAUER. In a lot of communities around the country 

now there is just one community bank left. And so if there is not 

a community bank left to make those loans, whether it is a mortgage loan for that single mom or a production agricultural loan, it 

doesn’t leave a lot of choices, does it? 

Mr. WILLIAMS. No, sir, it doesn’t. I have empirical data from our 

State association of Texas where we went out and solicited feedback from our member bankers, and 25 percent of those banks’ remarks in the rural markets, if they were not there to make the 

loans, no one was there to make the loans. 

Mr. NEUGEBAUER. I thank you for that. Mr. Miller, I think you 

mentioned in your testimony about one of the credit unions in Corpus Christi maybe—the CFPB’s final rules on making remittances 

was put in place, I think, about 150 members of the credit union 

kind of lost access to be able to utilize those services. What other 

kinds of choice limitations are going on in the credit unions that 

are beginning to limit the products that members are able to access? 

Mr. MILLER. The remittance rule is a great example, well-intended legislation, if you wanted to give people a chance to shop 

for a half hour after they place their instructions to send a wire, 

an international wire. I don’t know anybody who shops after they 

make a decision and walks into a non-Wall Street bank or credit 

union and says, I am going to shop around and see if I can save 

$10 on my international wire transmittal. Most people do their 

shopping before they walk in and make a decision. That is our 

opinion on the remittances. 

On QMs, we have turned down 50 members who couldn’t get a 

home loan because we are afraid of regulatory scrutiny. What that 

is going to do is, it’s going to force fewer and fewer choices for the 

consumer. They are going to pay more, because when there are 

fewer choices, markets are efficient, so whoever gets that business 

is going to charge a little bit more, and fewer people are going to 

enjoy the benefits of homeownership, which I know has always 

been something the members of this committee are pretty passionate about: Letting people who qualify to own a home, own a 

home. 

Whether it is credit cards, whether it is car loans, whether it is 

personal loans or school loans, there are all kinds of—the same 

thing is going to happen in virtually every category of lending: 

fewer choices; higher prices; fewer jobs; fewer banks and credit 

18 

unions that are generating their own jobs to create a cascading impact on their local economies; fewer business lenders; fewer mortgage lenders; fewer car loan lenders. It is going to cost jobs and it 

is going to be a down draft in on the economy. There won’t be an 

explosion of toasters and mortgages; there will be an implosion of 

jobs and economic growth. 

Mr. NEUGEBAUER. Thank you. Mr. Fenderson, you indicated you are a relatively small bank, I think $60 million, is that correct? 

Mr. FENDERSON. That is correct. 

Mr. NEUGEBAUER. We have the new Basel III capital requirements for small institutions which became effective January 1st of 

this year. So for a small institution, when you have to keep more 

capital, what does that do to your ability to serve your customers? 

Mr. FENDERSON. I can speak generally about that, we are not a 

seller servicer so we are not applicable to Basel III, but the colleagues I speak with across the country understand that will restrict—if they have to hold more capital, then they are not able to 

make as many loans, and it will make them decide how they treat 

those loans, on whether they want to be in that business or not. 

In fact, I have heard of some servicers who are getting out of that 

business. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from New York, Mrs. 

Maloney, ranking member of our Capital Markets Subcommittee. 

Mrs. MALONEY. Thank you, Chairman Hensarling and Ranking 

Member Waters. Professor Levitin, as you know, my colleagues on 

the other side of the aisle have had a string of hearings, a relentless campaign to weaken Dodd-Frank and they claim that it is too 

costly for financial institutions, but this just looks at one side of the 

equation, the cost to financial institutions. I would look also and 

take into account the cost to consumers of not having adequate consumer protections in place. They say this downturn cost $16 trillion 

of household wealth, large unemployment, we were shedding 700 

jobs a month, 800 jobs a month. Can you comment on the longterm cost to consumers, and I would say the overall economy, of 

not adequately regulating financial products and services? 

It has been said that our regulation didn’t keep up with the innovation, and experts testified before this committee and others that 

this was the first financial crisis in history that could have been 

prevented with better financial regulation of risky products and 

risk-taking. So, your comments please. 

Mr. LEVITIN. The financial crisis was completely preventable and 

would have been prevented if the Dodd-Frank Act mortgage regulations had been in place. The scape of the scale of the financial destruction, and particularly household wealth, and especially for 

communities of color, as a result of improving mortgage lending, 

not all of which was done through securitization, but a great deal 

which was also financed through bank portfolio lending, particularly Countrywide, Wachovia and Washington Mutual all had large 

portfolio lending operations. All of that caused tremendous loss of 

wealth for American families. 

I think it is also important to note that sometimes regulations 

actually not only protect consumers, but put money back in their 

pockets. The Credit Card Act, of which you were one of the auVerDate Nov 24 2008 10:53 Sep 18, 2015 Jkt 095065 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\95052.TXT TERRI
19 

thors, has been found to actually have saved consumers billions of 

dollars, yet we don’t hear— 

Mrs. MALONEY. Over $10 billion a year, that is a stimulus package that we gave the American people. 

Mr. LEVITIN. I thought you would have the number. But we don’t 

hear a peep about that when regulation is discussed. Instead, regulation is only looked at in terms of compliance costs without seeing 

the benefits, whether it is financial stability or clear pocketbook 

savings for American families. 

Mrs. MALONEY. So just to emphasize, do you think these costs 

outweigh the incremental costs of compliance to financial institutions? I would say the Credit Cardholders Bill of Rights helped institutions, it hasn’t hurt their bottom line; you cut out unfair, deceptive practices so that more people have trust in their services. 

Mr. LEVITIN. There are costs to doing business and there is not 

an inherent right to get to operate a bank. It requires a charter 

and you have to be able to be competitive. And part of being competitive is being able to comply with regulations, particularly regulations that are necessary for preserving certain minimum standards within the industry. 

Mrs. MALONEY. Also in your testimony, you noted that the CFPB 

has already granted community banks significant regulatory relief. 

In your opinion, do you think the CFPB has been sufficiently responsive to the concerns of community banks? 

Mr. LEVITIN. Generally, I believe it has been. 

There are some places where one might dicker with the CFPB 

about a particular threshold for exemptions. For example, on the 

remittances rule, should the number of remittances be 100 per year 

or 200? I think there are reasonable differences of opinion. 

But, directionally, I think the CFPB has made considered judgments. And it is trying to balance important considerations not just 

about small financial institutions but about consumers. 

Mrs. MALONEY. And you raised another important point in your 

testimony, that the oversight of the non-bank mortgage servicing 

industry is uncoordinated, to use your words, and that, ‘‘Until and 

unless housing finance reform is resolved, the industry will remain 

in flux and in need of reform.’’ 

Given the uncertainty surrounding housing finance reform, what 

alternatives would you suggest concerning coordination across the 

relevant regulators of non-bank mortgage servicers that could 

begin to address the reforms that you believe would improve the 

overall economy and consumer experience? 

Chairman HENSARLING. The gentlelady’s time has expired, so a 

quick answer, please. 

Mr. LEVITIN. Obviously, there are tremendous difficulties with 

getting any kind of legislation passed on housing finance reform. 

Until and unless that happens, I think that there needs to be a formal coordination mechanism among financial regulators on mortgage servicing in order to try and stabilize the servicing industry. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Missouri, Mr. Luetkemeyer, the chairman of our Housing and 

Insurance Subcommittee. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

20 

Professor Levitin, I just want to thank you. Mr. Perlmutter and 

I have been working on, for the last 2 years, legislation to delay 

the implementation of Basel III on capital standards for mortgage 

servicing assets, and I see in your testimony you support doing 

that. I certainly appreciate that. 

Just quickly, have you ever worked in the private sector? Have 

you ever worked at a bank or a credit union? 

Mr. LEVITIN. No, I have not. 

Mr. LUETKEMEYER. Have you— 

Mr. LEVITIN. I have worked for them, but I have never worked 

at them. 

Mr. LUETKEMEYER. Okay. I was just kind of curious. So your 

real-world experience is really based on what you read in books or 

magazines or newspapers or read from studies of things that go on 

in the financial world. Is that correct? 

Mr. LEVITIN. No, that is not correct. 

Mr. LUETKEMEYER. You just said— 

Mr. LEVITIN. I would add to that, I regularly work as a consultant for financial institutions and trade associations, including one 

of the ones that is represented here. And I also— 

Mr. LUETKEMEYER. Mr. Levitin, I think one of the— 

Mr. LEVITIN. —before I get to see the internal workings of financial— 

Mr. LUETKEMEYER. As part of your testimony here, you continually try to say that the CFPB is the problem that these folks here 

are consumed with, and I think their testimony talks about the 

overwhelming amount of regulations. Your testimony basically 

talks about the CFPB. And I think each of these folks have given 

that. 

And just to make the point about the CFPB, I have here a letter, 

and I will just sort of summarize it. Basically, what they are saying 

is that on February 25th, the CFPB proposed to suspend a rule 

with regard to credit card users and the card agreements that the 

Bureau had developed so that they could streamline their system. 

Because they don’t have enough people to input the automation 

and do the cataloging and review that it is going to take, they don’t 

even have the ability to watchdog and oversee the rules they make. 

So I wish they would give time to the other institutions they 

oversee to be able to have the ability to implement these rules on 

their own, which they don’t seem to be willing to do. 

Along that line, I brought with me this morning a real estate 

loan matrix. This was put together by a compliance company, a 

company that deals in providing forms for institutions that provide 

real estate loans. And there are seven—I am sure you can’t see it, 

but there are seven different categories of security. There is a total 

of 370 boxes that have to be checked or reviewed to see where this 

loan fits into. There is a timetable down here that has 24 different 

forms that have to be used at some point, or may be used, during 

the course of the implementation and working out this loan. 

This is the kind of stuff that is overwhelming the system. It is 

not just the CFPB; it is all of this in its totality. So I appreciate 

the comment this morning by Mr. Williams that said 25 percent of 

the loans would no longer be made by you as a result of this type 

21 

of inundation and the QM rule and all these things that are going 

on. 

So I was just kind of curious if I can get a figure from each of 

you this morning with regards to how much have you seen that 

this curtailed. 

For instance, Mr. Williams and Mr. Miller, where do these people 

go when you no longer have access? Are these people going to get 

their home loans now at FHA, to the Federal Government, these 

agencies? Where are they going? 

Mr. WILLIAMS. I can’t answer that, Congressman. All I can say 

is my information was wrong. I said 25 percent said there are no 

other banks or financial institutions in the area, and it is actually 

29.7 percent. And I apologize, but I wanted to correct that. 

It is important to understand that there are secondary lenders, 

but it is going to cost the consumer a great deal more money, or 

they are going to have to rent. They are not going to be able to get 

a loan. 

Mr. LUETKEMEYER Mr. Miller, do you know where those folks go 

when they can’t get a loan from you? 

Mr. MILLER. I think, in most cases, because they came to us, they 

didn’t go to a big bank for a reason. Because they either already 

got turned down, or they wanted to come in to somebody local that 

they know and they trust, that they have been a member of for decades. 

Mr. LUETKEMEYER. Mr. Fenderson, do you know where your folks 

go when they can’t get a loan? 

Mr. FENDERSON. I would say that community banks represent 

choice and flexibility when consumers try to decide. So, like Mr. 

Miller noted, they are coming to us for a reason, because they believe that we have the flexibility. Unfortunately, there are some 

consumers who are not highly qualified for mortgages, and that 

gives us the ability to do those loans. And then they have to find 

a source that is probably not as cost-effective. 

Mr. MILLER. If I could add, maybe they still rent that mobile 

home that the other bank can’t make a loan on anymore. 

Mr. LUETKEMEYER. Ms. LaMascus, do you know where your folks 

go when you can’t make a loan to them? 

Ms. LAMASCUS. They either are unable to conduct their transaction or they have to go somewhere else where they have to pay 

more, dealing with people they don’t know. They are not able to 

work with their trusted creditors. 

Mr. LUETKEMEYER. So, basically, what you have all told me is 

that there is an access-to-credit problem as a result of the excessive 

amount of rules, regulations, forms, and restrictions you have to 

deal with. 

Mr. WILLIAMS. Yes, sir. 

Mr. LUETKEMEYER. Thank you very much. 

I yield back. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Massachusetts, Mr. Lynch. 

Mr. LYNCH. I want to thank you all for your willingness to come 

before the committee and help us with our work. 

And I feel like I have to defend Professor Levitin down there. I 

do want to point out that Mr. Levitin is the only witness on our 

22 

panel this morning who is not being paid by a specific interest, in 

connection with his testimony. Mr. Levitin has not received any 

Federal grants or any compensation connected with his testimony. 

He is not testifying on behalf of any organization, and the views 

expressed by him are his own. 

So, enough about that. 

Mr. Levitin, let me ask you, your testimony indicates that there 

were—you identified several accommodations that we try to make 

in Dodd-Frank to actually address the clear differences between 

the mega-banks that we were trying to reel in and the community 

banks. 

And I know from my personal work on that bill with Congressman Frank that we tried at every turn to try to make a distinction 

between the regulation against the big banks that caused the problem and the community banks who did not cause the problem. 

I love my community banks. And maybe this is just my district, 

but when I have seen community banks go away in my district, 

they have merged where there have been acquisitions. Larger community banks have purchased smaller community banks in pursuit 

of growth. As a matter of fact, we have had two major credit unions 

that have been so successful in my district that they have converted to become banks so that they could expand further than 

their jurisdiction allowed as a credit union. 

So, yes, they have gone away, but for growth purposes. 

But, Professor Levitin, if you could just talk a little bit about 

what you identified in some of your testimony, but drill down a little bit deeper about the advantages that we have tried to give to 

community banks so that they might succeed. 

Mr. LEVITIN. Sure. 

In the Dodd-Frank Act, I think there are three really important 

distinctions made between community banks and credit unions and 

large banks. 

First, the Consumer Financial Protection Bureau has no authority to examine financial institutions with less than $10 billion of 

assets. Instead, their examinations occur with their regular prudential regulator, and they are, therefore, subject to only one set 

of examinations, not two. 

Mr. LYNCH. So in the universe of the under $10 billion, what is 

the percentage of that? Do you have any idea? 

Mr. LEVITIN. I have the number right around here. 

For the under $10 billion, we are talking about—for banks, there 

are 108 banks that have over $10 billion in assets. That is out of 

6,518 banks in the United States. So about 2 percent of banks are 

subject to CFPB examination. And only five credit unions— 

Mr. LYNCH. Wow. 

Mr. LEVITIN. —out of—it is around 6,400. 

Mr. LYNCH. And we are being accused of overreaching. 

Mr. LEVITIN. That is correct. 

Mr. LYNCH. Okay. 

Mr. LEVITIN. The second thing the Dodd-Frank Act does is it ex- empts these smaller financial institutions—again, less than $10 billion of assets—from enforcement actions by the CFPB. Enforcement 

actions would have to be undertaken by their prudential regulators. And, to date, I am not aware of their prudential regulators 

23 

having undertaken a single enforcement action for authorities that 

exist under the Consumer Financial Protection Act. 

Finally, the Durbin Amendment to the Dodd-Frank Act exempts 

financial institutions with less than $10 billion of assets from regulation of debit card interchange fees, the fees that merchants have 

to pay whenever they accept a debit card transaction. That gives 

smaller institutions a tremendous leg up competitively against 

large institutions. 

So, there are already a number of things in the Dodd-Frank Act 

that are really trying to look out for small financial institutions. 

Mr. LYNCH. Great. 

I only have 40 seconds left. Anything else you want to add to 

your testimony that you might have been asked by another Member and didn’t have an opportunity to respond? 

Mr. LEVITIN. Not at this point, but I appreciate that. 

Mr. LYNCH. Okay. 

I yield back, Mr. Chairman. Thank you. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from New Mexico, Mr. 

Pearce. 

Mr. PEARCE. Thank you, Mr. Chairman. 

And I thank each of you for your testimony today. 

Mr. Levitin, you made a comment on page 7 of your testimony 

that absent FDIC insurance, depositors would never use small institutions instead of large ones. 

Where did you get that information from? 

Mr. LEVITIN. I think you can look at what happened at the— 

Mr. PEARCE. No, I just asked where you got it from. 

Mr. LEVITIN. I got that from my own research, sir. 

Mr. PEARCE. Okay. 

So, Mr. Fenderson, do you find, when the people walk in the door 

to make deposits, they tell you they are there because you are an 

FDIC institution? 

Mr. FENDERSON. No, sir. 

Mr. PEARCE. Okay. 

Mr. Miller, you have a lot of small outfits. Do they walk in to 

you and say, we are looking for your insurance, that is the reason 

we are going to put our money with you? 

Mr. MILLER. No, sir. 

Mr. LEVITIN. Sir, I would just point out there are three non-FDIinsured— 

Mr. PEARCE. No, no. Please. No, please. You are the one who was 

critical. I think you said that there was not a scholarly study earlier in answer to one of the questions, and I am trying to get to 

the basis of the scholarly study that came up with the observation 

that people only use small institutions because of the FDIC. Because that has no relevance. I represent the Second District of New 

Mexico, and I will guarantee you the people who walk in the doors 

are not there because they are FDIC-insured. 

The Second District, by the way, is Roswell, New Mexico. The 

aliens landed there. And the aliens have more knowledge of what 

happens in small banks than what you do, sir. And your scholarly 

study leaves a little bit to be desired. 

24 

Mr. LEVITIN. Sir, I think I am entitled to a point of personal 

privilege on this. 

Chairman HENSARLING. The time belongs to the gentleman from 

New Mexico. 

Mr. PEARCE. You will have to ask the chairman for personal 

privilege. 

I am just telling you that when you say in your testimony that 

a portfolio lender can lend at high rates and aggressively pursue 

defaults—50 percent of the homes in my district are manufactured 

houses. Now, those people who loan money and keep the mortgages 

in their portfolio are not doing that so they can go and repossess 

those things. They are trying to help low-income borrowers get a 

place to live. 

Mr. LEVITIN. You have no disagreement with me on that, sir. 

Mr. PEARCE. Mr. Chairman, if you would have him pursue his 

own time, I would appreciate it. 

But your scholarly study that you bring and give to us today is 

offensive to the people on the low-income ladder, because DoddFrank has made it very difficult for them to make a living. It is, 

in fact, a war on the poor and the middle-income people of this 

country. And to have you sit here and just say things that the people next to you can’t counteract is— 

Mr. MILLER. Mr. Pearce, can I make a follow-up comment? 

Mr. PEARCE. Yes. 

Mr. MILLER. I also take umbrage with the comment that it is just 

a cost of doing business. There is no such thing as a cost of doing 

business because it is passed directly on to our members and the 

customers of the banks that are represented here. We pass on 

roughly 25 basis points on every loan and increase higher interest 

rates because of compliance costs. We pay our members roughly 25 

basis points less overall on deposits because of compliance costs. 

Mr. PEARCE. Mr. Miller, do you— 

Mr. MILLER. So it is not a cost of doing business. It is a cost to 

your constituents and our members. 

Mr. PEARCE. I understand. 

Mr. Miller, do you make loans on manufactured houses? 

Mr. MILLER. No, we do not. 

Mr. PEARCE. I’m sorry, not Mr. Miller but Mr. Williams. I was 

looking at Mr. Williams and calling him Mr. Miller. 

Mr. WILLIAMS. Yes, we do. And the answer to your first question 

is, no. 

Mr. PEARCE. Yes, okay. People don’t come in for the FDIC insurance. 

Mr. WILLIAMS. They do not. 

Mr. PEARCE. So what is the status in the manufactured house 

loans? 

Mr. WILLIAMS. We can’t qualify them under the QM rules. 

Mr. PEARCE. Do you hold them in portfolio? 

Mr. WILLIAMS. Yes, sir. 

Mr. PEARCE. How many do you repossess in a year? 

Mr. WILLIAMS. The last 4 or 5 years, I would say maybe one, possibly two. 

Mr. PEARCE. Yes. That is what I— 

Mr. WILLIAMS. A very, very small number. 

25 

Mr. PEARCE. There is only one institution left in the southeast 

part of New Mexico that makes loans on these kind of houses, and 

they have the lowest default rate of any. 

And so it seems like scholarly studies would include coming out 

and actually visiting those institutions where they make those 

kinds of loans before they start passing along this genius bit of information that caused the CFPB to include balloon loans and these 

manufactured housing loans as predatory lending, because it 

makes life very difficult for us out there in the parts of America 

that never get visited by the educated-leap-making scholarly studies. 

The fact that there are two tiers of regulations—that is another 

point that Mr. Levitin makes—do you find those two tiers of regulation, Mr. Williams? 

Mr. WILLIAMS. I find it—I would like to see multiple-tiered regulations. 

Mr. PEARCE. Yes. In other words, the regulator just—they are 

not going to learn two standards. They are going to come in, and 

they are going to judge everybody by the same standard. That is 

trickle-down regulations, and it is a point that is completely overlooked by the CFPB. 

But, again, thank you. 

Mr. WILLIAMS. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Green, 

ranking member of our Oversight and Investigations Subcommittee. 

Mr. GREEN. Thank you, Mr. Chairman. 

And I thank the ranking member, as well. 

Mr. Levitin, you have some comments that you would like to 

make. I would like to yield some time to you for your commentary. 

Mr. LEVITIN. I very much appreciate that, Mr. Green. 

I think it is important to understand FDIC insurance a little better than the gentleman from New Mexico was discussing. 

There are, I think, around three financial institutions in the 

United States, three depositories, that do not have FDIC insurance. 

No depository is required to have FDIC insurance. They choose to 

get it. And why do they choose to get it? Because they know they 

can’t compete without it. 

It is not that any consumer goes in looking for FDIC insurance; 

we take it for granted today. We just assume that every bank has 

FDIC insurance. 

But there are all kinds of regulations that support the existence 

of our financial services industry in its current state. And I think 

that you deeply misunderstood what I was saying in my testimony, 

and I hope that misunderstanding is being corrected. 

Beyond that, I think it is just offensive to throw at me characterizations about being an elitist or something when you know absolutely nothing about where I am from or my background. And I 

would appreciate it if I would be treated with courtesy when I testify here. 

Thank you. 

Mr. GREEN. Thank you, sir. 

26 

Permit me, if I may at this time, Mr. Chairman, to introduce for 

the record, with unanimous consent, testimony of Mr. Hilary 

Shelton. This is what he would say if given the opportunity to 

present testimony. He represents the NAACP. 

May I ask unanimous consent to present this for the record? 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. GREEN. Thank you. 

Now, let’s talk for just a moment about what we do and what we 

say. We talk about small banks, community banks, but we legislate 

large. When we try as best as we can to legislate for the small, the 

terminology becomes large. 

Example: We have actually had testimony indicating that a com- munity bank is a $50 billion bank. If we legislate for a community 

bank and the legislation covers $50 billion banks, have we done 

what we sought to do? 

Many of the community banks that I have worked with, that I 

talk to, have indicated that they would like to get some help, and 

I would like to help them. The question becomes, what is a community bank? Is a $50 billion bank a community bank? 

I am going to ask my friend from Texas. 

Mr. Williams? 

Mr. WILLIAMS. Congressman, it is very difficult to define a community bank— 

Mr. GREEN. I will withdraw my question. 

Mr. WILLIAMS. Okay. 

Mr. GREEN. Let me go on. 

We want to help the small banks. More than 90 percent of the 

banks in this country have assets of under a billion dollars, a billion or under, 90 percent or more. And we would like to help that 

90 percent, or we would like to move it up to a higher amount. 

But whenever we try to do this, we run into this question of the legislation applying to $50 billion banks. It is very difficult to perceive of legislating to cover $50 billion banks under the guise of 

helping small banks. That is a difficult lift. So I would like to help 

the small banks, but whenever we get to a definition, we can’t 

seem to find one. 

So let me ask you, Mr. Fenderson, is a $50 billion bank a community bank? 

Mr. FENDERSON. A $50 billion bank that has the sensitivity of its 

community— 

Mr. GREEN. ‘‘Has the sensitivity of its community.’’ So if we pass 

legislation to help small banks under the guise of helping community banks and we help the $50 billion banks—you have just heard 

the testimony about mega versus small banks—we will end up 

helping mega-banks. 

So, in your opinion, a $50 billion bank can be a community bank? 

Mr. FENDERSON. Yes. We need the ability to be flexible as a— 

Mr. GREEN. Are you a $50 billion bank? 

Mr. FENDERSON. We are a $60 million bank. 

Mr. GREEN. $60 billion? 

Mr. FENDERSON. $60 million. 

Mr. GREEN. Okay. So I am asking you about billions. Is a $50 

billion bank a small bank? 

27 

Mr. FENDERSON. By asset size, a $50 billion bank is not a 

small— 

Mr. GREEN. Is it a community bank? 

Mr. FENDERSON. A $50 billion bank can be a community bank. 

Mr. GREEN. Therein lies the problem, dear sir. Therein lies the 

problem. 

If we want to help you and the $60 million banks and the billiondollar banks and the banks under $10 billion and we legislate such 

that we cover $50 billion banks, why don’t we just repeal DoddFrank? Because that is what we are talking about here. We would 

end up eliminating the protections that Dodd-Frank accords consumers from the mega-banks. 

Mr. FENDERSON. May I answer? 

Mr. GREEN. I have no more time. 

Mr. NEUGEBAUER [presiding]. The time of the gentleman has expired. 

I now recognize the gentleman from Florida, Mr. Posey, for 5 

minutes. 

Mr. POSEY. Thank you, Mr. Chairman. 

I have to agree with my distinguished colleague that maybe we 

should repeal it. I think that is a great idea. 

In the meantime, I have a question for Mr. Miller. 

Mr. Miller, you stated that you are concerned about the data collection at the CFPB, and I wonder if you would be kind enough to 

expand on those concerns, and what it is that you fear. 

Mr. MILLER. There are roughly 37 new data fields that are collected on a loan because of the proposed HMDA rules from CFPB. 

They say they want to improve the quality of data gathered. We 

believe this is Big Brother gone wild. 

The rule adds these 37 new data elements. We don’t know what 

they are going to do with it, but we do know what the data elements are. They include things like where you live, your age, your 

sex, value of your home, income, how much you spend, how much 

you owe, your payment amounts on your credit cards and other 

debt obligations. 

That is too much information that could be use for improper purposes. Anybody can go ask for this information. It is an invitation 

to massive identity theft that could threaten the financial security 

of hundreds of millions of Americans. 

Mr. POSEY. Besides anyone asking for the information, we know 

of quite a few Federal databases that have been violated, including 

the Pentagon. 

How secure do you feel that data is in the hands of the CFPB? 

Mr. MILLER. My members tell me they are very fearful. I am 

more concerned about what my members think, but we are also 

very fearful. We want more done in this area, and we would ask 

the committee to do some work to establish some very tight standards. 

So if they are going to gather all this information and make it 

accessible to people, what is the purpose? And do a cost-benefit 

analysis. And how many people are we going to catch making a bad 

loan as a result of gathering all these new data fields? And where 

is the information security for your constituents? 

28 

Mr. POSEY. As they did with the foreign deposit issue, the Treasury obviously does not feel that it is important to comply with the 

cost-benefit law. And since they control the purse strings of the 

CFPB, I am hesitant to believe there is any possibility we would 

get the proper relief there. 

A question for you and Mrs. Bosma-LaMascus: The NCUA has 

put out a new proposal on risk-based capital after thousands of 

comments, including a letter I signed along with 323 other Members of Congress, which supposedly improves the risk-based capital 

rule. 

What do you think about that rule, and is it necessary? Does it 

add to the regulatory burden? 

Mr. MILLER. We believe there are improvements in the second 

draft of risk-based capital from NCUA, but we think several components result in additional situations like we just discussed that are 

solutions that won’t work to problems that don’t exist. 

Mr. POSEY. We understand that. We interpret that as the omnipresent defenders of the nonexistent problems of the people. We 

are getting quite familiar with that. 

Mr. MILLER. Yes. Yes, sir. 

For example, they were asked to establish what the definition of 

‘‘well-capitalized’’ is, and they added another definition—or they 

were asked to address ‘‘adequately capitalized.’’ Then they added 

another definition of what ‘‘well-capitalized’’ is. So they have created more complexity, and we don’t think that is what they were 

commanded to do. They were commanded to provide one definition, 

and they created two. So we don’t support the two-tiered rule on 

capitalization. 

We also—no, I will just yield to Ms. LaMascus because I want 

to make sure she has some time, because we are running out of 

your time. 

Mr. POSEY. Thank you very much. 

Ms. LAMASCUS. Thank you, Mr. Miller. 

We don’t have enough time to talk about the additional complexity that this new way of measuring our capital based on this 

risk would cost and add to credit unions. 

We believe it is unnecessary. NCUA has not been able to substantiate to us why it is necessary. It is costly. They are building 

in additional tiers, as Mr. Miller talked about, which will take millions of dollars out of play for credit unions to be able to lend to 

their members and keep our economy growing. So— 

Mr. POSEY. Who owns the credit unions? Who are the big, greedy 

capitalists they are trying to protect us from? 

Ms. LAMASCUS. They are all members. Credit unions are owned 

by their members, which tend to be working-class people. 

Mr. POSEY. Thank you, Mr. Chairman. 

Mr. NEUGEBAUER. I thank the gentleman. 

And now the gentleman from California, Mr. Sherman, is recognized for 5 minutes. 

Mr. SHERMAN. The backbone of our economy is small business. 

All of us in our districts every week meet people who can’t get the 

business loan they need to expand. And, as much as I want to help 

the businesses represented here, I want to help the businesses that 

29 

need to borrow for those business loans, particularly if they are in 

the San Fernando Valley. 

Now, the ranking member has pointed out that one way to do 

this is through member business lending and credit unions. And I 

think that has been covered well at the hearing, and I certainly 

support it. 

But I am told by many depository institutions, they say, look, if 

we make a loan at prime that deserves to be at prime, everything 

is fine, but if we make a loan at prime-plus-4, prime-plus-5—because there is some risk, because there is a 1 in 20 chance that we 

are going to have some problems collecting, and our examiner 

comes down on us like a ton of bricks, and requires, in effect, a 100 

percent charge-off. 

What do we need to do—and don’t limit yourself to changing 

Dodd-Frank. I know that is the hot political issue. What do we 

need to do so that you can make the $5 million prime-plus-5 loan 

to the small business that has an element of risk in it, for which 

you deserve to be compensated, but needs capital to expand? 

I am looking for someone who wants to answer. 

Yes, Mr. Williams? 

Mr. WILLIAMS. Congressman, the best thing we could do in your 

specific example would be to do away with the QM rule as regards 

the qualification, potentially, for that business. And I know that relates to a mortgage— 

Mr. SHERMAN. Yes, that relates to a mortgage. 

Mr. WILLIAMS. And that relates to a mortgage— 

Mr. SHERMAN. We are talking about businesspeople who will 

pledge their homes— 

Mr. WILLIAMS. Yes. 

Mr. SHERMAN. Okay. 

So there is one small element of this, and that is some institutions that don’t do a lot of real estate servicing want to make a 

loan to one of their customers, and they are required to have an 

impound account. 

And I am working on legislation now with others to at least say 

that if you are holding if for your portfolio—because it really is a 

loan to help somebody expand their business or really is a personal 

loan—that if you don’t want to have an impound account, you 

would not have to if it is a loan you are holding for your portfolio. 

I think that would help a bit. 

But what modification would you have for QM loans that are 

really business loans? 

Mr. WILLIAMS. For loans that we hold in our portfolio, for them 

to be exempted from QM. 

Mr. SHERMAN. Just exempt from QM, not— 

Mr. WILLIAMS. Yes, sir. Because we take 100 percent of the credit 

risk— 

Mr. SHERMAN. That is my bill on steroids. 

Mr. WILLIAMS. —and we are comfortable with that because we 

underwrite it. 

Mr. SHERMAN. Gotcha. 

I have a question about the HUD–1 that is being phased in, 

TILA and RESPA forms. These go into effect on August 1st. I wonder what steps the organizations you represent are taking to comVerDate Nov 24 2008 10:53 Sep 18, 2015 Jkt 095065 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 K:\DOCS\95052.TXT TERRI
30 

ply with this regulation and make sure that consumers who buy a 

home this summer won’t face disruptions? 

Do you think you are on schedule? 

I will ask first the representative of the American Bankers Association. 

Mr. FENDERSON. Yes, sir. Thank you very much. 

We, as a small community bank, rely heavily upon the vendor to 

provide those new disclosures to us. And there is an integration 

process that has to be fulfilled. 

We don’t have a timeline because our service provider cannot 

provide us with a timeline so far. All we know is that there is a 

bullet deadline that we have to meet and that there are some— 

Mr. SHERMAN. How confident are you that you can meet it without disrupting the real estate market? 

Mr. FENDERSON. Unfortunately, we are relying upon a service 

provider. And so I don’t have a whole lot of confidence that we will 

get there, except for the fact that they have to get it done. 

Mr. SHERMAN. Gotcha. If I had a service provider I was relying 

on, I would want to find out whether they are going to be able to 

help. 

One other issue is we have all these data thefts, cybercrime. And 

a lot of retailers, for example, have not done a good job, or at least 

an adequately good job, in protecting their data. It is my understanding that part of the reason for that is because all of the cost 

that is occasioned by these cyber breaches falls on the folks represented here. 

What do we need to do so that there is a fair sharing of the cost 

of this data theft, particularly with credit and debit cards? 

Chairman HENSARLING. Regrettably, the time of the gentleman 

has expired. 

Mr. SHERMAN. I look forward to getting a response for the record. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from California, Mr. Royce. 

Mr. ROYCE. Thank you, Mr. Chairman. 

The outlook for community banks and credit unions is one of increasing challenges because we have smaller financial institutions 

that have fewer assets over which to spread these compliance costs 

that we are talking about here. And looking at the numbers, they 

seek to achieve this economy of scale as a consequence through 

mergers, which is not exactly what we want to encourage here. 

From 2013 to 2014, the number of community banks fell by 273 

banks. Now, that is a 41⁄3 percent decrease in just one year. And, 

similarly, we heard testimony that, since mid-2010, 1,200 federallyinsured credit unions have left the market. And that is not the calling card of a sector that is doing better than ever. 

So I will go to Mr. Williams and I will ask him—because we did 

hear previously from a community bank that saw its compliance 

cost double in the last few years. They had to hire a new fulltime—they had to hire full-time employees, they testified, as I recall, at $65,000 each. And a recent Minneapolis Fed study found 

that one-third of banks with assets under $50 million would become unprofitable with the addition of just two full-time employees. 

That study was done because of these compliance costs. 

31 

So, a question for Mr. Williams: Are we experiencing this situation where increased personnel costs affect the variability to extend 

credit? 

Mr. WILLIAMS. Congressman Royce, yes, we are. 

Frankly, it is difficult to measure our total compliance cost. I 

have colleagues who have said they have done an in-depth study 

and their costs are 18 percent of their operating budget. We estimate 15 to 20 percent of our operating overhead is now focused on 

hard and soft costs for compliance costs. And this would be up, 

from 10 to 15 years ago, a 5 percent number. So I would easily say 

fourfold. 

Mr. ROYCE. Personally, I think much of the problem is that recent regulations are aimed at attempting to outlaw risk-taking, 

rather than ensuring through examination and supervision that 

such business practices are backed by adequate capital and low leverage. 

And so, because of the approach, in my view—if instead the focus 

was capital on the part of the regulatory community here, banks 

would be hiring more loan officers than they are hiring lawyers on 

the compliance end. I think we have set this thing in a way in 

which is very injurious to the extension of credit. 

But let me raise one other issue, which was mentioned by our 

ranking member, Ms. Waters. Today, Congressman Jared Huffman 

and I are going to reintroduce a bill which corrects a disparity between banks and credit unions in the treatment of loans made to 

finance the purchase of small apartment buildings known as nonowner-occupied one- to four-unit buildings. And, specifically, the 

bill removes these loans from the calculation of the member business lending cap imposed on credit unions. 

So I am wondering if I can ask our credit union witnesses if this 

bipartisan bill will help increase credit availability for commercial 

businesses and for rental housing without costing taxpayers a 

dime. 

Mr. MILLER. The short answer is, yes, it will. 

The overwhelming majority of these types of loans go to regular, 

average, working Americans who have just done well enough in life 

where they can afford to buy a rental property or they move into 

a new home and they want to convert a dwelling that they were 

in into a multifamily dwelling, and they are just regular folks. 

They are not running big businesses. They are not real estate investment trusts. 

And it would free up capital for credit unions to do more member 

business lending and generate more jobs. 

Ms. LAMASCUS. Thank you very much, sir, for doing that for 

credit unions. 

Our credit union does not currently offer member business loans, 

but we will, and that will be important to us. 

May I make a couple more comments on the compliance for you? 

Mr. ROYCE. Absolutely. 

Ms. LAMASCUS. I found it very interesting what you were saying. 

First off, within the last couple of years, two very small credit 

unions found themselves having to merge, and they were are able 

to merge with Patriot Federal Credit Union. One was only $6.5 

million in assets; one was $11 million. They just could not keep up 

32 

with the regulations and also be able to provide services to their 

members. 

In addition to the things that Mr. Miller has done, we have had 

to hire 2 full-time compliance officers within the last 3 years. I just 

hired another person. About 50 percent of his time will be spent 

on compliance. 

Mr. ROYCE. Thank you. 

Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Cleaver, ranking member of our Housing and Insurance Subcommittee. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Let me, first of all, thank you all for being here. As Mr. Lynch 

said, these committee hearings are designed for the receipt of information that will help us do our work. 

I want to associate myself with the comments of my colleague 

Mr. Green, who talked about the very difficult task of separating 

the small banks, community banks, and credit unions from the 

humongous banks, the ones that are probably ‘‘too-brute-to-prosecute.’’ 

But I want to just tell you, I don’t know if any of you are sports 

fans, or whether or not you have paid attention to the fact that yesterday Chris Borland, a 24-year-old linebacker for the world-champ 

Patriots, retired after one season. He made some comments that I 

think are profound about the game. 

‘‘I played the game. As a result, last January 6th, I had my 7th 

operation on my left knee, and 2 on my right shoulder. It is a tough 

game.’’ 

I don’t know, Ms. LaMascus, if you have ever been hit by a 245- 

pound linebacker running at full speed. 

Ms. LAMASCUS. Not lately. 

Mr. CLEAVER. Yes. It is not fun. I have been hit by those—two 

of those games played in Lubbock. 

But the NFL responded to the retirement of Borland by saying 

that they are continuing to redesign the rules. Now, when I played, 

you could go low and hit someone just about anyplace. They will 

not allow clipping anymore. You used to be able to hit people in 

the backfield, which you can’t do anymore, at least not from behind. They are continuing to change the rules trying to protect the 

players. 

I have a friend, Otis Taylor. I went to school with him. He is an 

all-pro wide receiver who can’t get out of bed today. Many of you 

remember Earl Campbell, particularly the Texans, I am sure, our 

chairman, Mr. Neugebauer, and Mr. Green. Great running back. 

Can’t even walk anymore. You have to roll him on the field during 

the annual Old Timers’ Day at the stadium in Houston. 

The rules are being redesigned. People are trying to protect the 

players. It is a brutal game. 

Are all of you in favor of trying to come up with rules to protect 

the players? Whether you played the game or not, if you watched 

it, do you agree with me that changing the rules is okay? 

And the helmets are now much more expensive. They are trying 

to design helmets that will reduce the likelihood of someone getting 

33 

one of these hits to the head that will affect them for the rest of 

their lives. 

So should the NFL continue to try to design rules to protect the 

players? 

Mr. FENDERSON. Yes, sir. 

Mr. CLEAVER. Does anybody disagree? 

Mr. WILLIAMS. Yes, we agree. I agree. 

Mr. CLEAVER. Because people are getting hurt. Is it— 

Mr. FENDERSON. Yes, sir. 

Mr. WILLIAMS. Yes, sir. 

Ms. LAMASCUS. Yes. 

Mr. LEVITIN. Yes. 

Mr. CLEAVER. No one disagrees. 

Mr. FENDERSON. Might I expand on that? 

I would like the ability to be able to get out of bed tomorrow, 

walk into our bank, and continue to service the customers that we 

serve. What we are asking Congress to consider is tailoring legislation that matches my business model. 

We didn’t to secure title to mortgages. We accept deposits, we 

make loans. That is how we meet the needs of our community. We 

make mortgage loans that we portfolio. We make automobile loans 

that we portfolio. 

Mr. CLEAVER. Yes. But I want you to harken back to—I harken 

back to what Mr. Green said earlier. We can’t have this hearing 

and disregard the fact that the thing that separates the things that 

many of us would like to do, which is to remove the burdens from 

you—and I am not sure that—and maybe we are not articulating 

well enough the challenge of trying to get something to do that. I 

think that if we paused, the five of you would have difficulty coming to an agreement on how do we separate the ‘‘too-brute-to-prosecute’’ from community banks. 

Thank you, Mr. Chairman. I apologize for going over my time. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Fitzpatrick. 

Mr. FITZPATRICK. I thank the chairman. 

And I also want to thank the panel members who have given testimony here today, especially the community bankers and the credit union professionals who meet with our constituents and help 

them, provide the credit to start their small and family-owned businesses and buy their first homes. 

And I wanted to follow up on one of the comments, actually, from 

the committee to the panel, that credit unions are fewer in number 

today because of strength and growth and because they have gone 

on to perhaps merge with a larger entity. And I am sure in an occasional case, that is true. We could probably point to one. 

Ms. LaMascus, in your testimony you stated that the impact of 

this growing compliance, which is the subject of this hearing, is evident as the number of credit unions continues to decline, dropping 

by 23 percent. You said dropping by—I think you said 1,800 since 

2007. Is that correct? 

Ms. LAMASCUS. 1,200. 

Mr. FITZPATRICK. 1,200? And those 1,200, they don’t cease to 

exist today because of strength and growth in the economy or that 

34 

they have gone on to become some different or larger charter or entity. Why do they not exist? 

Ms. LAMASCUS. They can’t keep up with regulations, is one huge 

reason. They don’t have the staff, they don’t have the resources to 

be able to study them, to implement them, to pay for them, and 

also be able to provide the services to their members. They just 

don’t have the resources to do it. 

And, frankly, that is why I advocate for smart regulations. I 

would agree, we don’t want people to be hurt. But we do believe 

that smart regulations make more sense. 

That is why we believe that for you to require regulators to do 

lookback cost-benefit analyses so that they can document, show us 

why they are recommending or planning to put in place what they 

are, we could give better, more targeted feedback. I believe, then, 

that it would be more collaborative, and less confrontational, because we all do want to protect and help the consumer. 

We could do this together. And then hopefully, we will learn from 

that, and then later we can go back and revisit and modify where 

the costs were greatly underestimated. 

So we believe that smarter regs make more sense. 

Mr. FITZPATRICK. Ms. LaMascus, my district is not far from 

where you do business. I represent southeastern Pennsylvania, 

Bucks County, Montgomery County. And I was thinking, as you 

were testifying, about a small credit union that I represent, the 

Ukrainian Selfreliance Federal Credit Union. 

It probably has less than 10,000 members, less than—or maybe $250 million in assets. And the individuals who come here, new 

citizens, new residents of Pennsylvania and of the United States, 

many times are going straight to that credit union for the cultural 

background, the language. 

And they are not going to be acquired by some larger entity. 

They are struggling to cover these compliance costs, the same compliance costs that the big companies can cover, but they are doing 

it with much smaller, sort of, cost-effectiveness. And I worry about, 

where will these individuals who go to Ukrainian Selfreliance 

today, where will they go? 

Ms. LAMASCUS. Unless they can qualify to join another credit 

union, or if it is a merger, they will have to find someplace else to 

go, likely to someplace that doesn’t know them and is not able or 

willing to do for them what their credit union can. 

Mr. FITZPATRICK. Right. 

Mr. Williams, you were talking about—you referred to the 

HMDA reports. Increasing the amount of information for HMDA 

reports adds to the cost of doing business— 

Mr. WILLIAMS. Yes, sir. 

Mr. FITZPATRICK. —for community bankers; is that true? 

Mr. WILLIAMS. Yes, sir. 

Mr. FITZPATRICK. Mr. Fenderson, do you agree? 

Mr. FENDERSON. Yes, it does. 

Mr. FITZPATRICK. Do you believe that these demands translate to 

better homeowner lending? 

Mr. FENDERSON. I do not believe they translate into better home 

loan lending. Anytime you add a checklist upon checklist upon 

checklist, our bank is subject to have to spend more time on that, 

35 

and, therefore, we are not able to help as many customers as we 

would like. 

Mr. WILLIAMS. If I could follow up, we have had to go to a fulltime employee just for HMDA reporting in anticipation of the expanded areas we need to report on. 

Mr. FENDERSON. Of specific note, I would say that currently, HMDA data is collected on banks that are $43 million and larger 

in size. And that is a—I don’t know when that was enacted, but 

it is probably not a modern number. That probably should be 

looked at. And, I think, does 25 or more mortgage loans a year, 

which is not modern. 

Mr. FITZPATRICK. I am out of time. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Washington, Mr. 

Heck. 

Mr. HECK. Thank you, Mr. Chairman. 

I actually am not satisfied to wait for entry into the record the 

answer to Mr. Sherman’s question, so I want to take you back to 

it, if I may. 

I think where he ended when his time ran out was, is it true 

when there has been a breach of a retailer’s system that you, the 

financial institutions, are on the hook to make the consumer 

whole? 

Mr. WILLIAMS. Yes. 

Mr. FENDERSON. Absolutely. We spent $8,000 because of the 

Home Depot breach. 

Mr. HECK. How much? 

Mr. FENDERSON. $8,000. 

Mr. WILLIAMS. We spent a great deal more than that. 

Mr. MILLER. We spent more that $150,000 on the Target breach. 

Mr. WILLIAMS. It was significant. 

Mr. LEVITIN. I think it is actually a little more complicated. Consumers— 

Mr. HECK. I am going to get there. 

Mr. LEVITIN. Okay. 

Ms. LAMASCUS. Ours was about $42,000. 

Mr. HECK. Thank you for that. 

So what I hear from retailers is that they have to pay fines to 

the credit card companies, which they believe are intended to help 

cover some of the cost of the loss. 

Mr. MILLER. If you can send me the information on where I can 

get that recovery, I would be very interested— 

Mr. HECK. That is what I am getting at. Is it true that retailers 

pay fines to credit card companies when there has been a breach? 

And if it is true, have any of your ever seen any recovery? 

Professor, if this gets to where you were going to— 

Mr. LEVITIN. Yes. It is true. If you want to see something published on it, I have an article for which I am happy to give you the 

citation about this. 

The consumer liability is capped by the Truth In Lending Act— 

Mr. HECK. Right. 

Mr. LEVITIN. —and the Electronic Funds Transfer Act. So the 

consumer is not going to be out of—in most situations, the consumer will not be out of pocket. 

36 

There are considerable collateral losses that occur in a data 

breach. Some of those get eaten by the financial institutions. A lot 

of them get eaten by merchants. Walmart’s estimate for what a 

data breach costs is something like $100 per consumer. 

Mr. HECK. Does their loss— 

Mr. LEVITIN. When it is millions, you are talking about real 

money there, when it is millions of records. 

Mr. HECK. Okay. But I heard all of them say they have not recovered from— 

Mr. FENDERSON. Yes, we are not Walmart, unfortunately, and we 

don’t have the dollars that they do. 

Mr. HECK. Yes. Well, I am getting back at his point, though. 

None of them said they got any recovery. You said it was— 

Mr. LEVITIN. Oh, no, no. I am saying Walmart—usually, it is the 

retailer that eats most of the cost of the data breach. Banks eat a 

small bit of it, but it is mainly the retailers. 

Mr. WILLIAMS. I would disagree. We suffered— 

Mr. MILLER. The biggest cost is reputation risk that—it is our 

card that the member swiped, and we are the ones that have to call 

them. We can’t tell them which retailer it was that caused the data 

breach to their information— 

Mr. HECK. All right. 

Mr. MILLER. —so we are the ones that take the reputation hit. 

Mr. WILLIAMS. And we have to replace all the cards that have 

been breached, not just the ones that actual fraud has been perpetuated on. 

Ms. LAMASCUS. And Walmart is not protecting our members. We 

are. 

And I agree with whoever said it down there, our members want 

to know who did this, who caused it, because they don’t want to 

do business there anymore, and we can’t tell hem. 

Mr. LEVITIN. There are technology changes that— 

Mr. HECK. I have more questions and limited time, but I do 

think that this exchange indicates: one, a problem; two, a complexity to the problem; and three, a very worthy subject of consideration. 

I just want to note for the record that there are other committees 

in the House of Representatives taking this up. It would be, I 

think, nice, if I can use this as a friendly suggestion, that this committee that has significant interest in the financial sector could 

exam it from the standpoint of its impact on you. 

Professor, I read your testimony, I listened, and you make a case. 

But I am wondering if you would at least acknowledge that there 

are significant compliance costs, whether or not that is the reason, 

as you argue against—and I followed that logic chain—there are 

significant compliance costs placed on small institutions. 

Mr. LEVITIN. Absolutely. And I appreciate that you picked up on 

the subtle difference between whether it is the real cause of these 

institutions’ problems or whether—I make no argument that there 

are no compliance costs. There are serious compliance costs. 

Mr. HECK. Thank you. That is all I needed. 

Lastly, for anybody from the institutions, I am concerned that 

smaller institutions are being required to exit certain lines of busiVerDate Nov 24 2008 10:53 Sep 18, 2015 Jkt 095065 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 K:\DOCS\95052.TXT TERRI
37 

ness and become more specialized, and therefore more concentrated. 

I wonder if that is your perspective? And, do you think it may 

have a material impact on safety and soundness if you are becoming more concentrated as economies of scale disallow, prohibit, or 

impede your entry to other areas? 

That is a great question to finish on with my time running out. 

Mr. MILLER. The short answer is, yes, it is going to cause some 

credit unions to get out of mortgage lending because of the QM 

rules. So they are going to be more concentrated in car loans and 

credit cards. 

Mr. HECK. Is your safety and soundness affected? 

Mr. MILLER. Yes. When you take away the ability to have multiple lines of business and concentrate them in fewer, you create 

more risk. 

Mr. HECK. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Westmoreland. 

Mr. WESTMORELAND. Thank you, Mr. Chairman. 

Professor, are you still on the Consumer Financial Protection Bureau’s Board? Are you still a member of that? 

Mr. LEVITIN. I am a member of the Consumer Financial Protection Bureau’s Consumer Advisory Board, yes. 

Mr. WESTMORELAND. Okay. So you do represent— 

Mr. LEVITIN. No, I do not, sir. I am here today solely in my individual capacity. I have no authority whatsoever to speak for the 

Advisory Board, and the Advisory Board is an independent body 

from the Bureau itself. 

Mr. WESTMORELAND. But you are on that Board, correct? 

Mr. LEVITIN. I am on the Board, as well as the president of 

American Express, as well as the president— 

Mr. WESTMORELAND. No, that is okay. I just wanted to know if 

you were. I don’t want to know the rest of them. 

The gentleman from Missouri made a great analogy about the 

NFL changing rules to keep players from getting hurt. It seems to 

me the CFPB is protecting the people in the stands while the players on the field are getting clipped and getting hurt. And so, if your 

objective or if our objective is to save the players on the field, I 

think these gentlemen and the lady are the players on the field. 

I want to ask a question, and start with you, Mr. Fenderson, and 

we will just go straight down the line. 

If an unbanked person came into your bank on a Monday and 

said that his or her car was broken down on the side of the road, 

and they needed $150 to get it fixed, and they would pay you back 

Friday, would you make that person that loan? 

Mr. FENDERSON. Yes, we would. We have a small-dollar loan program. 

Mr. WESTMORELAND. And what would be the charge on that? 

Mr. FENDERSON. For unsecured lending, 18 percent. 

Mr. WESTMORELAND. How much? 

Mr. FENDERSON. 18 percent. 

Mr. WESTMORELAND. 18 percent. 

Would you, the credit union, make that? 

38 

Mr. MILLER. Yes, we would. And I don’t know the specific rate, 

but I can get back to you on that on a follow-up. 

Mr. WESTMORELAND. Okay. 

Mr. MILLER. I have another comment regarding Mr. Cleaver’s testimony and Mr. Green’s testimony. I believe a $50 billion bank 

or credit union looks a lot more like a $10 billion bank than any 

way that it would resemble a $1 trillion mega-bank. 

Mr. WESTMORELAND. Okay. 

Mr. Williams? 

Mr. WILLIAMS. Yes. We don’t have a minimum loan. We would 

make it. And, in Texas, we would make it at 171⁄2 percent because 

18 percent is usurious. 

Mr. WESTMORELAND. Ma’am? 

Ms. LAMASCUS. Yes, we would make it, and it could be up to 18 

percent. 

But I would like to make one other comment, as well. We are 

talking about the cost of regulation on our institution, and that is 

a serious concern. But it does also impact the consumer, because 

all the procedures, all the processes, all the checklists, and all the 

things that we can and can’t do get between us and our members. 

We can’t really spend that time with them finding ways that we 

can better help them with their financial situation because of regulations. 

Mr. WESTMORELAND. Professor, would 18 percent be a fair interest rate for that? 

Mr. LEVITIN. Sure. I don’t have any problem with 18 percent. 

Mr. WESTMORELAND. Okay. 

Mr. LEVITIN. That is actually by Federal regulation that they are 

capped at 18 percent. 

Mr. WESTMORELAND. So you— 

Mr. LEVITIN. I want to say, I liked your analogy with the ball 

game, protecting the fans. We do that. When you go to a hockey 

game, they have a wall so the fans don’t get hit by a puck. 

Mr. WESTMORELAND. Thank you. 

Mr. Fenderson, you made reference to several of the bills that 

our colleagues are going to introduce. I am planning on reintroducing the Financial Institutions Examination Fairness and Reform Act. I don’t know if you are familiar with that, but Mrs. Capito, who is now in the Senate, had introduced that in the last Congress. 

And there is a section in there that talks about non-accrual 

loans, where you have a loan that is current but then the regulators come in and tell you for certain reasons, you have to put it 

in a non-accrual. 

Does that hurt your bank when you have to do that? 

Mr. FENDERSON. It does. It is a tremendous drain where we were 

accruing for that loan and, therefore, recognizing the income, and, 

therefore, we are not able to recognize that income. 

Mr. WESTMORELAND. Mr. Williams? 

Mr. WILLIAMS. Yes, I agree, clearly. 

Mr. WESTMORELAND. Would you have any problem with that 

being in the bill, these regulations that say a current loan would 

have to be some way put into a non-accrual status—would not have 

to be put into a non-accrual? 

39 

Mr. FENDERSON. What we would like to have is the ability to 

manage, and manage our own risk. And by doing that, if we think 

that loan is a problem, we will probably place it in non-accrual on 

our own. 

Mr. WESTMORELAND. Okay. 

Mr. Williams? 

Mr. WILLIAMS. We would have a very similar situation. We would 

think we would have already identified it and we wouldn’t need a 

regulator to do so. 

Mr. WESTMORELAND. Okay. 

Thank you, and I yield back, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Vargas. 

Mr. VARGAS. Thank you very much, Mr. Chairman. I appreciate 

the opportunity to speak. 

I am also happy that my colleague from Missouri has left, because I was a 245-pound lineman and linebacker. 

But I guess the only thing I—and I am not trying to make any 

points here today, so I don’t have any bones to pick, other than one 

for Latin. I think you were looking at ‘‘post hoc ergo propter hoc.’’ 

That is the logical fallacy that I was thinking that you were thinking of when you were thinking of ‘‘after this, therefore because of 

this.’’ 

Mr. LEVITIN. You got it. And what is really embarrassing about 

this is, back in 8th grade, I won a Latin competition. 

Mr. VARGAS. Oh, okay. 

I listened to all the testimony today, and I think we are—there 

is a lot of goodwill, I think, in trying to figure out how to treat 

smaller financial institutions differently and whether the exemptions that exist now in the CFPB are robust enough, really, to handle their problem. And it seems that the testimony here is saying, 

no, they are not. They haven’t gone far enough. 

Professor, why don’t you comment on that? Because I think that 

is what we are getting to here, that you can’t treat a bank with 

an ‘‘M’’ the same as one with a big ‘‘B,’’ when you talked about $60 

billion or $60 million. They are different banks. 

Mr. LEVITIN. Oh, absolutely, I would agree with you. I think I am 

trying to make—there are two points I would make. The first is 

that yes, there are real—regulation causes difficulties for smaller 

financial institutions. It is not their main problem, but it does 

cause difficulties for them. We should be thinking about ways to 

ease their regulatory burdens. We need to do it in a way that it 

doesn’t cost consumers important protections. The current way regulations work right now is we have a table full of representatives 

of regulated depositories. They are not the only actors in the market. There are also non-banks, and the non-banks are subject to the 

same statutes. 

So for example, the Qualified Mortgage rule, which is an exception to the ability—that isn’t just for banks and credit unions. It 

is also for the hard money lenders that have historically been rather predatory in their lending. It would be, I think, a totally reasonable thing to make clear by statute that the CFPB could exempt 

regulated depositories and credit unions from certain rules—the 

40 

CFPB doesn’t think that it has that authority currently. That 

would be a sensible way to proceed, and then let the agency exercise more discretion about this. 

Mr. VARGAS. I think we need to look at that, because I listened 

to Mr. Fenderson, and I understand his issue. I think he is here 

saying, we have a lot of people I could really loan to, and the bank 

should be loaning to them, but I really can’t at this moment. The 

regulations that are on me are too rough; I would have to hire another person. It is very costly. I can’t do that. 

I actually represent the border in California, and we have our 

own special set of problems there because of potential money laundering. A lot of the big banks are going out of that area because 

of those regulations, so I do think that there is something that has 

to be done and maybe there is some middle ground here to be 

reached. 

Mr. LEVITIN. I think it is important to look at the size threshold, 

$50 billion is a very, very large bank. $10 billion which is often 

used—for $10 billion, you could buy the Cowboys, the Patriots, and 

the Giants, and have some money to spare. You would own three 

different football teams, but that is not a community bank. 

Mr. VARGAS. No, I understood that. In fact, some of the questions— 

Mr. MILLER. Can I make a comment on that? The assets of a $10 

billion credit union do not represent the equity of a $10 billion dollar credit union. They are more like $1 billion in assets; they can’t 

go buy the Patriots. 

Mr. VARGAS. In fact, I think that is why the nature of the institution is important. I think that is what they were getting to when 

the questions were being asked earlier—is a $50 billion bank a 

community bank? 

Mr. MILLER. It looks a lot more like a community bank than a 

$1 trillion mega-bank with hundreds of thousands of employees. 

Mr. VARGAS. Thank you, sir. I do understand that. But I think 

that is why the question was difficult. Mr. Fenderson, you wanted 

to say something? 

Mr. FENDERSON. I would say, again, the emphasis has to be on 

the business model. Regulators are well-trained to do their jobs. I 

think Congress can help make sure they are put in a lane where 

they get the flexibility to regulate us the way we need to be regulated, based on our business model and the risks that we take. 

Mr. VARGAS. I believe someone else had their hand up. 

Ms. LAMASCUS. Yes, thank you. In my testimony, I referred to 

credit unions being, regardless of size, a cooperative institution organized for the purpose of promoting thrift among its members and 

creating a source of credit for provident and productive purposes. 

There is not a thing in there that says I should be having to spend 

25 or more percent of my time figuring out regulation and implementing them. Dodd-Frank gave CFPB the exemption— 

Mr. VARGAS. I don’t want to cut you off, but I don’t want to go 

over my time. 

Ms. LAMASCUS. Thank you. 

Chairman HENSARLING. The gentleman yields back. The Chair 

recognizes the gentleman from Illinois, Mr. Hultgren. 

41 

Mr. HULTGREN. Thank you, Mr. Chairman. Thank you all so 

much for being here. I appreciate your time and your input in this 

very important issue, just to discuss Dodd-Frank and absolutely 

necessary regulatory relief for community banks and credit unions. 

I have come to strongly believe that Dodd-Frank is damaging our 

economy and is slowing our Nation’s economic recovery. 

Dodd-Frank’s current regulations and guidelines span 8,231 

pages. I think that is just 60 percent about of what is coming. Our 

Nation’s job creators will spend $60 million labor hours and employ 

30,000 workers to navigate this bureaucratic minefield. 

Unfortunately, community banks and credit unions which help 

people access the American dream have been disproportionately 

hurt by Dodd-Frank. These institutions provide almost half of 

small business loans and serve 1,200 rural counties that otherwise 

would have limited options. Without them, as we have heard today, 

many responsible Americans would not be able to own a home, 

start a business, or preserve a family farm. Community financial 

institutions depend on personal relationships and local knowledge 

of their community to lend. This means they can tailor-make loans 

to fit their customers’ needs. 

This lending model actually works. These lenders know your 

story, know your business, and know exactly what kind of loan you 

need. Large banks often can’t follow that lending model. Their size 

forces them to make simple, plain vanilla loans, and disproportionately consult statistics like income or credit score to evaluate borrowers. 

Our economy absolutely needs both kinds of lending. Unfortunately, parts of Dodd-Frank target the relationship lending model 

by forcing these smaller institutions into regulatory straitjackets, 

tailor-made for big banks. For example, in my home State of Illinois, Robert Smith of Soy Capital Bank and Trust Company has 

told us that the Qualified Mortgage rule has reduced their ability 

to make mortgage exceptions to people with unique circumstances, 

even though they can afford the loan. 

Real lives are disrupted along the way as banks reduce lending, 

merge with competitors or shut down. Thankfully, there are bipartisan solutions to provide much-needed relief to community banks 

and credit unions. My constituents in the 14th Congressional District of Illinois are desperate for real solutions here, so I am grateful for the opportunity to explore them with each of you today. 

I am going to address my first question to Mr. Williams, and 

then if Mr. Fenderson, Mr. Miller, and Ms. Bosma-LaMascus could 

also comment. Proponents of regulatory relief can be painted as 

being against consumer protection and eager to return policies that 

cause a financial crisis. I find this narrative ridiculous, including 

when it comes to regulatory relief for community financial institutions. 

Consumers need regulatory protection. We all agree with that, 

but these institutions were not the cause of the financial crisis such 

as subprime lending, securitization or derivatives. Will targeted 

regulatory relief for small banks and credit unions return us to 

policies that cause the financial crisis, do you think? I will start 

with Mr. Williams. 

42 

Mr. WILLIAMS. It would not. It is a difficult question to answer, 

Congressman, but we need the relief so we can provide the services 

to our customers. I agree with everything you have said. We know 

our customers and we are going to try to find ways to make the 

loans. What has happened is examples in Dodd-Frank under QM 

have made it difficult for us to approve those credits. 

Mr. FENDERSON. The flexibility to do our jobs and serve the customers that we serve is all we are asking for. And that obviously 

comes in the form of relief because of the unintended consequences 

that we deal with. Let me be clear, small institutions, as everyone 

knows, are not regulated by the CFPB. However, the rules that 

they regulate create a playing field in which we have to participate. 

Mr. HULTGREN. Let me get on to my next question—probably you 

all would echo similar things here. This is personal for me—my 

family owns a funeral home, I grew up in a family funeral home, 

and I am convinced that my mom and dad would not have been 

able to purchase that funeral home in the mid-1970s, but for a 

local community banker who saw something special in them. The 

idea of judgment, being able to know a person, know a community, 

and be able to make a decision, Dodd-Frank takes that away, takes 

that ability away to be able to know a customer, have a business, 

not a model, know a community, and be able to make those decisions. To me, that is tragic. 

I think it also is reflected in the fact that the lowest number of 

business startups that we are seeing in 3 decades is part of this 

problem. 

Let me touch quickly on, community financial institutions don’t 

need the same regulations as large ones. As Federal Reserve Governor Daniel Tarullo has said, many rules and examinations that 

are important for institutions that are larger do not make sense in 

light of the nature of the risk to community banks. 

A question would be, could we have some sort of tiered regulation, should we give Federal Reserve or other regulatory agencies 

clear legislative authorization? We just have a few seconds, so if 

any of you have any thoughts? 

Mr. MILLER. The short answer is yes, because we didn’t create 

the problem, and all of us combined as small community banks and 

credit unions don’t add up to the systemic risk created by the large 

banks. 

Mr. WILLIAMS. Absolutely, yes. 

Mr. HULTGREN. My time has expired. Thank you for being here. 

I know it takes courage sometimes to come out and talk about 

these things. We need your voice. I yield back to the chairman. 

Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Huizenga, chairman of our Monetary Policy and Trade Subcommittee. 

Mr. HUIZENGA. Thank you, Mr. Chairman. I appreciate it. And 

gentleman, I’m sorry, but ironically, I had to step out to introduce 

a constituent at the Small Business Committee, which is dealing 

with conflicting regulations from the EPA and the Department of 

Energy. This is the frustration that I have, is we have so many of 

those circumstances, even here in the financial services world. 

43 

Mr. Fenderson, it struck me, you were discussing how smaller institutions are exempt; we know that, right? But it sets a new bar, 

doesn’t it? It sets a new regulatory bar. When we had Mr. Cordray 

in here earlier, I was exploring some of this with him and expressing to him why many of the companies that I talked to in Michigan 

want to talk anonymously. He seemed a little confused by that, 

why anybody would want to be anonymous in their criticism. I 

think anybody who has dealt with that knows exactly why you 

want to be anonymous on that. But he couldn’t seem to understand 

that was the new floor that was being set, the new bar that was 

being set. And I think that is something we have to be very diligent about. 

I want to hit a little bit on Qualified Mortgages. And we have 

examples, I have one here from Michigan, anonymous, as you can 

imagine. Sixty percent of their mortgages are to members of the 

credit union, members with under a 600 credit score, but they 

charge the same interest rates, and this is in a small, poorer, rural 

area, and they are looking at dropping even offering those credit 

opportunities. A closing fee of $50 plus whatever a third-party vendor charges. But suddenly they are finding these criteria and they 

are not matching up. I am curious for any of the four of you, are 

you going to be offering non-Qualified Mortgages, or if not, why 

not? You have talked a little bit about QM. 

Mr. WILLIAMS. Congressman, we do offer them, we do offer nonQM loans. 

Mr. HUIZENGA. And will you continue to do that? 

Mr. WILLIAMS. Yes, we will continue, but that doesn’t matter. Almost all of the banks are dropping out of it because they are fearful 

of not being able to obtain the safe harbors that QM offers. The important thing is we need to get QM dropped on portfolio loans that 

we underwrite, and we are willing to accept that credit risk. 

Mr. HUIZENGA. Any others? 

Mr. FENDERSON. We absolutely will continue to make those 

loans, it is a market that we serve. It is an expectation that we 

have and a part of the role that we play in the communities we 

serve. 

Mr. HUIZENGA. Others? 

Mr. MILLER. We will do about half that we were before, because 

we, frankly, are fearful of the regulatory scrutiny. 

Ms. LAMASCUS. We are not yet within the requirements for it, 

but we will be. And I would anticipate that we would make QM 

loans. The thing that is fortunate for us is we will have time to see 

how case law plays out on this and make a better business decision 

at that time, but that is the problem is trying to determine what 

is the level of risk? 

Mr. HUIZENGA. Mr. Miller, you might have hit on, what are—my 

follow-up question is, what are the costs to your members and/or 

your customers? You are saying that maybe half of the people you 

would have serviced, you are not going to be able to, because you 

are afraid of that additional scrutiny and maybe from some of the 

others—the trade-offs that— 

Mr. MILLER. We may even lose a relationship because we made 

a business decision, not in Oxnard, California, but it was made for 

us in Washington, and the member gets mad at us because we said 

44 

no, when we said yes to them the last 3 times they have come in 

to do a mortgage over the last 20 years. That is frustrating. They 

have to go somewhere else and it will probably cost them more. 

Mr. HUIZENGA. My colleague— 

Mr. MILLER. If they can get it at all. 

Mr. HUIZENGA. —Mr. Hultgren was talking about his small family business. I have a small family business, a third-generation as 

well. I am really concerned about what impact recent mortgage 

rules are going to have on small businesses in the community and 

their ability to be small business owners, to be community leaders. 

Anybody on the panel? 

Mr. WILLIAMS. I would like to follow up and say that a lot of 

these loans we make are nonconforming markets that are rural, 

and if we don’t make them, nobody will. 

Mr. HUIZENGA. So you are willing to take that additional risk to 

make sure that you are servicing your community? 

Mr. WILLIAMS. Yes, and we understand the risk. We underwrite 

it and that is what we do. 

Mr. MILLER. I would say we also, everyone at this table is probably good at underwriting. Over a 6-year period beginning in 2009, 

we are a $400 million credit union, we do a lot of mortgage loans, 

we had a total of $339,000 of charge-offs for mortgages, less than 

one-tenth of 1 percent. I would offer a thought that we respectfully 

appreciate the help, but I think we are pretty good at underwriting 

mortgage loans. We don’t need more regulations to help us do that. 

Mr. HUIZENGA. Mr. Fenderson, quickly? 

Mr. FENDERSON. I just wanted to quickly say that we will make 

small business loans whether it pulls us into the question of adding 

HMDA data or not. That is the only way we understand the rule 

to suggest that we bring in QM, because a business loan is not a 

consumer transaction. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from North Carolina, Mr. 

Pittenger. 

Mr. PITTENGER. Thank you, Mr. Chairman, and I thank each of 

the witnesses for your public service and for being with us today. 

Last week, I had the occasion of meeting with a small community 

bank in my district, with the president and the credit officer there. 

Mr. Chairman, for the record, I would like to introduce a memo 

that they have provided. 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. PITTENGER. The discussion we had was frankly very informative but very alarming to appreciate the real challenges and difficulty that each of you go through. I am going to read a bit of his 

comments. I videotaped it, and then we have transcribed the comments. It was so amazing to me what, regrettably, he had to say. 

He said, ‘‘We are a $145 million bank, with 2 branches and 27 employees. We all spend time with customers trying to build our business. But the sheer complexity in the mortgage system makes it almost impossible for an entity of our size to appropriately meet all 

these regulations. This is the ability to repay a Qualified Mortgage 

rule, small entity guide’’—and he held it up, this guide is 56 pages. 

There have been, since it was published on August 14, 2013, 4 

pages of additional rules that have been added. If based on this 

45 

guide you meet certain criteria, you have to provide an escrow account for an individual’s taxes and insurance on their mortgage. If 

you want to do this, there is another small entity guide for the 

TILA–RESPA. That is another 91 pages, and he held it up. If you 

want to pay your mortgage originator, then you have the 80-page 

small entity guide, and he held that up for the 2013 loan origination. 

For all of these guides, there is a paragraph that is contained in 

all of it. There are other guides that apply to the mortgage loans 

as well. That basic paragraph says, ‘‘This guide’s summarizes the 

ATR QM rule, but is not a substitute for the rule.’’ Essentially, it 

says you must refer to the final rule. The final rule is 185 pages 

long. The final rule then refers to the Act. The Act, of course, is 

thousands of pages. As I said earlier, it is longer than the Bible. 

So our ability to understand all of these rules and appropriately 

follow them is very difficult to do. And he said, ‘‘Congressman, do 

whatever you can. Help us out.’’ 

I would just like to know if this is your experience as well, Mr. 

Fenderson, Mr. Williams, and any of the rest of you, Mr. Miller? 

Mr. FENDERSON. I would say that you explained a very real scenario in which as a banker, we not only—our credential regulator 

is the OCC. They have regulation that they are sharing with us 

that we have to understand and interpret, and then we have the 

rules from the CFPB that we have to learn and understand. And 

so that creates a volume of information such that if you have 27 

employees, which happens to be exactly what we have, it becomes 

difficult. We only have one person who is dedicated to compliance. 

We had to add that person in order to try to be prepared for the 

regulations that are coming down the pike. 

Mr. PITTENGER. Another cost burden to you. 

Mr. FENDERSON. Absolutely. 

Mr. PITTENGER. Mr. Williams? 

Mr. WILLIAMS. Clearly we are seeing in our area, 11 percent of 

banks are just getting out of the business that once were in the 

business of making single-family residential loans. We had the 

wheel invented, we are staying in it, but the point is, we have a 

long relationship with our rural customers. We understand them, 

we know who is going to repay and who is not, and we are going 

to stick with them. That doesn’t matter, too many banks are getting out of it simply over, we are not going to make QM loans. 

Mr. PITTENGER. How many man-hours would you say a year is 

added to your compliance requirements? 

Mr. WILLIAMS. We had one compliance officer 5 years ago; today, 

we have six. 

Mr. PITTENGER. Mr. Miller, do you want to make a comment? 

Mr. MILLER. We haven’t grown our compliance department as aggressively as Mr. Williams’ bank has, but we are heading down 

that road. 

Ms. LAMASCUS. NCUA has estimated that it will take 40 hours 

to review the 450-page proposal regarding our call reports under 

the new risk-based capital they are proposing. When you mentioned the Bible, it made me think of something that I was thinking about yesterday: Envision 450 pages. That is almost a ream of 

paper that you get in a standard package. Good luck! Someone 

46 

might be able to read it in 40 hours, but to understand it, figure 

out how it is going to impact your operation and all of the changes 

you have to make, 40 hours is nothing toward the additional labor 

this costs. I was thinking when I thought of that much paper, of 

the Old Testament. It is huge, and 40 hours does not adequately 

describe the number of hours. 

Mr. PITTENGER. Longer than the Bible, but none of the good 

news. 

Ms. LAMASCUS. That is right, that is right. 

Chairman HENSARLING. Regrettably, the time of the gentlemen 

has expired. See if you can top that. The gentleman from Kentucky, 

Mr. Barr, is now recognized. 

Mr. BARR. Thank you, Mr. Chairman, and thank you to the witnesses and the organizations that you all represent for your endorsement of several pieces of legislation. We have introduced the 

Portfolio Lending and Mortgage Access Act, the HELP Rural Communities Act, and the American Jobs and Community Revitalization Act. 

The law professor’s testimony today was that Dodd-Frank and 

regulations are not the cause of the decrease in the number of community banks and credit unions in America. He has gone to great 

lengths, it seems, to distinguish between causation and correlation. 

And when I was in law school, I preferred the Socratic method to 

lecture classes. So let’s do a little bit of Socratic method right here 

down the row of our witnesses. Since the enactment of Dodd-Frank 

and the Qualified Mortgage rules, have your compliance costs increased or decreased, Mr. Fenderson? 

Mr. FENDERSON. Our compliance costs have increased. 

Mr. BARR. Mr. Miller? 

Mr. MILLER. Increased by more than $100,000. 

Mr. BARR. Mr. Williams? 

Mr. WILLIAMS. Increased by probably 15 to 20 percent. 

Mr. BARR. And Ms. LaMascus? 

Ms. LAMASCUS. Increased by at least $250,000. 

Mr. BARR. Have you had to hire more or less compliance officers, 

Mr. Fenderson? 

Mr. FENDERSON. More. 

Mr. MILLER. More. 

Mr. WILLIAMS. More. 

Ms. LAMASCUS. I have hired two more, and just hired another 

one, and 50 percent of his time will be on compliance. 

Mr. BARR. And since the finalization of the Qualified Mortgage 

rule, has the volume of your mortgage originations increased or decreased? 

Mr. FENDERSON. Ours has remained roughly the same, but we 

have not made as many mortgages. 

Mr. MILLER. We are also about the same, but we have a lost opportunity cost because we have had to turn away 50 members. 

Mr. WILLIAMS. Our volume is static, we are making about the 

same number of loans, but we are still turning down loans. 

Ms. LAMASCUS. Decreased. 

Mr. BARR. And has the cost of borrowing for your customers, if 

you are remaining static, increased or decreased? 

47 

Mr. FENDERSON. Unfortunately, we are in a heavily competitive 

market, so it has not gone up cost wise, per se, because in order 

to get that loan on the books, we have to be competitive. 

Mr. MILLER. We have also had to be competitive with rates, so 

our margins have suffered. 

Mr. WILLIAMS. Our margins have suffered, but the costs have 

gone up, primarily on appraisals. 

Ms. LAMASCUS. Costs have gone up and margins have declined. 

Mr. BARR. And my final question, do higher compliance costs and 

the compromising of your business model that you had before 

Dodd-Frank make it more likely or less likely that a small community bank or credit union like yours will fail? 

Mr. FENDERSON. I would say that most institutions that are wellrun would have an opportunity to merge before they fail. 

Mr. BARR. Okay. Merge or fail, that is a good point. 

Mr. FENDERSON. Yes. 

Mr. MILLER. More likely. 

Mr. WILLIAMS. More likely. 

Ms. LAMASCUS. More likely. 

Mr. WILLIAMS. As a matter of fact, we did merge, specifically because we had two banks, and with the cost, we felt like the economies made a lot of sense. 

Mr. BARR. With respect to the portfolio lending idea that we have 

proposed, the professor blames portfolio loans on the financial crisis. What do you think was the principal cause of the financial crisis? Portfolio loans or the originate to distribute model that was 

fueled by Fannie Mae and Freddie Mac that allowed for purchases 

of billions of these subprime mortgages, unlike portfolio loans that 

were not properly underwritten? In other words, just as a summary, what was the root cause of the financial crisis? Was it portfolio loans, or was it GSEs fueling subprime origination? I will just 

ask Mr. Williams on that one. 

Mr. WILLIAMS. GSEs, subprime. 

Mr. BARR. Okay. Does anybody disagree with that? 

Mr. LEVITIN. Yes, sir. 

Mr. BARR. Well, besides the professor. We heard your testimony, 

sir. 

Mr. LEVITIN. I don’t think you actually characterized what I said 

correctly. 

Mr. BARR. We heard your testimony. 

Mr. LEVITIN. You mischaracterized it. I did not say portfolio— 

Mr. BARR. I heard your testimony. I have one minute left. Let me 

just ask you this about Professor Levitin’s arguments against the 

bill and Director Cordray’s as well. What do you think the likelihood is that your institutions would make ill-advised loans if you 

have to retain the credit risk? Remember, this is on your members 

and on your shareholders. Is it more likely that you would make 

ill-advised loans if you know you have to retain the credit risk? Mr. 

Fenderson, we will start with you. 

Mr. FENDERSON. The mortgages that we make and hold in portfolio are obviously loans that impact the long-term nature of our 

balance sheet and its quality, so we will continue to make those 

loans. 

Mr. BARR. Mr. Miller? 

48 

Mr. MILLER. It is less likely. Once again, I offer our mortgage charge-off figure, over a 6-year period for a $400 million credit 

union, was $339,000, less than one-tenth of 1 percent. We are pretty good at evaluating risk in our portfolio. 

Mr. BARR. Mr. Williams, in anticipating your similar response, 

could you also add to that? Are you in a better position to assess 

the credit risk of your customers as a community bank knowing 

your customers than the Consumer Financial Protection Bureau in 

Washington? 

Mr. WILLIAMS. Yes, we are, and our business is to make good 

loans. 

Ms. LAMASCUS. We know our members, we make good loans, and 

we don’t differentiate with our underwriting whether we are going 

to keep them in portfolio or sell them off in the secondary market. 

We use equally, credible underwriting. 

Mr. BARR. My time has expired. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Rothfus. 

Mr. ROTHFUS. Thank you, Mr. Chairman. Let me start by thanking you all for appearing before the committee this morning and 

sharing your stories with the American people. Your experiences 

are important because they are illustrative of the problems that 

come about when you have a one-size-fits-all, Washington-knowsbest approach to regulating community banking. 

Instead of institutions making reasoned decisions based on actual knowledge and long-standing relationships with their customers, the elites here in Washington, D.C., would rather have everyone fit into predetermined boxes or not have access to banking 

at all. This mindset has a direct impact on the ability of institutions to serve their local communities, particularly those in need. 

It dictates whether an institution will offer important services like 

free checking and overdraft protection, whether it can offer a mortgage for a first-time home buyer, or whether it can extend a loan 

to a promising startup business. 

In my district in Western Pennsylvania, for example, we have a 

credit union in Johnstown that ran into regulatory barriers when 

it was trying to rescue a deserving single mother from a mortgage 

that had been sold 4 different times with the interest rate increasing with each new lender. 

We also have a community bank in Pittsburgh that provides 

loans to small businesses. The institution does not offer prepackaged loans or loan terms, but rather every loan is specifically 

designed considering the facts, circumstances, and risks. 

The bank tried to set up a compensation system for its loan officers that rewarded them for building and maintaining relationships with their consumers. The FDIC, however, thinks that the 

system violates CFPB lending regulations, and the CFPB won’t 

give the banks a straight answer. 

In the meantime, the bank isn’t making many of these loans, and 

local small businesses are at a block. Finally, we have a community 

bank in Monroeville that recently calculated the amount of time 

that the institution had devoted to studying, analyzing, making 

changes, and training staff to comply with new CFPB regulations. 

49 

The bank determined that it took over 2,000 hours, in other words, 

it took more than a year. Every hour spent doing this was nonproductive and took the bank staff away from meeting with customers and serving its community. 

To be clear, these institutions and the consumers they serve had 

nothing to do with the financial crisis, yet they are the ones that 

are being harmed the most by Dodd-Frank and the regulatory avalanche that has followed. And they are the ones that will suffer if 

the President continues to promise to veto any legislation that attempts to fix this under a misguided belief that Dodd-Frank is the 

next thing to gospel. Western Pennsylvanians want to say yes to 

commonsense reform, but Washington just continues to say no. 

Ms. Bosma-LaMascus, and also this is for Mr. Fenderson, since 

the passage of Dodd-Frank, fees have gone up for many products 

and services, making it increasingly difficult for middle-class and 

lower-income Americans to access banking services. For example, 

in 2009, 76 percent of banks offered free checking, but now, only 

39 percent of banks offer that service. And the mandatory account 

balance to qualify for free checking has increased. 

Similarly, 76 percent of banks offered bank accounts free of 

charge in 2009, but this number has dropped to 38 percent following the passage of Dodd-Frank. I think that we would all agree 

that more needs to be done to ensure that people are not shut out 

of the mainstream banking system. So I would be interested to 

hear about your own experiences on this issue and how DoddFrank has negatively affected your ability to do this and what you 

are doing in response. Mr. Fenderson? 

Mr. FENDERSON. Thank you very much. We have seen a steady 

reduction in what we call non-interest income, that is a source tied 

to overdraft fees and other ancillary fees. We did have to repeal 

and retire our free checking account because we frankly had to figure out a way to replace that revenue. The impact to the consumer 

is that they now have to pay for an account that they did not have 

to pay for before. So as an institution, unfortunately, we see the 

burden of our need to generate a return, which is a part of the 

safety and soundness earnings in order to continue to be in business. 

Mr. ROTHFUS. Ms. Bosma-LaMascus? 

Ms. LAMASCUS. We grandfathered our free checking accounts, so 

our members who already had them still have them. But also, in 

order to keep the cost down for our consumer members on a couple 

of our other share draft type checking account types, our members, 

when they use their debit card, can actually earn money back. So 

that is how we are able to continue to provide additional checking 

services for them, but we did do that. But that is why we have such 

concerns about debit cards and interchange and the fraud connected with them. 

Mr. ROTHFUS. Thank you, I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from New Hampshire, 

Mr. Guinta. 

Mr. GUINTA. Thank you very much, Mr. Chairman, and thank 

you all for participating in this morning’s hearing. I, too, share a 

deep concern about the regulatory environment and the burdens 

50 

that affect my State and the credit unions and community banks 

that try to do business and provide access to credit to many families across New Hampshire. My State has about 26 different credit 

unions, and has about 36 different community banks. As a matter 

of fact, New Hampshire is the birthplace of the credit union, Saint 

Mary’s Bank. 

I have recently spoken with other bank presidents, Rick Wallace 

from Piscataqua Savings Bank. I want to tell you a little bit about 

his story, and then I want to get some comments, both from the 

professor and from some others. He has one branch in Portsmouth, 

New Hampshire. He is a small $230 million bank, less than 50 employees. The regulatory compliance requirements that have come 

out of Dodd-Frank have forced him to focus on meeting compliance 

rather than being focused on consumer access to credit, according 

to the bank president. 

He is telling me now that he is only making about half the loans 

that he used to prior to Dodd-Frank. And that his own cost analysis has determined that 25 percent of his bank resources are now 

going to compliance. So my question I first want to ask the professor is, do you believe that this regulatory environment, do you 

believe that is a true and accurate assessment of what he is communicating? And if you do agree, do you think that the regulatory 

environment is actually harmful in some circumstances to the actual end-user and consumer? 

Mr. LEVITIN. To answer your question, I have no reason to doubt 

what this bank president says about his lending volume. Regarding 

compliance costs, that is a very subjective and difficult measurement. I don’t doubt his numbers, I just am not sure what they really represent. No one has a good way of measuring compliance cost, 

there is no definitive measure. 

As far as the ultimate question, though, are regulatory burdens 

harming smaller financial institutions? Yes, in some circumstances. 

They have real costs to small financial institutions. There are also 

benefits from some of the regulations, and we need to think about 

the proper balancing. You won’t see any blanket objection from me 

to having regulatory relief for smaller financial institutions, but I 

think that the regulatory relief needs to be smart, it needs to be 

targeted, and it cannot come at the cost of consumer protection. 

Mr. GUINTA. Could you identify maybe one or two regulatory relief items that we should pursue for small community banks? 

Mr. LEVITIN. Certainly. One thing that I think should go the way 

of the Dodo Bird are the Gramm-Leach-Bliley privacy notices. Nobody reads them. If anything, the only effect they have would be 

to lull consumers into thinking they actually have some privacy 

rights. There is no reason anyone, even the large banks, should 

spend money on giving those notices. 

Mr. GUINTA. Ms. LaMascus, could you give me a little idea, from 

your perspective, on the two or three things that we should be 

doing to try to reduce the regulatory compliance to your industry? 

Ms. LAMASCUS. Yes, first, I am glad to hear Professor Levitin 

comment on smart regulations. I think we are making progress. If 

I were to limit to just three out of all the opportunities for improvement, NAFCU and member credit unions would request legislative 

capital reform, including supplemental capital. We would ask for 

51 

field of membership relief, and that we pursue smarter regulation 

by requiring realistic robust cost and benefit analyses that we 

could provide better feedback and get smarter regulations. 

Mr. GUINTA. And do you believe the lending volume decline, 

whether it is community banks or credit unions, is directly impacted by regulatory requirements in Dodd-Frank? 

Ms. LAMASCUS. Yes. I can give you an example. 

Mr. GUINTA. Please do. 

Ms. LAMASCUS. I would like to actually go off of what someone 

said here—I think it was you—about the mortgage officers who 

were being compensated for the relationship and that type of thing. 

I think this is an example of how regulations get between the financial institutions and their customer members. 

A mortgage officer in a community bank or in a credit union is 

one of the best-positioned persons to know that person’s financial 

condition and also to be able to see other ways that they can help 

them make better financial choices and actually save them money 

or enhance their return. So it is unfortunate that those people are 

being prohibited or discouraged from being able to further that relationship. 

Mr. GUINTA. Thank you. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Colorado, Mr. Tipton. 

Mr. TIPTON. Thank you, Mr. Chairman. And I thank the panel 

for taking the time to be here. The professor just talked about having smart regulations. Yesterday, we had Secretary Lew before our 

committee. I found it a little bit surprising that the chairman of 

the FSOC, in not one of their hearings, ever spoke about community banks. Unfortunately, when we are talking about smart rules, 

smart regulations, we see Dodd-Frank roll up, and apparently our 

community banks are simply an afterthought when it comes to 

Washington, D.C., and the impacts that we are seeing. Do you 

think it would be in the interest, perhaps, of the Chairman of the 

FSOC to maybe pay attention to the community banks, Mr. Williams? 

Mr. WILLIAMS. Yes, I do, because the FDIC finding is that 94 

percent of the banks in the United States are community banks. 

Mr. TIPTON. Did you know when we are talking about regulations, we get focused here obviously on the financial services industry. When we look across-the-board, a report came out last year 

which said that $2 trillion is being paid in regulatory costs. Ultimately, those costs get passed on to consumers, which is stifling. 

Small businesses need opportunities to be able to grow. Is it your 

experience in your community—I visited with First Colorado National Bank in Delta, Colorado, a small community bank, and they 

are seeing more businesses shut down. In fact, we have a report 

that just came out that we are, for the first time, seeing more small 

businesses shut down in this country than there are new business 

startups. Is that going to impact your ability to be able to help your 

community? 

Mr. WILLIAMS. Are you speaking to me, Congressman? Obviously, 

if we see businesses shut down, that is jobs, that is everything. 

And yes, that is going to hurt our ability to be effective in our comVerDate Nov 24 2008 10:53 Sep 18, 2015 Jkt 095065 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 K:\DOCS\95052.TXT TERRI
52 

munities. We are in rural communities that are generally nongrowth, so any time a business shuts down, it hurts the community 

because we don’t have the jobs. 

Mr. TIPTON. Thank you. 

Mr. FENDERSON. Without question, as small businesses go, so 

does our local economy, and we understand there is an ecosystem 

to ensuring that we all have an opportunity to succeed. 

Mr. TIPTON. When we are talking about small community banks, 

often simply as a matter of survival, and you spoke of this, Mr. 

Fenderson, about being able to consolidate, to get the economies of 

scale, I believe, Mr. Williams, that you had spoken about it also. 

We are looking at some legislation right now, I believe, Mr. 

Fenderson, you are already covered under this. The OCC has an 

18-month exam cycle for well-run banks. Would it be sensible, as 

we see a need for that economy of scale, to be able to take up that 

18-month cycle for examination up to, say, a $1 billion bank, would 

that be a good idea? 

Mr. WILLIAMS. Yes, sir, absolutely. 

Mr. TIPTON. Would you support that? I know you have ambitions 

to grow that bank. 

Mr. FENDERSON. I certainly would, and I think that the exam 

cycle needs to reflect the safety and soundness concerns of the business model, and therefore, it would make sense to extend that. And 

also attached to that, some turnaround time with respect to delivering the final report. 

Mr. TIPTON. Great. I would like to talk a little bit about the Federal credit unions as well, a topic we haven’t been able to cover 

here today. I recently heard that Partner Colorado Credit Union 

and Pikes Peak Credit Union were forced into a difficult situation 

right now. Partner Colorado Credit Union is close to surpassing the 

100th international wire remittance in 2015, primarily due to 2 

members who send wires twice a month. They must now decide 

whether or not to offer international wires to make a large change 

to their wire platform to become compliant with the International 

Wire Remittance Rules. Either way, the credit unions and their 

members actually lose. 

Mr. Miller, would you like to, maybe, address this first? Although 

I am confident there are several examples of burdensome regulations that don’t necessarily apply to credit unions, can you give us 

some ideas and discussion on CFPB’s International Remittance 

Transfer Rule? 

Mr. MILLER. It is another example of majoring in the minors and 

focusing on a problem that really doesn’t exist. People don’t shop 

for a wire before they walk into the bank or credit union to place 

that instruction and get that money to somebody who really needs 

it. People send a wire because there is some kind of emergency or 

some kind of urgent need for the recipient to receive their funds. 

They are not going to use this half-hour waiting period to go shop 

and try to save $10 or $20; they want to get the money there, and 

they want to get it there now. 

Your constituent is looking down the barrel of having to double 

the cost for every one of those transactions that member is trying 

to do, and that is unfair to the consumer. 

Mr. TIPTON. Ms. LaMascus? Any comment? 

53 

Ms. LAMASCUS. We previously did just a few of the remittances. 

Whenever the changes came through, we did research it, and we 

found that for us to be able do it, it would have been cost-prohibitive. We could not see our members being able to justify, nor us 

justify doing for them, about $50 to transfer $100 or something like 

that. It didn’t make sense. 

Mr. TIPTON. It just simply echoes Ronald Reagan’s words that we 

need to be frightened if the Federal Government is here to help. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Williams. 

Mr. WILLIAMS OF TEXAS. Thank you, Mr. Chairman, and I thank 

all of you for being here today. I am a small business owner in 

Texas, a job creator for 44 years, a Main Street guy, and in full 

disclosure, I am an auto dealer. And I understand that they are 

squeezing you to get to me, I get it. When a new regulation is put 

into place or a new law is enacted, banks or credit unions have to 

increase the amount of resources they devote to compliance. More 

regulators, I am told, are hired by some bankers than loan officers. 

While the stated purpose of these new laws and regulations is to 

protect consumers, the opposite is actually happening. Increasing 

regulation means two things: fewer products; and fewer services. 

For example, take Dublin, Texas, the home of Dr. Pepper, population just shy of 4,000. Bankers have told me that because of regulatory overreach, they won’t make loans for homes valued at 

$150,000 or more, much less for $50,000, which is the average price 

in Dublin. 

And who does this impact? We know who it impacts. It impacts 

the seller, impacts the buyer, and the bank trying to make the 

loan. But what about the plumbers? What about the carpenters 

and electricians and local contractors and hardware stores that 

would benefit if we sold a home? So is it goes on and on and on. 

And regulations are not just hurting banks but the customers who 

depend on them. 

And for the customer, relationships matter. My constituents 

want to bank with people they can trust, and that is not the Federal Government. And they want a banker to have relationships 

that are built not in a week or a month or a year but over a lifetime. And I tell everybody in the Federal Government, being a 

small-business owner, reputation is the most important thing all of 

us have at the end of day, something that this Administration just 

doesn’t get. 

Now in Texas, we are not immune to the impact of Dodd-Frank. 

The other day, as we have talked about, in Texas alone—and, Mr. 

Williams, you will probably back me up on this—we have 115 fewer 

community banks than we did 4 years ago. And that is an economy 

that is the best in the world. 

Mr. WILLIAMS. Yes. 

Mr. WILLIAMS OF TEXAS. And so we had Secretary Lew here yesterday, and we were talking about Dodd-Frank, and he was expounding on how great it was and said that we—we had also 

talked about how there is a possibility that he can just, with the 

stroke of a pen, take the $50 billion guys and get them out. Even 

Barney Frank agrees with that. But he thinks he has to continue 

to get Dodd-Frank in full implementation before he would do that. 

54 

And I told him that I would like for him not to do that, because 

if we go that long, we could lose banks, we could lose all lending 

institutions, we could lose businesses, and we could lose jobs. So I 

hope he considers that. 

And then there is the worry and the fervor and the fear over fair 

lending evaluations and the use of disparate impact as a viable 

theory to evaluate all this. It is reportedly limiting the number of 

banks willing to make small-dollar loans; we understand that. And 

as someone who is in the automobile business, I am very sensitive 

to the idea that some think that people are given different rates 

based on race, religion, or gender. 

So I support reform in the Consumer Financial Protection Bureau’s mortgage rules, but I also want to make it easier on you to 

be recognized for your performance and not penalized. 

I guess I would ask a question, really ‘‘yes’’ or ‘‘no’’ to all of you. 

I want to get back to what Secretary Lew said. Should we wait for 

full implementation of Dodd-Frank, or should we try reform it and 

get you guys out of it? 

Mr. FENDERSON. We should reform it. 

Mr. MILLER. If it is broke, fix it. Reform it. 

Mr. WILLIAMS. We definitely need to reform it. 

Ms. LAMASCUS. We weren’t the bad actors. Reform it. Get us out 

of it. 

Mr. WILLIAMS. And it would also help mitigate the costs on consumers that we have to pass along. 

Mr. WILLIAMS OF TEXAS. Right. 

Mr. LEVITIN. I think it really depends on the provision. 

Mr. WILLIAMS OF TEXAS. Okay. Thank you. 

Now, we have talked, too, about—one of the questions I had was 

how much this is affecting your bottom line. We have talked a lot 

about that. 

I heard a thing the other day that says it takes more man-hours 

to meet Dodd-Frank now, halfway through it, than it did to build 

the Panama Canal. So that puts it in perspective. 

We also just heard from the professor that it is hard to measure 

compliance costs in a business. I would think that—is that right, 

Mr. Miller? 

Mr. MILLER. That is correct, sir. 

Mr. WILLIAMS OF TEXAS. But you also might—one way to measure this is it is cutting into your bottom line— 

Mr. MILLER. Yes, it does. 

Mr. WILLIAMS OF TEXAS. —because you are having to hire someone who can’t loan money out. 

Mr. MILLER. It does cut into the bottom line tremendously. 

Mr. WILLIAMS OF TEXAS. I will be brief. The economy is not fixed. 

I think that Main Street America is still hurting. Risk and reward 

is being attacked. 

And I guess I would ask any one of you just to respond quickly: 

If we reduce burdensome regulations on you all, don’t you think it 

would help small-business guys like me to take risks, get rewards, 

put people to work, get them off unemployment, and get net worth 

back in America? 

Mr. FENDERSON. Yes. 

Mr. WILLIAMS. And it would decrease your cost of doing business. 

55 

Mr. MILLER. Yes. 

Ms. LAMASCUS. Yes. 

Mr. WILLIAMS OF TEXAS. All right. Thank you very much. Thank 

you for being here. 

Mr. Chairman, I yield back. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentlelady from Utah, Mrs. Love. 

Mrs. LOVE. Thank you. 

I appreciate you all being here today. 

I have sat here, and I have listened to testimony and listened to 

questions and expertise from scholars and expertise from professionals in the area. I have just a couple of yes-or-no questions, and 

then I want to just get into what I believe is the primary purpose 

of us being here. 

First of all, Mr. Levitin, yes or no, do you consider yourself a professional or an expert in this area? 

Mr. LEVITIN. I do. 

Mrs. LOVE. Okay. Do you proclaim that you know more, yes or 

no, than the consumers and the members of these banks and the 

four people who are sitting next to you? 

Mr. LEVITIN. About what? 

Mrs. LOVE. Do you know more about the banking industry than 

the people sitting next to you? 

Mr. LEVITIN. About certain aspects of it, yes. 

Mrs. LOVE. Okay. 

It is really interesting to me, as I have sat here and I think 

about my experiences in the past, short 21⁄2 months, is this is the 

biggest problem that we have. We continue to say to the American 

people: Let Washington fix all of our problems. Let the professional, the scholarly elites make the decisions for us. Let us go in 

and try and protect the American people from themselves. 

And I think it is high time that we as Americans start trusting 

the American people again to make decisions in their homes, in 

their communities, and with the community banks that actually 

know them by name. 

I have realized, in everything that we have looked at, in all of 

our history, when Washington gets too involved in anything, the 

same thing always happens: Prices go up and quality goes down, 

every single time. 

And I want to just be very clear here that I am not anti-government. I am pro-limited-government. I am pro the American people 

having more decision-making in what they are doing and learning 

and being able to—I think that the American people are smart 

enough to make decisions. 

So I just wanted to just ask a few questions concerning what this 

hearing is about today. I have been hearing a lot about small banks 

and how much more vulnerable to costs and burdens of regulations 

they are because of the lack of balance sheets and resources of the 

larger banks in which to absorb the cost of compliance. 

Would you say—and this question is for Mr. Fenderson—that 

smaller banks are suffering terribly and disproportionately, in your 

opinion, under the burden of Dodd-Frank and Basel III? 

56 

Mr. FENDERSON. I think there is a combination of regulation as 

a whole that require small banks to react and respond, and, therefore, it is a burden on us financially. 

Mrs. LOVE. Okay. 

As a result, and certainly not surprisingly, community banks are 

failing and certainly merging and being bought out by larger banks 

at near record rates. And, certainly, the rate of new banks being 

launched has fallen to an all-time low level in 8 decades. 

Would you say that would be as a result of some of the regulations that we are seeing today, Mr. Williams? 

Mr. WILLIAMS. Yes. 

Mrs. LOVE. Do we—go ahead? 

Mr. WILLIAMS. And I would also like to follow up. The Basel capital rules are coming in over time, they are being phased in. And 

we shouldn’t be subjected to those capital rules, clearly, because we 

don’t have the risk that are designed for the international banks 

that they are written for. 

Mrs. LOVE. Okay. 

So, Mr. Miller, you talked about the cost of compliance being 

pushed down to the consumer. Would you say that you would have 

hard evidence of that actually happening, that you can see the cost 

of compliance, of trying to conform to these regulations, actually 

being passed down to the consumers who come in and are trying 

to receive a specialized, more personal relationship and loan from 

your institution? 

Mr. MILLER. Absolutely, and we have hard evidence. We can submit some follow-up comments for the record on that from some of 

my peer credit unions. 

I also want to make another comment, if I may. There was an 

inference that there is a conflict of interest with four of the people 

at this table earlier today because we represent the banks and 

credit unions for which we work. 

I work for my 22,650 members. They are member-owners. They 

elect a board of directors. It is all volunteer. They hire me, and I 

hire my staff to run the credit union on their behalf. I don’t think 

that is a conflict of interest, respectfully. 

Mrs. LOVE. I would also say that I work for the American people, 

and I work for my district. And that is exactly what I am doing 

here, making sure that I have their back in terms of letting them 

keep a little more of their money so that they can take care of their 

needs. 

I also want to say that when we are looking at some of these 

things, what I tend to see is that Dodd-Frank is actually making 

it so that these banks are being pushed to be either absorbed or 

being pushed into bigger banks, which is what we are trying to protect the American people from. 

Anyway— 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Arkansas, Mr. 

Hill. 

Mr. HILL. Thank you, Chairman Hensarling and Ranking Member Waters, for this good panel. 

I appreciate all of you being here and suffering through a long 

morning with us. 

57 

I spent 35 years in the banking business prior to being elected 

to Congress in November, starting in Texas and in Arkansas. And 

so I have lived under all these rules and all these organizations for 

3 decades and enjoyed every minute of it. It was a dream come true 

and prepared me for running for Congress. 

Professor, you made a comment earlier that sort of left the impression, I think, that FDIC insurance is optional in some way. 

And since FIRREA or FDICIA, I don’t remember which, it is certainly not. It is contingent on getting a charter to be a bank in the 

country. 

Mr. LEVITIN. For getting a national bank charter, it is. For getting a State bank charter, it is not. 

Mr. HILL. I don’t believe that is true. We are not going to debate 

it today. I would just invite you to go check that out. 

I also reject the premise that banks sell bad loans on the secondary market and keep good loans for their own portfolio, which 

seems sort of implicit, kind of hanging in the room. I have certainly 

never seen that in my 3 decades of experience. 

I also reject the fact that somehow consumer protection was lax 

in the financial services industry prior to the dawn of a new world 

with the CFPB. We have had State attorneys general, we have had 

insurance departments, securities departments, State banking departments, we have had the FDIC and the OCC, I think, do a 

splendid job of enforcing consumer regulation in the commercial 

banking and credit union industries for years and years. 

Finally, I would like to suggest that the burden of regulation is 

cumulative. And we never talk about that, we never reflect on that. 

And it is like that last straw that breaks the camel’s back. 

For me, something I would like to point out is just the breadth 

of paperwork in 4 or 5 years. I am so glad our bank went to our 

loan committee on iPads so that we didn’t have to cut down more 

trees. 

But I got a note the other day from a bank in Searcy, Arkansas, 

in my district, for a $174,000 home loan. And prior to the abilityto-repay rules that are now in place, the package was this thick. 

And that comports with my memory of it, from just leaving banking a few weeks ago. This is the size of the packet today, 255 

pages, not including the appraisal, not including the tax returns, 

to go through a loan approval process—255 pages versus 20 pages. 

So I think that speaks to what everyone is feeling. And all that 

cost is sent to the consumer, and I hope everyone understands that. 

The last topic I want to get your views on is this issue of disparate treatment that Mr. Williams raised. Because we all want 

our consumers to get an absolute fair deal and a great deal from 

our financial institutions, be they banks or credit unions, and we 

want that regardless of a bank’s size, right? So the fair lending 

laws are good, and HMDA allows us to check to make sure we are 

doing a good job. 

But reflect on this one-size-fits-all, no price variability, no matter 

what your geography you are covering, in disparate treatment. 

Let’s start with you, Mr. Fenderson. 

Mr. FENDERSON. I would say that as we evaluate consumer 

loans, we try to evaluate them on an individual basis. And, in 

many cases, we are dealing with someone that we have dealt with 

58 

before. But when we are dealing with a new borrower, we simply 

evaluate their ability to repay and all the things that we normally 

have to check and balance for. 

We don’t think that, as an institution, there is any disparate 

treatment to pricing a loan based on its risk, because your debtto-income ratio may be higher than another borrower. So we would 

like to retain that ability do that. 

Mr. HILL. Mr. Miller? 

Mr. MILLER. I would concur with Mr. Fenderson that we need 

flexibility to make appropriate business decisions. And if you look 

at how credit unions have done in controlling risk, we have done 

a phenomenal job. 

And this one-size-fits-all approach once again forces us to major 

in the minors. We are forcing minor players in the industry to comply with rules that the major offenders have committed. And that 

is not fair for the consumer, it is not fair for the American people, 

it is not fair for the economy and jobs. And, once again, it is going 

to create this implosion of jobs in the financial services industry 

that also has a cascading effect and causes loss of jobs in other industries. And tax revenues will suffer as a result of that, too. 

Mr. WILLIAMS. Congressman, disparate treatment, we are very 

concerned about this expanded HMDA reporting. We think that is 

designed to be the new enforcement mechanism and the backbone 

for the Federal regulators to enforce disparate lending on banks. 

We have had a lot of experience with fair lending in the past, and 

it is a very difficult issue when dealing with disparate lending, disparate impact. 

Mr. HILL. Thank you. 

I yield back, Mr. Chairman. 

Chairman HENSARLING. The gentleman yields back. 

There are no other Members in the queue, so I would like to 

thank each and every one of our witnesses for their testimony and 

their patience today. 

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 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

This hearing stands adjourned. 

[Whereupon, at 1:04 p.m., the hearing was adjourned.] 

(59) 

A P P E N D I X 

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