U.S. GOVERNMENT PUBLISHING OFFICE

28–711 WASHINGTON : 2018

HOW RED TAPE AFFECTS COMMUNITY BANKS 

AND CREDIT UNIONS: A GAO REPORT 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

FEBRUARY 27, 2018 

Small Business Committee Document Number 115–059 

Available via the GPO Website: www.fdsys.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

TRENT KELLY, Mississippi 

ROD BLUM, Iowa 

JAMES COMER, Kentucky 

JENNIFFER GONZA ́ LEZ-COLO ́ N, Puerto Rico 

BRIAN FITZPATRICK, Pennsylvania 

ROGER MARSHALL, Kansas 

RALPH NORMAN, South Carolina 

JOHN CURTIS, Utah 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

DWIGHT EVANS, Pennsylvania 

STEPHANIE MURPHY, Florida 

AL LAWSON, JR., Florida 

YVETTE CLARK, New York 

JUDY CHU, California 

ALMA ADAMS, North Carolina 

ADRIANO ESPAILLAT, New York 

BRAD SCHNEIDER, Illinois 

VACANT 

KEVIN FITZPATRICK, Majority Staff Director 

JAN OLIVER, Majority Deputy Staff Director and Chief Counsel 

ADAM MINEHARDT, Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Hon. Steve Chabot ................................................................................................... 1 

Hon. Nydia Vela ́zquez ............................................................................................. 2 

WITNESS 

Mr. Michael Clements, Director, Financial Markets and Community Investment, United States Government Accountability Office, Washington, DC ..... 4 

APPENDIX 

Prepared Statement: 

Mr. Michael Clements, Director, Financial Markets and Community Investment, United States Government Accountability Office, Washington, DC ..................................................................................................... 19 

Question and Answer for the Record: 

Question from Hon. John Curtis to Mr. Michael Clements and Answer 

from Mr. Michael Clements ......................................................................... 120 

Additional Material for the Record: 

CUNA - Credit Union National Association ................................................... 121 

ICBA - Independent Community Bankers of America .................................. 123 

NAFCU - National Association of Federally-Insured Credit Unions ........... 127 

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SBREP-219A with DISTILLER

(1) 

HOW RED TAPE AFFECTS COMMUNITY BANKS 

AND CREDIT UNIONS: A GAO REPORT 

TUESDAY, FEBRUARY 27, 2018 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Committee met, pursuant to call, at 2:18 p.m., in Room 

2360, Rayburn House Office Building, Hon. Steve Chabot [Chairman of the Committee] presiding. 

Present: Representatives Chabot, King, Luetkemeyer, Kelly, 

Blum, Comer, Curtis, Vela ́zquez, Evans, Lawson, Adams, and 

Schneider. 

Chairman CHABOT. Good afternoon. The Committee will come 

to order. I want to apologize for running a little bit behind but we 

had votes on the floor, which in unavoidable, and we got over here 

as quickly as we could. 

Our economy is seeing a resurgence. Congress passed and the 

President signed a historic tax bill into law, and hardworking 

Americans are starting to see the results in their paychecks. We 

are also getting people back to work with the unemployment rate 

continuing to trend downward. Economic progress is being made. 

However, we continue to hear from Main Street companies across 

the Nation that access to capital remains a challenge for them. Unfortunately, research shows that small business lending took a 

nose-dive during the Great Recession. And while recent progress 

has been made, lending has not returned to pre-recession levels. 

Around here, we like to say that capital is the life blood of the 

small business ecosystem. When acquiring capital, it is challenging 

the Nation’s small business, which create two out of every three 

new private sector jobs are left in a holding pattern. 

A stagnant lending environment hits our smallest firms the 

hardest because of their reliance on commercial lending to finance 

their projects. The local community bank and the neighborhood 

credit union play an outsized role in lending to small businesses. 

This relationship between the entrepreneur and the small financial 

institution is critically important. 

When the mortgage meltdown in the mid to late 2000s triggered 

a financial crisis, these small financial institutions did not play a 

significant role in the crash. However, as a result of the crisis, Congress enacted the Dodd-Frank law, which was intended to improve 

oversight of the Nation’s largest banks. 

Unfortunately, many of these requirements and regulations have 

trickled down to the Nation’s smallest financial institutions. A onesize-fits-all regulatory framework is not sustainable for America’s 

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smallest businesses. To gain a clearer picture of this financial regulatory environment, I asked the GAO, the Government Accountability Office, to examine the red tape that impacts community 

banks and credit unions. The results of this examination is what 

we are here to discuss today. 

GAO has finalized the report and they are ready to share it with 

us. I am looking forward to hearing about the specific rules and 

regulations that are impacting these smaller financial institutions. 

Additionally, I am interested to learn more about the tools available to financial regulators to reduce burdens. 

Overly burdensome red tape is a real threat to entrepreneurs, 

start-ups, and small businesses. That is why I introduced H.R. 33, 

the Small Business Regulatory Flexibility Improvements Act, last 

year. H.R. 33 was included in a larger regulatory package, H.R. 5, 

that passed the House in a bipartisan manner last January. I encourage the Senate to move this legislation forward as soon as possible. 

Again, I want to thank the GAO for joining us today and for the 

work that they put into this report. In order for small businesses, 

entrepreneurs, and start-ups to create the next great American 

product or service, the flow of appropriate and prudent capital 

must be as free as possible of regulatory red tape. 

I would now like to yield to the ranking member for her opening 

remarks. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. Bear with me, I 

am under the weather. A decade ago our nation faced one of the 

greatest economic downturns in history, and stared into the abyss 

of another Great Depression. Countless Americans lost their 

homes. Credit markets, including small business lending, froze, 

and millions of jobs evaporated. After taking extraordinary steps to 

stand the losses and stabilize the economy, Congress enacted the 

Dodd-Frank Act in July 2010 to address the loopholes that caused 

the collapse. 

The law established strong new standards for the regulation of 

large leverage financial institutions. It also made the protection of 

consumers seeking mortgages and credit products a top priority. 

While the new safeguards were directed primarily at the largest financial services firms, we often hear that small banks were indirectly affected by higher compliance costs. 

It is also undeniable that small lenders bear less responsibility 

for the financial crisis, and therefore, should not carry the brunt 

of new regulations. For these reasons, significant efforts were made 

to mitigate any new regulatory burden on small banks. 

First, many Dodd-Frank provisions apply only to institutions 

with over $10 billion in assets, exempting over 98 percent of all 

banks in the U.S. 

Second, regulations created by the Consumer Financial Protection Bureau, or CFPB, that do apply to small financial institutions 

are subject to the Regulatory Flexibility Act and the Small Business Regulatory Enforcement Fairness Act. Together, Dodd-Frank 

and the creation of the CFPB have put us on a path to restore accountability and stability in our financial system, giving regulators 

the tools to prevent harmful bailouts and establish new rules to 

protect consumers from abusive financial practices. 

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Data from federal regulators also points to a more vigorous business lending market. The Federal Reserve has found lending standards for small firms have eased considerably since the recession, 

while loan balances at community banks have increased over 7 percent in the past year alone. 

Credit unions have also been striving. Long portfolios grew nearly 3 percent in the third quarter of 2017, resulting in year over 

year growth of 10.5 percent. While the small business lending environment appears to be robust, critics of Dodd-Frank continue to 

point to complying costs as approved of onerous regulations. But as 

the GAO concluded, much of these costs stem from a misunderstanding of the rules, not the rules themselves. 

Equally important, the GAO found in its survey that the regulations serve important public benefits, such as enhancing transparency and preventing discrimination. While regulations implemented under the act will ultimately impact many facets of the financial industry, the economy has been improving at a greater 

pace since its passage. Private employers have created 12 million 

jobs and unemployment has been greatly reduced. 

The housing market is also recovering, as small business credit 

has returned to pre-recession levels in many sectors. As both lenders and borrowers, small businesses have much at stake when it 

comes to financial regulatory reform. The Dodd-Frank Act touches 

on all aspects of the financial industry, and has the potential to 

make the entire system more stable and safer for small firms and 

the economy to grow and create jobs. While we must always be 

aware of how new regulations impact the small firms, under no circumstances can we return to the conditions that led to the 2008 

crisis. 

In that regard, I look forward to hearing the recommendations 

of GAO, and having a full discussion about small lenders’ experience, and how we can ensure the law works to protect and preserve 

our small business sector. 

Thank you, and I yield back. 

Chairman CHABOT. Thank you very much. The gentlelady 

yields back. And if committee members have opening statements 

prepared, we would ask that they be submitted for the record. 

And I will just take a moment to explain our timing lights, et 

cetera. They are pretty simple. The green light will be on for 4 minutes, and then the yellow light will be on for a minute, that is 5 

minutes, and the red light will come on and we would ask you to 

kind of keep within that, but since we have one witness, if you take 

a little more time, I think we will be okay with that. And we will 

then followup with 5 minutes questioning going back and forth for 

each side. 

And so I would now like to introduce our witness today, it is Mr. 

Michael Clements, who is a director within the financial markets 

and community investment group at the U.S. Government Accountability Office. During his extensive tenure at GAO, he studied financial regulations within the Securities and Exchange Commission, the Federal Reserve System, and their Federal Deposit Insurance Corporation. Additionally, he has worked on broadband, communications, and telecommunications issues for GAO. 

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Mr. Clements hails from the great State of Ohio, and has an undergraduate degree from that fine institution in southern Ohio, the 

University of Cincinnati, which happens to be in my district. Additionally, he has two graduate degrees from the Ohio State University as well. 

I want to thank you for being here today, and you are recognized 

for 5 minutes, Mr. Clements. 

STATEMENT OF MICHAEL CLEMENTS, DIRECTOR, FINANCIAL 

MARKETS AND COMMUNITY INVESTMENT, UNITED STATES 

GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, D.C. 

Mr. CLEMENTS. Chairman Chabot, Ranking Member 

Vela ́zquez, and members of the committee. I am pleased to be here 

today to discuss our recent reports addressing regulatory burdens 

encountered by depository institutions and the processes to mitigate those burdens, including our report on community banks and 

credit unions that the committee is releasing today. 

My statement highlights two key topics from our reports. First, 

the regulatory burdens that community banks and credit unions 

identified as most significant. And, two, the requirements for financial regulators to assess the burdens associated with their regulations. Our work highlights the need for financial regulators to improve their analyses of regulatory burden. 

In the way of background, community banks and credit unions 

are generally small entities, most with assets less than $1 billion, 

that serve limited geographic areas. These institutions focus on traditional depository activities, namely, taking deposits and making 

loans. And, most importantly, for this committee, community banks 

allocate a greater portion of their assets to small business loans 

than large depository institutions. 

Moving to our first key topic, the regulatory burdens that community banks and credit unions identified as most significant. Like 

all depository institutions, community banks and credit unions are 

subject to a variety of regulations. These regulations include safety 

and soundness reviews, to among other things, protect the Federal 

Deposit Insurance Fund. Consumer compliance reviews to ensure 

that institutions adhere to relevant consumer protection statutes, 

such as truth in lending. And Bank Secrecy Act Anti-Money Laundering, known as BSA/AML reviews, to help safeguard the financial system from use by criminal enterprises and terrorists. 

While these regulations have public interest benefits, they also 

impose burdens on depository institutions. In our interviews and 

focus groups with over 60 community banks and credit unions, the 

institutions identified three prominent regulatory burdens. 

One, mortgage transaction reporting under the Home Mortgage 

Disclosure Act. Two, mortgage disclosure and closing requirements 

under the Truth in Lending Act, and Real Estate Settlement Procedures Act. And, three, BSA/AML recordkeeping and reporting requirements. 

Among other things, the institutions characterized these regulations as complex and time consuming. For example, the institutions 

noted that identifying terrorism financing under BSA/AML was not 

a core competency for their staff. Moving to our second key topic, 

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the requirements for financial regulators to assess the burdens associated with their regulations. 

The Regulatory Flexible Act, or RFA, requires regulators to examine burdens on small entities during the rulemaking process. 

Among other things, regulators must consider regulatory alternatives that will achieve the statutory objectives while minimizing 

burdens. We identified a variety of weaknesses in the regulators’ 

RFA activities, including limited evaluation of economic effects and 

alternative regulatory approaches and missing information on the 

cumulative economic impact of regulations. 

The Economic Growth in Regulatory Paperwork Reduction Act, 

or EGRPRA, and RFA require regulators to conduct retrospective 

reviews, these are a look back. EGRPRA requires certain financial 

regulators to assess every 10 years whether their regulations are 

outdated, unnecessary, or unduly burdensome. RFA requires regulators to review within 10 years certain rules to determine if they 

should be continued without change, amended, or rescinded. 

Here again, we found weaknesses in the regulators’ activities, including a lack of policies and procedures for conducting retrospective reviews and analyses lacking quantitative data. The weaknesses we identified can hinder the financial regulators’ ability to 

lessen burdens on community banks and credit unions. 

To conclude, financial regulations provide public interest benefits, but they also impose burdens on depository institutions. However, financial regulators are required to assess these burdens on 

small depository institutions. While we identified weaknesses with 

the regulators’ processes, we also provided 20 recommendations 

that should help the regulators improve their processes, and thereby mitigate, where appropriate, burdens on small depository institutions. 

Chairman Chabot, Ranking Member Vela ́zquez, and members of 

the committee, this completes my prepared statement. I would be 

pleased to respond to any questions you may have at this time. 

Chairman CHABOT. Thank you very much. And I will begin 

by—I recognize myself for 5 minutes to kick off the questions here. 

Which regulations did you find particularly burdensome to community banks and credit unions, and how do these regulations in turn 

adversely impact, or how could they adversely impact small businesses? 

Mr. CLEMENTS. The three regulations that where we saw a 

consensus on from the 60-plus institutions we interviewed were, 

one, the Home Mortgage Disclosure Act requirements. The second 

was mortgage disclosure and closing requirements, and then finally 

the BSA/AML requirements. 

In general, the institutions described all of those as sort of timeconsuming to take care of, they are complex. At times, if there is 

any change to the regulation, what needs to happen then is the institution needs to retrain its staff, it may need to upgrade its computer systems to handle new forms, and those are the types of burdens that were reported to us. 

Chairman CHABOT. Okay. Thank you. And just a second part 

of the question then. So how would those, in all likelihood, adversely impact or waste time for or make it tougher for them to get 

a loan or whatever the ramifications might be for small business, 

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if these regulations are kind of affecting the financial institutions 

and banks and credit unions? How would the, you know, small 

businesses going in to get a loan, how would they be affected by 

that? 

Mr. CLEMENTS. In some of our past work, the institutions have 

mentioned that is a hindrance to their ability to do that. We have 

ongoing work for you now that is going to look empirically at testing whether regulatory burdens are influenced and how they influence the levels of small business lending, and we hope to get that 

work to you in several months. 

Chairman CHABOT. Okay. Thank you. How is it that DoddFrank, which was supposedly targeted at the so-called too big to 

fail financial institutions, the big guys, how has it affected the 

smaller community banks and credit unions, and then of course, 

small businesses as a result of that across the country, would you 

say? 

Mr. CLEMENTS. I would mention the two mortgage-related burdens that were cited. One, the changes in the Home Mortgage Disclosure Act, and then also the closing and mortgage disclosure 

within Truth in Lending Real Estate Procedures Act. Those were 

two things affected by Dodd-Frank. There are exemptions on both 

of those, but some of the institutions did mention those as being 

burdens. 

Chairman CHABOT. Okay. Thank you. What are the principal 

flaws—and I am just going to give you a couple of them, and I will 

go one by one. What are the principal flaws in the CFPB would you 

say at this point? What kinds of things did you pick up on or are 

in your report? 

Mr. CLEMENTS. We made a couple of recommendations in a 

couple of reports to CFPB. One in terms of the mortgage disclosure 

and closing requirements that fell within what is called Truth in 

Lending Act, Real Estate Procedures Act, integrated disclosure. 

And the idea here was to put all the forms within one form, make 

it easier for the consumer. 

Sometimes what we have seen is that the institutions find some 

guidance confusing, and so what we have recommended to CFPB 

was, do an evaluation of that guidance, make it clear for the institutions so it is a little easier. Again, it is the framework of saying, 

what you are doing is a good idea, but we need to reduce the burden on the institution so we can still achieve the statutory goal, but 

keep the burden as small as possible on institutions. So that would 

be an example for CFPB, and one of our recommendations. 

Chairman CHABOT. Okay. How about the BSA, the Bank Secrecy Act? 

Mr. CLEMENTS. The concerns here, again, are the time of doing 

it, the complexity of it. Institutions, especially smaller ones, the decision of whether to file a suspicious activity report, sometimes that 

can be confusing for them. Again, the burdens they have described 

is continually increasing, what is being asked for, and again what 

that requires, training of staff, at times, upgrading their systems. 

Those are sort the burdens that they are encountering in that environment. 

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Chairman CHABOT. Okay. And in the short time I have left, 

how about the Home Mortgage Disclosure Act. Were there any particular areas there that were of concern or that you noticed? 

Mr. CLEMENTS. Again what the institutions were mentioning 

to us was the timeframe of doing the reviews, the complexity of it, 

whether a transaction should be reported or not. There are also 

concerns about if there was an error made, the extent to which the 

whole set of data would need to be resubmitted. And the FFIEC 

has made some adjustments to that, which should reduce some of 

those burdens. 

Chairman CHABOT. Thank you very much, my time is expired. 

The ranking member is recognized for 5 minutes. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. Mr. Clements, 

isn’t it true that 90 percent of community banks that have less 

than $10 billion in assets are excluded from Dodd-Frank requirements? 

Mr. CLEMENTS. I don’t know the exact number, but there are 

various levels for different rules that banks would be exempted 

from, but I don’t know whether they are 90 percent. 

Ms. VELA ́ ZQUEZ. Well, small community banks, those with $1 

billion or less in assets, right, do not have to comply with DoddFrank. And then when those of us on the Financial Services Committee passed Dodd-Frank, we exempted from those requirements 

banks with assets of less than $10 billion. So 90 percent of all community banks are exempted. 

But let me ask you, to what extent are home data essential to 

the enforcement of fair lending laws and regulations? Are there 

viable alternatives to the home data? 

Mr. CLEMENTS. There are certain public interest benefits to 

those data. I think, the institutions we talked to, also CFPB has 

mentioned things such as allowing local officials to allocate dollars 

for community development, but also, as you mentioned, to ensure, 

to monitor and detect and prevent discriminatory lending practices. 

Clearly, that is a benefit and was mentioned relatively frequently. 

The regulators we spoke to really don’t know of comparable data 

that exists that would be as efficient. So in their view, it is an efficient data source to serve those two purposes. 

Ms. VELA ́ ZQUEZ. Thank you. In a letter to Secretary Mnuchin, 

Congressman Royce and I raised the need for law enforcement to 

provide feedback to financial institutions on effectiveness of their 

SARs. GAO concluded the same, and recommended as much. How 

would implementing a process to provide financial institutions with 

feedback improve compliance? 

Mr. CLEMENTS. Well, there were certainly concerns among the 

institutions we talked to, lack of understanding, what the data are 

being used for. That was a common theme that we have heard during our interviews and focus groups. 

Ms. VELA ́ ZQUEZ. So what is needed to facilitate greater communication from FinCEN, is a better relationship between law enforcement and financial institutions? Do you have any recommendations? 

Mr. CLEMENTS. It was not in the scope, so we did not do that. 

Ms. VELA ́ ZQUEZ. Okay. An area of regulation that was cited as 

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cial institutions, did they identify specific aspects of the mortgage 

rules that were particularly burdensome, if so, which ones? 

Mr. CLEMENTS. So within the closing, the mortgage disclosure, 

there are two closing processes, I think a couple of things that 

came out. One is what they view as just complexity and the time 

to do the forms. A lot of this was a combination of a variety of 

forms from Truth in Lending, Real Estate Procedures Act, that put 

it into an integrated form. So what the requires is new training for 

their staff, upgrades of the computer systems to be able to file the 

forms. That is one problem. 

They also cited some of the timeframes that are required, the 3- 

day timeframes, which they believe could extend closing times. 

And, finally, they had concerns with perhaps being responsibile for 

third party fees that may change. So, for example, if an appraisal 

fee changed, that they may be responsible for that. Those were 

three main concerns that they expressed, at least in terms of that 

closing process. 

Ms. VELA ́ ZQUEZ. Okay. Mr. Chairman, I yield back. 

Chairman CHABOT. Thank you. The gentlelady yields back. The 

gentleman from Utah, Mr. Curtis, is recognized for 5 minutes. 

Mr. CURTIS. Thank you, Mr. Chairman. 

Mr. Clements, thank you for being here today and being with us. 

As a former small business owner, I am aware of the difficulty of 

complying with some of these regulations and having the staff to 

meet those compliances. And I find that sometimes strategies to— 

rather than hire the staff to help you know if you need to comply 

to just over-comply. 

Are you seeing any evidence of that with our community banks, 

that that is, because they don’t have the staff they are actually 

over-complying with some of these regulations? 

Mr. CLEMENTS. We certainly found that in the case of the 

TRID, the integrated disclosure. In fact, what we found was they 

were doing things they really didn’t need to do, part of that was 

driven by what we thought was unclear guidance from CFPB in 

terms of what they needed to do. And so, again, that fell within our 

recommendation to CFPB. Evaluate your guidance. Rethink about 

it and come out with better guidance so that the businesses do understand what they need to do and what they don’t need to do, because we don’t want to have them doing extra work. 

Mr. CURTIS. Yeah. Is it—I am told that sometimes these investigators are—they have quite a bit of leeway in what they go forward and what they look at, and that sometimes the less experienced ones are assigned to the smaller institutions in almost a 

training capacity. And is it possible that in some cases we are actually asking more of these smaller banks, and is there—is that discretion a problem in the case of the investigators? 

Mr. CLEMENTS. A number of the institutions have mentioned 

that they thought they were being asked or being held out to a 

higher standard. It is difficult to test it. What we did do, is we 

looked at 28 examination reports and tried to find out, were the 

small institutions being granted the acceptance they were allowed 

to be, and we did end up finding that. 

Mr. CURTIS. You say they were? 

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Mr. CLEMENTS. Yes, we did not find any evidence where these 

28, now, I am not saying that there could not be cases where—— 

Mr. CURTIS. Is there a pattern of assigning the new guys to the 

smaller institutions? 

Mr. CLEMENTS. That I don’t know. 

Mr. CURTIS. That would be interesting to find out and may help 

us understand that complaint. 

Mr. CLEMENTS. We would be happy to look at that and submit 

something for the record. 

Mr. CURTIS. As I understand it, in Section 1002 of Dodd-Frank, 

it explicitly gives the CFPB the authority to exempt credit unions 

from certain regulations and smaller institutions. Do you know if 

they are taking advantage of that? 

Mr. CLEMENTS. Again, that is one I don’t know. 

Mr. CURTIS. Okay. It has been told to me that we are losing a 

number of these smaller institutions, and that concerns me, especially in rural parts of our country, where, as you mentioned, the 

types of loans that they are doing are so important for the economy. Do you have any data on exactly how many of these smaller 

institutions we are losing, or is there any information you have on 

that? 

Mr. CLEMENTS. We are aware of the general trend, for example, that have been reported on and the decreased number. We did 

not do that for this report. We have ongoing work for the chairman 

that is actually looking at whether regulatory burden is contributing to closure of branches and institutions. And, again, we should 

have that within the next couple of months. 

Mr. CURTIS. Yeah. Thank you. That would be actually very interesting. And is it fair to say that that would disproportional impact rural America? 

Mr. CLEMENTS. If that is where most of the smaller institutions are. I should mention, we have also a report we released yesterday on de-risking, so this is related to the BSA/AML, where we 

did find that institutions are considering BSA/AML compliance in 

decisions to offer services, and in fact, what we also found was in 

communities or counties where money laundering was seen as a 

greater risk, in fact, they were losing depository institutions at a 

faster rate than other areas. 

Mr. CURTIS. Very interesting. And the consumer is the loser in 

that scenario. So, okay. Thank you very much. I yield my time. 

Chairman CHABOT. Thank you. The gentleman yields back. The 

gentlelady from North Carolina, Ms. Adams, who is the ranking 

member of the Subcommittee on Investigations, Oversight and Regulations, you are recognized for 5 minutes. 

Ms. ADAMS. Thank you, Mr. Chairman, and thank you Ranking 

Member Vela ́zquez for hosting the hearing today and, thank you, 

Mr. Clements, for your testimony. Some complaints by respondents 

suggest that there is a real misunderstanding of how the regulations apply. How could such simple things like outreach from regulators reduce the compliance burden on small community leaders? 

Mr. CLEMENTS. I think one of the cases where we heard this 

was in the case of the TRID, the integrated disclosure where the 

institutions simply did not understand requirements that were 

being asked of them, and what types of transactions needed to be 

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reported. And what we found was that the guidance was not necessarily clear to them. And, again, what we are recommending to 

CFPB is to go back, evaluate that guidance, and prove it such that 

the institutions do understand what their obligations are. 

There was confusion, for example, there are various timeframes 

within the closing process, 3-days. Some of them thought, well, if 

there was a change, I need to go all the way back to the beginning. 

Well, no, not necessarily. But, again, there was confusion based 

upon unclear guidance from CFPB. 

Ms. ADAMS. Thank you. You found that participants in one 

focus group said that regulators should better communicate how 

the information that institutions submit contribute to law enforcement’s successes in preventing or prosecuting crimes. This is not 

the first time that we have heard such a recommendation in this 

committee. 

Could you elaborate on this particular issue and whether it was 

something that you detailed for the relevant agencies involved? 

Mr. CLEMENTS. Again, I think we did hear concerns about institutions not understanding why they were being asked to collect 

information, how that information was being used. We don’t have 

a recommendation in that area to rise to the level for this report, 

but we acknowledge that there needs to be a better understanding 

of what is happening, how those data are being used. 

Ms. ADAMS. Okay. So you don’t have any recommendations? 

Mr. CLEMENTS. We do not have a recommendation in this particular report related to communication. 

Ms. ADAMS. All right. Well, thank you very much. 

Mr. Chair, I yield back. 

Chairman CHABOT. The gentlelady yields back. Thank you very 

much. And the gentleman from Mississippi, Mr. Kelly, who is the 

chairman of the Subcommittee on Investigations, Oversight, and 

Regulations is recognized for 5 minutes. 

Mr. KELLY. Thank you, Mr. Chairman. And I guess my first 

question is, with the CFPB did—in your report or in your findings, 

did you find that the availability of smaller loans—I am from a 

very rural area of my State, and so we deal with a lot of small 

banks. 

And did you find that the availability of small loans to consumers has been reduced because of the—larger companies don’t 

take those small loans, it is easier to take big loans with lots of 

margin rather than to take those $40,000 or $50,000 home mortgages. Did you find that in any of the report or any of the things 

that did you? 

Mr. CLEMENTS. A number of the institutions mentioned that 

they had decreased lending, I can’t say whether it was for small 

loans or not, that I am unsure about. Again, we do have some work 

ongoing for the chairman, looking at the extent that regulatory 

burden is contributing to any type of change in small business 

lending. 

Mr. KELLY. Let me just—I would really hope that you would 

look at that because what happens is big companies like to—like 

to take that business, the lucrative, the stuff that is good, but they 

like to leave out the availability to lower people who can’t get it 

anywhere else. And when the small banks go away or the small 

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credit unions, those opportunities are no available because the big 

businesses don’t need that to stay in business. 

Second, I want to talk about small banks. I have seen the regulations, are I think are five 5-inch binders or something like that 

when printed out, and did your findings find that small banks or 

those smaller banks, even those under the $10 billion limit, they 

still have to go through and make sure that it doesn’t apply to 

them. Did you find that they were able to afford the staff, the professional staff, which would mean lawyers and accountants and all 

kind of other things, did you find that they had the ability, without 

raising costs, to be able to do those things for their customers and 

retain the customer base that they had? 

Mr. CLEMENTS. Again, with our interviews and focus groups, I 

think those were the concerns, that either increasing the staff, 

finding qualified staff, perhaps also doing outsourcing, those were 

concerns that were raised to us among some of the smaller community banks and credit unions. 

Mr. KELLY. I can tell you from being with my bankers and credit unions in my town, that many of them don’t have the overhead 

to employ extra lawyers or extra people who are just compliance 

agents, and so the net cost is is that that has to passed on in one 

of two ways. That either means the bank has to eat it as zero margin, which means no profit, or they have to pass that on to the 

smaller consumers, which makes loans more expensive. 

Over the review, did you find out—although it is supposed to 

save money and save the consumer, did you find out whether it 

costs a consumer more or less to do all these rules and regulations 

by smaller banks? 

Mr. CLEMENTS. That was beyond the scope of this report. 

Again, I would refer back to the work that we are doing for the 

chairman, it will come out in a few weeks or a few months, sorry, 

that is looking at issues such as regulatory burden’s impact on 

lending, impact on number of institutions, and also the profitability 

of institutions. 

Mr. KELLY. And the other thing, did you find any instances, because I have heard a couple, I think, from bankers where they felt 

like the CFPB was being punitive in just the charges that they levied, and even the amount and the ability to fight the rules and regulations and the interpretations by a huge agency, that it was easier just to surrender and pay the fine rather than to fight them with 

all the burdens, it would have cost them more to defend than it 

was to pay. Have you found that in any of the situations in which 

you investigated? 

Mr. CLEMENTS. I don’t recall anybody mentioning that. Again, 

the burdens really came down to the time and the complexity of 

doing the work, and then having the trained staff and the constant 

need to upgrade computer systems and response to changes, are 

the main things we heard. 

Mr. KELLY. Okay. And then my final question is, do you believe 

that these regulations impact rural communities in a more unfavorable way than they do the urban and larger communities? 

Mr. CLEMENTS. I don’t think we specifically looked at that, I 

guess what my comment there would be is, to the extent that 

smaller institutions are in more rural areas, and the regulations 

SBREP-219A with DISTILLER

12 

can have an outside affect on smaller institution, then that would 

be the case. 

Mr. KELLY. And you would agree to me that the regulations and 

rules, even if they don’t apply to a smaller bank because they are 

under the size, that there is still a cost to go through and make 

sure that it does not apply to that bank, you still have to do the 

same work almost, at least to make sure it doesn’t comply, which 

is not within the overhead of what you are used to doing. 

Is that true or false? 

Mr. CLEMENTS. They would have to do that at least once to understand whether they were subject to those rules or not. And, 

again, I think, going back to the CFPB example, if the guidance is 

clearer for them, it should be easier for them and there wouldn’t 

be as much guess work whether something needs to be reported or 

whether they are responsible for that. 

Mr. KELLY. Mr. Chairman, my time is expired. Thank you. 

Chairman CHABOT. Thank you very much. The gentleman’s 

time has expired. The gentleman from Iowa, Mr. King, is recognized for 5 minutes. 

Mr. KING. Thank you, Mr. Chairman. I appreciate this hearing. 

And, Mr. Clements, I appreciate your testimony. 

In listening to Mr. Kelly’s question about a 5-inch binder for 

mortgage lending, I remember going into a local bank in my district before Dodd-Frank and they showed me about a 5-inch binder 

for mortgage lending, and they said, that is a small local bank, and 

they still are in business, by the way, and they said, we had to hire 

one personnel to get up to speed on Sarbanes-Oxley. 

And now here we are with Dodd-Frank. On top of that, I have 

not had them present to me the stack of that binder because I suspect that it is electronically housed and harder to measurer these 

days. But I wanted to make that comment into the record, and 

then ask you, did you find in the examination that you did, a particular advantage for either of the credit unions or the community 

banks, one over the other, once you compared their regulatory burden? 

Mr. CLEMENTS. No, I don’t think that was the case. The concerns that were expressed to us in terms of some of the mortgage 

disclosures and the BSA/AML, the burdens tend to be pretty consistent. The concerns raised to us were pretty consistent—it was 

really a small institution, whether it was credit union or community bank issues. 

Mr. KING. If I were to ask them, they would probably say, we 

are facing the same regulations but not the same tax rate. And 

that is a different question, I understand. 

Mr. CLEMENTS. Yes. 

Mr. KING. But that also needs to be said. Do you agree with 

that? 

Mr. CLEMENTS. Those are beyond—we didn’t look at the—we 

didn’t look at the difference between those institutions. 

Mr. KING. When you are looking at these regulations, did you 

also evaluate the impact of them? Could you quantify what kind of 

inadvertent errors or what kind of customer victimization might 

have taken place had it not been for these regulations? 

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Mr. CLEMENTS. No, it is very difficult to hypothetically say 

what would happen. Again, in terms of the impact, I would go back 

to our work coming up for the chairman, that looks at whether regulations are affecting lending, whether they are affecting availability of credit in terms of having branches, and the profitability 

of the institutions. 

What we are trying to do is empirically test that and move beyond what we are sort of being told, and look at the data and get 

to some answers to that. 

Mr. KING. And I think that, you know, within those limitations, 

I don’t take issue with that. I would just say that the baseline 

would be laissez-faire, and then as we added regulations in each 

of these cycles, those prior to Sarbanes-Oxley, Sarbanes-Oxley, 

Dodd-Frank, each of those components, would you agree, that every 

time that regulations are promulgated and implemented that it 

does cost somebody, as Mr. Kelly said, to comply? 

Mr. CLEMENTS. Each additional activity is going to involve 

some level of burden. It could be a one-time change, it could be ongoing. It depends upon what is being asked. If it is a matter of altering a form, you might need to change your computer system, you 

might need to do some training, but that’s one time. If there is extensions of BSA/AML in terms of what you need to watch for, that 

could be ongoing. So it depends upon what is being asked. 

Mr. KING. Did you ever encounter a new regulation that once a 

company, a business was set up to comply with that regulation, 

that it actually got easier for them rather than another burden? 

Did it ever take some load off of business? 

Mr. CLEMENTS. We didn’t—I don’t think we heard that. 

Mr. KING. I have not encountered that either. In a way I am 

just setting this up because I thought I remembered it verbatim, 

but I looked it up. So I want to—looking back at James Madison’s 

Federalist 62, and it is just important that we think about these 

things as the years of our civilization go on and the stack of regulations go up. 

He wrote then in Federalist 62, James Madison. It will be of little avail to the people that the laws are made by men of their own 

choice if the laws be so voluminous that they cannot be read or so 

incoherent that they could not be understood. And just those words 

we should remember as we go forward growing this government, 

and what you have offered here is always, I think, an objective look 

at what we have. 

And I would pose to this committee that I put an amendment on 

the REINS Act here, I guess it would be last summer, the REINS 

Act. Are you familiar with that, Mr. Clements? 

Mr. CLEMENTS. No, I am not. 

Mr. KING. Just shortly, it is an act that was put together by a 

gentleman from—Jeffrey Davis from Kentucky—years ago, that requires that any regulation that is promulgated has to have an affirmative vote of Congress if it has more than $100 million in impact on our economy. I put an amendment on there that required 

all the existing regulations, 10 percent a year be served up to Congress asking for an affirmative vote before they can continue as 

having the force and effect of law. 

SBREP-219A with DISTILLER

14 

And so I would just use this time to thank you for your testimony, but also make the case that I think we need to go deeper 

into this regulation and to find more ways to reduce regulation. 

And the best place that we can get these answers, aside from this 

GAO report, is to the people that are subject to the regulations and 

looking at their recommendation. And that is why I think that language and that amendment would be so important. 

Thank you, Mr. Clements. I appreciate your testimony. Thank 

you, Mr. Chairman. I yield back. 

Chairman CHABOT. Thank you. The gentleman yields back. And 

the chair appreciates the gentleman’s reference to the Federalist 

Papers in this hearing room today. We haven’t heard that in a 

while, and we appreciate it. 

The gentleman from Florida, Mr. Lawson, who is the ranking 

member of the Subcommittee on Health and Technology, is recognized for 5 minutes. 

Mr. LAWSON. Thank you, Mr. Chairman. Mr. Clements, welcome to the committee. 

I know you might have responded to this earlier. I haven’t been 

up in Congress long, but ever since I have got up here in Congress, 

I had some of the community bankers tell me about Dodd-Frank. 

So the question I had is, we have heard on many occasions that 

the Dodd-Frank Act is the reason for many of the ill things that 

are facing our community banks. Can you explain how the act has 

had the opposite affect in reducing costs and increasing transparency? 

And I hate to have you to go back over it again, but I was caught 

right in the middle and didn’t know, really, what to do. And I am 

trying to learn more and more about it as time go on, because community bankers was telling me back home all of the tremendous 

amount of paperwork and all of the stuff they had to do, which 

would distract them from what they are doing. 

So I just said if I don’t get but one question in, I need to get that 

one in. 

Mr. CLEMENTS. In terms of the transparency, one of the things 

I would cite on the consumer side is more clarity on closing. 

It is easier for the consumer to get their closing document in one 

place. It is more plain English language for them. On the institution side, I believe Dodd-Frank made changes to the insurance rate 

for Federal Deposit Insurance, which provided some benefits to 

smaller institutions. Those would be two. 

Most of our work looked at what were the burdens facing institutions. So I think similar to what you are hearing, what we sort of 

heard were the burden side. 

Mr. LAWSON. Okay. And I looked in the staff report, which I 

was really concerned, and you might have already commented on 

that, too, and they were saying the majority claimed that DoddFrank is harming small financial institutions and lending as to the 

economy; however, the facts telling a different story. They say that, 

you know, banks, credit unions and stuff are making profits, and 

so forth. 

So the word that we had coming from the commercial side, it 

doesn’t seem to be panning out of what the staff did research on. 

That it is just the opposite. 

SBREP-219A with DISTILLER

15 

Could you tell me what is happening, the reason why staff would 

do research and say that everything is booming, they are making 

more profits, they already make more loans and everything, and it 

is not commensurate with what some of the institutions are saying. 

If it makes any sense. 

Mr. CLEMENTS. I don’t think we have done work on that. 

Mr. LAWSON. You haven’t done any work to determine how 

Dodd-Frank might be hurting the commercial banking interest? 

Mr. CLEMENTS. Well, the burdens we cited, there were three 

burdens. 

Mr. LAWSON. Right. 

Mr. CLEMENTS. As I mentioned, two burdens on the DoddFrank side. One would be the Home Mortgage Disclosure Act and 

some of the extra requirements there, and then also the mortgage 

disclosure and closing requirements were the two burdens that the 

community banks and credit unions that we interviewed, the focus 

groups, had mentioned. 

And, again, a lot of that was in terms of the time to do the work, 

the paperwork requirements, the complexity of it, which could lead 

to new training of staff, changes in computer systems. Those were 

the burdens that were cited. 

Mr. LAWSON. Okay. And then the $10 million question: Should 

Dodd-Frank be repealed all together? 

Mr. CLEMENTS. That is beyond the scope of what we did. It is 

really a policy question that I would defer to the Congress to make. 

We are providing you with information ultimately. 

Mr. LAWSON. Okay. And I guess even though there have been 

a vote already, you know, but I was just trying to—if it was really 

helping the consumer and it was a clash then between the consumer groups and the financial institutions. You know, but I was 

trying to find out where—maybe eventually I can ask the chairman—where did it hurt? I still haven’t been able to ascertain how 

did it hurt the financial institutions other than what you stated 

earlier. 

And that is the only thing, because—well, I will tell you what, 

Mr. Chairman, then I yield back. 

Chairman CHABOT. Would the gentleman yield for—you have 

got a few minutes—or 30 seconds left? 

Mr. LAWSON. Yeah. 

Chairman CHABOT. I think what we hear a lot is that even 

though they weren’t directly—as far as the legislation goes—it 

wasn’t suppose to affect them, as a practical matter, it does. Because many of them, there are best practices, they are concerned 

with how they are going to be, you know, what the regulation is 

going to be and the supervisory capacity. If there is basically a 

trickle-down effect on all the small guys, We better do this or we 

are going to get in some trouble. 

So all the smaller community banks and credit unions are complying with it even if, you know, technically, they may not have to, 

they virtually all do. That is my understanding. 

And you could talk to, probably, the folks in your district, hear 

from them directly, but that is what we have heard. 

Mr. LAWSON. Okay. 

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16 

Chairman CHABOT. Thank you very much. I appreciate the gentleman for yielding. 

The gentleman’s time has expired. 

The gentleman from Missouri, Mr. Luetkemeyer, who is the vice 

chairman of this committee is recognized for 5 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. And interesting discussion. You know, to answer some of the previous questions, I served as the chairman of the Financial Institutions Committee and the Financial Services Committee, so this is right 

square in the middle of my wheelhouse. 

And I can tell you that Dodd-Frank free checking was—75 percent of the banks had free checking. Now, it is down to 37 percent. 

Small loans to small businesses have dropped 15 percent as a result. This is not my numbers. These are Fed studies—or banking 

groups that have done these studies. 

Small banks, many of them no longer make home loans. They 

have got completely out of the business. So these costs are driving 

banks out of business, credit unions out of business. We are losing 

one institution a day in this country because of the rules, regulations, and costs affiliated to them that Mr. Clements has identified. 

If I have some extra time here, I can go into a lot more detail, 

but what it does, and the bottom line is, it costs access to credit 

for consumers, and the credit they do have is more expensive. And 

that has been documented. 

Mr. Clements, with regards to the EGRPRA, which is the requirement that all of the different agencies do a review of all their 

rules and regulations every 10 years. There is on the floor today, 

or will be shortly—well, we had the rule a while ago, and we will 

have a vote probably next week on the bill that actually changes 

it from 10 years down to 7. And it brings into this the CFPB and 

the credit union regulators. 

What was your finding with regards to that. I know that there 

is some information in here, but give me your impression of how 

the different agencies are complying with that rule. 

Mr. CLEMENTS. Sure. So EGRPRA applies to OCC, the Federal 

Reserve. 

Mr. LUETKEMEYER. Right. 

Mr. CLEMENTS. And FDIC. It does not apply to CFPB—— 

Mr. LUETKEMEYER. Right. 

Mr. CLEMENTS.—which is one of the limitations we had noted 

in the report. We talked about the burdens we had heard about, 

2 of 3 were related to CFPB. Two other weaknesses that we had 

found within the EGRPRA analysis: One was a lack of quantitative 

data. So to some extent, the regulators looked at the comments 

they received. Either agreed with them or disagreed with them and 

moved on. But what we are suggesting, and we have recommended, 

is that they do more of a quantitative analysis. And again, we are 

basing the criteria on executive orders and OMB guidance. 

And the other thing we noticed was a lack of consideration of the 

cumulative effect of regulation. And we refer to that in our report 

in terms of bodies of regulation. 

Mr. LUETKEMEYER. Were they looking at the cost benefit analysis of those rules and regulations? 

Mr. CLEMENTS. I am sorry? 

SBREP-219A with DISTILLER

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Mr. LUETKEMEYER. Were they looking at the cost benefit analysis of those rules and regulations as they were putting them on 

the books? Were you reviewing that to see if they were doing that? 

Mr. CLEMENTS. I would have to get back with you on that. Off 

the top of my head, I don’t know that. 

Mr. LUETKEMEYER. Okay. As you were going through this, I 

know one of the things you were looking at is the HMDA, that is, 

Home Mortgage Disclosure Act. And, you know, Mr. Kelly was talking about that and a couple other folks with regards to the size of 

the documentation that is now required whenever you close a home 

loan, and is actually, you know, driving a lot of the home loan lenders out of business. 

Did you look at the rules and regulations themselves to see how 

burdensome they were, how duplicative they were, how superfluous 

they were? What was the extent of your analysis of HMDA? 

Mr. CLEMENTS. For the most part, what we did is relied on the 

interviews and focus groups telling us what the concerns were. We 

did look at it, but we did not make an independent evaluation of, 

was that correct, was the level of regulation correct? 

Mr. LUETKEMEYER. So what analysis did you come up with 

with regards to that then? 

Mr. CLEMENTS. With the concerns that the institutions made 

to us were it was time consuming to do it, it is confusing to identify 

which transaction you might need to record. There are concerns 

about the error submission. So if there where was an error, and it 

hit some threshold, that the entire dataset needed to be resubmitted. Those are some of the concerns. 

And then there was the changes that had been implemented in 

terms of additional transactions that had to be reported such as 

lines of credit, and then also the addition of a fairly significant 

number of data fields. 

Mr. LUETKEMEYER. Did you look at the way that these HMDA 

rules and regulations are enforced? Did you look at the punitive 

nature by which the regulators are enforcing the rules on this particular act? 

Mr. CLEMENTS. No. Again, in terms of that, in respect to that 

question, we relied on what the community banks and credit 

unions were telling us. 

Mr. LUETKEMEYER. So how can you adequately analyze 

whether these rules and regulations are appropriate, whether 

somebody is doing a good job of promulgating and enforcing if you 

don’t look at the ability to—if these folks are not doing a cost benefit analysis? If you are not looking at how they are enforcing 

them, either by whatever tactic they are using to force the bank to 

change what they have been doing, or if they are being so punitive 

as to fine them? I mean, none of that was part of your review or 

your study? 

Mr. CLEMENTS. In terms of what we did, we have heard that 

institutions have mentioned they were being held to standards that 

they were not required to be. What we did is we looked at 28 examination work papers. Twenty, I believe, from community banks, and 

8 from credit unions. We did not find an instance where they were 

being held to standards that they were not required to be held to. 

SBREP-219A with DISTILLER

18 

I am not implying that it doesn’t happen. I am simply saying of 

those 28, we did not find evidence that they were being held to a 

different standard or something they were not required to be held 

to. 

Chairman CHABOT. The gentleman’s time has expired. 

The gentleman from Pennsylvania, Mr. Evans, who is the ranking member of Subcommittee on Economic Growth Tax and Capital 

Access, recognized for 5 minutes. 

Mr. EVANS. I am going to shock you, Mr. Chairman, and yield 

back the balance of my time. 

Chairman CHABOT. Oh, the gentleman yields back. I am 

shocked, pleasantly shocked. 

We appreciate the gentleman’s testimony here today. I just wanted to make sure that the gentlelady didn’t want to go to a second 

round. And we will follow up on this. We are waiting for the—you 

said it would be a couple months before we get the follow up on 

this? Okay. 

So we appreciate your time. The committee will use today’s conversation as we continue to examine all regulations impacting our 

Nation’s smallest firms. And I would ask unanimous consent that 

members have 5 legislative days to submit statements and supporting materials for the record. 

Without objection, so ordered. If there is no further business 

coming before the committee, we are adjourned. Thank you very 

much. 

[Whereupon, at 3:13 p.m., the committee was adjourned.] 

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A P P E N D I X 

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GAO 

For Release on Delivery 

Expected at 2:00 p.m, ET 

Tuesday, February 27, 2018 

GA0-18-404T 

United States Government Accountability Office 

Testimony 

Before the Committee on Small 

Business, House of Representatives 

ANALYZING 

REGULATORY BURDEN 

Policies and Analyses 

under the Regulatory 

Flexibility Act and 

Retrospective Reviews 

Could Be Improved 

Statement of Michael Clements, Director, Financial 

Markets and Community Investment 
20 

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ANALYZING REGULATORY BURDEN 

Policies and Analyses under the Regulatory 

Flexibility Act and Retrospective Reviews Could Be 

Improved 

What GAO Found 

More than 60 smaller depository institutions told GAO that regulations for 

reporting mortgage characteristics; reviewing transactions for potentially illicit 

activity; and disclosing fees, conditions, and mortgage terms to consumers were 

the most burdensome. Institution representatives said these regulations were 

time-consuming and costly because the requirements were complex and 

required reporting that had to be reviewed for accuracy. Financial regulators and 

others noted these regulations provide various benefits as well, such as 

preventing lending discrimination or use of the banking system for illicit activity. 

The Regulatory Flexibility Act (RFA) requires federal agencies to analyze the 

impact of their regulations on small entities, GAO found several weaknesses with 

the analyses of six financial regulators-Board of Governors of the Federal 

Reserve System (Federal Reserve), Office of the Comptroller of the Currency 

(OCC), Federal Deposit Insurance Corporation (FDIC), Securities and Exchange 

Commission, Commodity Futures Trading Commission, and Consumer Financial 

Protection Bureau (CFPB)-that could undermine the goal of RFA and limit 

transparency and public accountability. For example, some analyses lacked 

important information, such as data sources, methodologies, and consideration 

of broad economic impacts, Evaluations of potential economic effects and 

alternative regulatory approaches also were limited. Finally, regulators generally 

lacked comprehensive policies and procedures for RFA implementation. By not 

developing such policies and procedures, regulators' ability to consistently and 

effectively meet RFA objectives may be limited. 

The Economic Growth and Regulatory Paperwork Reduction Act of 1996 

(EGRPRA) and RFA require regulators to conduct retrospective reviews, and 

GAO found weaknesses. 

EGRPRA. GAO found limitations in activities regulators undertook for 

retrospective reviews under EGRPRA CFPB, which has regulatory authority 

for a number of consumer financial laws, was not included in the most recent 

review process. Moreover, as part of their EGRPRA reviews, the Federal 

Reserve, OCC, FDIC, and the National Credit Union Administration had not 

conducted and reported analyses of quantitative data nor had these 

regulators assessed the cumulative effect of regulations. Addressing these 

limitations in the EGRPRA processes likely would make the analyses they 

perform more transparent, and potentially result in additional burden 

reduction. 

RFA. The issues GAO identified with RFA retrospective reviews (section 610 

reviews) included some regulators using the EGRPRA process to fulfill RFA 

requirements and gaps or weaknesses in analysis and documentation. But 

EGRPRA requirements do not fully align with RFA's, and it is not clear if the 

EGRPRA process satisfies the requirements of section 610. Also, regulators 

generally have not developed policies and procedures for section 610 

reviews. By meeting section 610 review requirements, regulators will be in a 

better position to minimize any significant economic impact of a rule on a 

substantial number of small entities, as the statute seeks to ensure. 

-------------United States Government Accountability Office 
21 

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Chairman Chabot, Ranking Member Velazquez, and Members of the 

Committee: 

I am pleased to be here today to discuss our recent work on regulatory 

burden for small entities (such as community banks and credit unions) 

and efforts by financial regulators to reduce such burden when 

developing and retrospectively assessing regulations.' Federal financial 

regulators normally must comply with various rulemaking and review 

requirements, including those in the Regulatory Flexibility Act (RFA) and 

the Economic Growth and Regulatory Paperwork Reduction Act of 1996 

(EGRPRA). These statutes require analyses relating to regulatory burden, 

small entities, or both: 

Analyses during rulemaking. RFA requires federal agencies, 

including financial regulators, to provide an assessment-known as a 

regulatory flexibility analysis-of a rule's potential impact on small 

entities and consider alternatives that may minimize any significant 

economic impact on small entities2 Alternatively, agencies may certify 

that a rule would not have a significant economic impact on a 

substantial number of small entities instead of performing a regulatory 

flexibility analysis. 3 

Retrospective reviews. (1) EGRPRA directs three depository 

institution regulators-the Board of Governors of the Federal Reserve 

System (Federal Reserve), the Federal Deposit Insurance 

Corporation (FDIC), and the Office of the Comptroller of the Currency 

(OCC)-to review regulations at least every 10 years and identify 

areas that are outdated, unnecessary, or unduly burdensome on 

1GAO, Financial Services Regulations: Procedures for Reviews under Regulatory 

Flexibility Act Need to Be Enhanced, GA0-18-256 (Washington. D.C .. Jan. 30, 2018): and 

GAO, Community Banks and Credit Unions: Regulators Could Take Additional Steps to 

Address Compliance Burdens, GA0-18-213 (Washington, D.C.: Feb.13, 2018). Our 

January 2018 report focused on the Board of Governors of the Federal Reserve System 

(Federal Reserve), Consumer Financial Protection Bureau {CFPB), Commodity Futures 

Trading Commission, Federal Deposit Insurance Corporation (FDIC), Office of the 

Comptroller of the Currency (OCC), and the Securities and Exchange Commission. Our 

February 2018 report focused on CFPB, Federal Reserve, FDIC, National Credit Union 

Administration, and OCC. Other financial regulators include the Farm Credit 

Administration and the Federal Housing Finance Agency. 

2Pub. L. No. 96-354, 94 Stat 1164 (1980) (codified as amended at 5 U.S. C.§§ 601-612). 

'see 5 U.S. C.§ 605(b). RFA generally applies only to rules for which an agency publishes 

a notice of proposed rulemaking. RFA does not mandate any particular outcome in 

rulemaking. 

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insured depository institutions. (2) RFA requires agencies to review 

within 10 years of publication those rules assessed as having a 

significant economic impact on a substantial number of small entities. 

Agencies are to determine if rules should be continued without 

change, amended, or rescinded to minimize such impacts. 

My remarks today are based on our January 2018 report on RFA 

implementation and our February 2018 report that includes an analysis of 

the EGRPRA review process. My statement will focus on ( 1) regulations 

community banks and credit unions regarded as most burdensome and 

why; (2) the extent to which financial regulators performed analyses 

required by RFA and established policies and procedures for complying 

with RFA requirements; (3) efforts to reduce regulatory burden on 

community banks and credit unions during EGRPRA reviews; and (4) 

retrospective reviews required by RFA. 

For the January 2018 report, our work included a review of the RFA 

section of the Federal Register notices and financial regulators' internal 

workpapers for all RFA certifications made in the final rule (66) and all 

rules for which agencies performed an initial regulatory flexibility analysis 

in the proposed rule and a final regulatory flexibility analysis in the final 

rule (39) in calendar years 2015 and 2016.' We also reviewed internal 

agency policies, procedures, and guidance for RFA analyses and 

certifications and documentation of retrospective reviews required by RFA 

(section 610 reviews) performed from calendar years 2006 through 2016. 

For the February 2018 report, our work included reviewing the EGRPRA 

report the Federal Reserve, FDIC, OCC, and the National Credit Union 

Administration (NCUA) issued in 2017-' To identify regulations that 

community banks and credit unions viewed as most burdensome, we 

obtained opinions from a non-probability selection of more than 60 

4

Certifications occur when the head of the agency certifies in the Federal Register that the 

rule would not have a significant economic impact on a substantial number of small 

entities. For any regulator that had fewer than three rules for whlch they performed an 

initial regulatory flexibility analysis in the proposed rule and a final regulatory flexibility 

analysis in the final rule, we selected all rules published in the prior year meeting these 

criteria until we reached three rules or a publication date of January 2013. 

5NCUA is not required to participate in EGRPRA reviews (because EGRPRA did not 

include the agency in the list of agencies that must conduct the reviews), but has been 

participating voluntarily. NCUA's assessment of its regulations appears in separate 

sections of the reports to Congress for the 2007 and 2017 reviews. 

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Background 

Regulatory Flexibility Act 

community banks and credit unions. 6 We also reviewed comment letters 

received and transcripts of public meetings held as part of the review. We 

compared the requirements of Executive Orders 12866, 13563, and 

13610 with actions regulators took implementing reviews. Detailed 

information on our scope and methodology can be found in our January 

and February 2018 reports. 

We conducted the work on which this statement is based in accordance 

with generally accepted government auditing standards. Those standards 

require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based on 

our audit objectives. 

RFA requires that federal agencies, including financial regulators, 

engaged in substantive rulemaking analyze the impact of proposed and 

final regulations on small entities. If a rule might have a significant 

economic impact on a substantial number of small entities, regulators are 

to consider any significant regulatory alternatives that will achieve 

statutory objectives while minimizing any significant economic impact on 

small entities. RFA defines "small entity" to include small businesses, 

small governmental jurisdictions, and certain small not-for-profit 

organizations. RFA does not seek preferential treatment for small entities. 

Rather, it requires agencies to use an analytical process that includes 

identifying barriers to small business competitiveness and seeks a level 

playing field for small entities. 

For each draft rule that requires a notice of proposed rulemaking, RFA 

requires regulators to prepare an initial regulatory flexibility analysis that 

contains an assessment of the rule's potential impact on small entities 

SWe selected a non-generalizable sample of 10 community banks and 7 credit unions to 

include Institutions with certain asset levels, loan activity characteristics, and geographic 

locations. After the interviews demonstrated that considerable consensus existed among 

institutions about the most burdensome regulations, we conducted six focus groups with 

46 banks and credit unions to confirm our selection of regulations perceived to be the 

most burdensome identified through interviews and to identify the characteristics of the 

regulations that made them burdensome. 

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and describes any significant alternatives to reduce the rule's significant 

economic impact on small entities while achieving statutory objectives. 

Following a public comment period, RFA requires regulators to conduct a 

similar analysis when they promulgate the final rule. If the head of the 

agency certifies in the Federal Register that the rule would not have a 

significant economic impact on a substantial number of small entities, 

agencies do not have to conduct the initial or final analysisJ Certifications 

must include a statement providing a factual basis for the certification. 

Section 610 of RFA requires agencies to review, within 10 years of a final 

rule's publication, those rules assessed as having a significant economic 

impact on a substantial number of small entities to determine if they 

should be continued without change, amended, or rescinded (consistent 

with statutory objectives) to minimize any significant economic impact on 

small entities.' 

RFA designates certain responsibilities to the Small Business 

Administration's Chief Counsel for Advocacy, including monitoring agency 

compliance with RFA and reviewing federal rules for their impact on small 

businesses. 9 Executive Order 13272 requires the Small Business 

Administration's Office of Advocacy (Office of Advocacy) to provide 

notifications and training about RFA requirements. 10 The Office of 

Advocacy published guidance on RFA compliance in 2003 (updated in 

2012 and August 2017)-" For example, the guidance details components 

regulators should include in their certifications to obtain meaningful public 

comments, such as a description and estimate of the economic impact. 

u.s. c.§ 605(b). 

85 U.S. C.§ 610(a). 

'See 5 u.s. c.§ 612. 

10Exec. Order No. 13272, Proper Consideration of Small Entities in Agency Rulemaking, 

67 Fed. Reg. 53461 (Aug. 16, 2002). 

11Smal! Business Administration, Office of Advocacy, A Guide for Government Agencies· 

How to Comply with the Regulatory Flexibility Act (Washington, D.C.: May 2012). We 

generally used the 2012 guidance as criteria because the regulators' rules we reviewed 

were issued before 2017. 

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Economic Growth and 

Regulatory Paperwork 

Reduction Act of 1996 

Community Banks 

and Credit Unions 

Saw Regulations on 

Mortgage Reporting 

and Disclosures and 

Anti-Money 

Laundering as Most 

Burdensome 

Under EGRPRA, the Federal Reserve, FDIC, and OCC are to categorize 

their regulations by type and provide notice and solicit public comment on 

all regulations for which they have regulatory authority to identify areas of 

the regulations that are outdated, unnecessary, or unduly burdensome. 

The act also includes requirements on how the regulators should conduct 

the reviews, including reporting results to Congress. 

The first EGRPRA review was completed in 2007. The second began in 

2014, and the report summarizing its results was submitted to Congress 

in March 2017. 12 While NCUA is not required to participate in the 

EGRPRA review, NCUA has been participating voluntarily. NCUA's 

assessment of its regulations appears in separate sections of the 2007 

and 2017 reports to Congress. 

Community bank and credit union representatives we interviewed 

identified three areas of regulations as most burdensome to their 

institutions: 

1. Data reporting requirements related to loan applicants and loan terms 

under the Home Mortgage Disclosure Act of 1975 (HMDA). 

2. Transaction reporting and customer due diligence requirements as 

part of the Bank Secrecy Act and related anti-money laundering 

regulations (collectively, BSA/AML). 

3. Disclosures of mortgage loan fees and terms to consumers under the 

Truth in Lending Act and the Real Estate Settlement Procedures Act 

of 19741ntegrated Disclosure (TRIO) regulation." 

Institution representatives told us they found these regulations were timeconsuming and costly to comply with because the requirements were 

12See Joint Report to Congress: Economic Growth and Regulatory Paperwork Reduction 

Act. 82 Fed. Reg. 15900 (Mar. 30, 2017). 

13The Dodd~Frank Wall Street Reform and Consumer Protection Act directed CFPB to 

issue new requirements to integrate mortgage loan disclosures that previously were 

separately required by the Truth in Lendmg Act (TILA) and the Real Estate Settlement 

Procedures Act of 1974 (RESPA), and their implementing regulations, Regulation Z and 

X, respectively. See Pub. L. No. 111-203. § 1032(D, § 1098, § 1100A, 124 Stat. 1376. 

2007, 2103, 2107 (2010) (codified at 12 U.S.C. § 5532{0. § 2603, 15 U.S.C. § 1604(b)). 

The resulting TILA-RESPA Integrated Disclosure is also known as TRIO. 

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complex, required individual reports that had to be reviewed for accuracy, 

or mandated actions within specific timeframes. For example, among the 

28 community banks and credit unions whose representatives 

commented on HMDA-required reporting in our focus groups, 61 percent 

noted having to conduct additional HMDA-related training. 

Representatives in most of our focus groups said that they had to 

purchase or upgrade software systems to comply with BSNAML 

requirements, which can be expensive, and some representatives said 

they have to hire third parties to comply with BSA/AML regulations. 

Representatives in all of our focus groups and many of our interviews 

said that the TRIO regulations have increased the time their staff spend 

on compliance, increased the cost of providing mortgage lending 

services, and delayed the completion of mortgages for customers. 

However, federal regulators and consumer advocacy groups' 

representatives said that benefits from these regulations were significant, 

such as collecting HMOA data that has helped address discriminatory 

practices. Staff from Financial Crimes Enforcement Network (FinCEN), 

which has delegated authority from the Secretary of the Treasury to 

implement anti-money laundering regulations, told us that the transaction 

reporting required and due-diligence programs required in BSA/AML rules 

are critical to safeguarding the U.S. financial sector from illicit activity, 

including illegal narcotic trafficking proceeds and terrorist financing 

activities. 

The Consumer Financial Protection Bureau (CFPB) has taken steps to 

reduce the burdens for community banks and credit unions associated 

with the HMOA and TRID regulations. Also, FinCEN has developed 

several efforts in reducing the reporting requirements from BSA/AML 

regulations to reduce regulatory burden, such as a continuous evaluation 

process to look for ways to reduce burden associated with BSA reporting 

requirements, soliciting feedback through an interagency working group 

about potential burden, and expanding the ability of institutions to seek a 

Currency Transaction Report filing exemption when possible. 

To reduce institutions' misunderstanding of the TRIO regulation, CFPB 

has published a Small Entity Compliance Guide and a Guide to the Loan 

Estimate and Closing Disclosure Forms. However, CFPB officials 

acknowledged that some community banks and credit unions may be 

misinterpreting the regulation's requirements. We found that CFPB had 

not directly assessed the effectiveness of the guidance it provided to 

community banks and credit unions. Until the guidance is assessed for 

effectiveness, CFPB may not be able to respond to the risk that small 

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Financial Regulators 

Consider Burden 

When Developing 

Regulations, but Their 

Reviews under RFA 

Need to Be Enhanced 

Certifications Were Not 

Always Consistent with 

Office of Advocacy 

Guidance and Other Best 

Practices 

institutions have implemented TRIO incorrectly. We recommended that 

CFPB should assess the effectiveness of TRIO guidance to determine the 

extent to which TRIO's requirements are accurately understood and take 

steps to address any issues as necessary. CFPB agreed with the 

recommendations and intends to solicit public input on how it can improve 

its regulatory guidance and implementation support. 

One of the ways that financial regulators attempt to address the burden of 

regulations is during the rulemaking process. For example, staff from the 

Federal Reserve, FDIC, and OCC all noted that when promulgating rules, 

their staff seek input from institutions and others throughout the process 

to design requirements that achieve the goals of the regulation at the 

most reasonable cost and effort for regulated entities. Once a rule has 

been drafted, the regulators publish it in the Federal Register for public 

comment. The staff noted that regulators often make revisions in 

response to the comments received to try to reduce compliance burdens 

in the final regulation. Under RFA, financial regulators conduct analyses 

during the rulemaking process that are intended to minimize economic 

impact on small entities. However, we found several weaknesses with the 

RFA analyses, policies, and procedures of six financial regulatorsFederal Reserve, OCC, FDIC, Securities and Exchange Commission 

(SEC), Commodity Futures Trading Commission (CFTC), and CFPBthat could undermine the goal of RFA and limit transparency and public 

accountability. 

In reviewing 66 certifications by the six regulators, we found that in most 

(43 of 66) the regulators provided a factual basis and concluded the rule 

would not apply to small entities or have any economic impact. 14 

According to the regulators, these rules included activities in which small 

entities do not engage, pertained to the regulator's internal processes, did 

not create new regulatory requirements, or eliminated duplicative rules. 

Additionally, regulators concluded in 5 of 66 certifications that the rule 

would have a beneficial impact on small entities. 

Other certifications lacked information that would help explain the 

determination. Specifically, in 18 of 66 certifications, the regulators found 

14Five of six regulators had rules in which they concluded the rule would not apply to small 

entities or have any economic impact. We reviewed one certification by the Federal 

Reserve, which found that the rule would have some economic impact on small entities. 

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the rule would have some economic impact on small entities, but 

concluded the impact would not be significant for a substantial number of 

small entities. 15 But the factual basis provided for most of the 18 

certifications (across all six regulators) lacked key components the Office 

of Advocacy and the Office of Management and Budget (OMB) 

recommended for understanding the analyses regulators used to support 

their conclusion." Examples include the following: 

Data sources or methodologies. In 15 of 18 certifications regulators 

did not describe or did not fully describe their methodology or data 

sources for their conclusions. 

Broader economic impacts. The certifications generally did not 

address broader economic impacts such as cumulative effects, 

competitive disadvantage, or disproportionality of effects and focused 

most of the analysis on specific compliance costs. 

Defining key criteria. Regulators generally did not define the criteria 

they used for "substantial number" and "significant economic impact" 

in their certifications. 

Limited information. Three certifications included none of the Office 

of Advocacy's suggested components, such as the number of affected 

entities, the size of the economic impacts, or the justification for the 

certification. 

While many of the regulators' certification determinations incorporated 

key components, the weaknesses and inconsistencies we found could 

15Regulators may have determined that rules in this group would affect a few small 

entities, but they conducted additional analysis to determine the rules would not have a 

significant economic impact on a substantial number of small entities 

16 See Office of Management and Budget, Circular A-4: Regulatory Analysis {Washington, 

D.C .. Sept. 17, 2003}. OMB issued Circular A-4 to provide guidance on analysis required 

by Executive Order 12866 (now supplemented by Executive Order 13563}. As 

independent regulatory agencies that are not required to follow the economic analysis 

requirements of Executive Order 12866, the financial regulators also are not required to 

follow OMB Circular A·4. We used Circular A-4 as an example of best practices for 

agencies to follow when conducting their regulatory analyses and therefore used it as 

criterion for the January 2018 report. Circular A4 replaces OMS's "best practices" 

guidance issued in 1996 and 2000. See Exec. Order No. 13579, Regulation and 

Independent Regulatory Agencies, 76 Fed. Reg. 41587 (July 14, 2011): Exec. Order No. 

13771, Reducing Regulation and Controlling Regulatory Costs, 82 Fed. Reg. 9339 (Feb. 

3, 2017): and Exec. Order No. 13777, Enforcing the Regulatory Reform Agenda, 82 Fed. 

Reg. 12,285 (Mar. 1, 2017). 

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Many RFA-Required 

Analyses Had 

Weaknesses 

undermine the act's goal. For example, incomplete disclosure of 

methodology and data sources could limit the public and affected entities' 

ability to offer informed comments in response to regulators' certification 

assessments in proposed rules. 17 

Our review of recent rules in which the agency performed an initial and 

final regulatory flexibility analysis found that the evaluation of key 

components-potential economic effects and alternative regulatory 

approaches-was limited in many cases, although the extent varied by 

regulator. RFA requires initial and final analyses to include information to 

assist the regulator, regulated entities, and the public in evaluating the 

potential impact of rules on small entities. The most important 

components include the assessment of a rule's potential economic effects 

on small entities-such as compliance costs-and the identification and 

evaluation of alternative regulatory approaches that may minimize 

significant economic effects while achieving statutory objectives. 

The evaluations for some rules of economic impact on small entities 

did not describe or estimate compliance costs." Analyses we 

reviewed also generally did not evaluate differences in estimated 

compliance costs for identified alternatives. 

Five of six regulators did not consistently disclose the data sources or 

methodologies used for estimating the number of subject small 

entities or compliance costs. 19 

By not fully assessing potential economic effects or alternatives, 

regulators may not be fully realizing the opportunity to minimize 

unnecessary burdens on small entities, which is the primary goal of RFA. 

17The regulators' guidance for complying with RFA generally does not include policies and 

procedures for helping to ensure consistent and complete RFA analyses_ We discuss the 

regulators' guidance later in this statement. 

18RFA states that in complying with the initial and final regulatory flexibility analyses 

provisions, an agency may provide either a quantifiable or numerical description of the 

effects of a proposed rule or alternatives to the proposed rule, or more general descriptive 

statements if quantification is not practicable or reliable. 5 U.S.C. § 607. According to 

Office of Advocacy guidance, RFA requires agencies to develop a quantitative analysis of 

the effects of a rule and its alternatives using available data. The guidance notes that 

providing general descriptive statements of a rule's effects would be a last resort when 

completing a significant quantitative analysis is not practicable. 

19Detailed information on our evaluation of each agency's regulatory flexibility analyses 

can be found in our January 2018 report, GA0-18~256. 

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Regulators Lacked 

Comprehensive Policies 

and Procedures for RFA 

Analyses 

Five of six regulators have written guidelines that restate statutory 

requirements for certifications and preparing regulatory flexibility analyses 

and provide some additional guidance for staff. However, the regulators 

generally have not developed comprehensive policies and procedures to 

assist staff in complying with RFA, which may contribute to the 

weaknesses we identified in some certifications and regulatory flexibility 

analyses. Federal internal control standards state the importance for 

agency management to establish through policies and procedures the 

actions needed to achieve objectives. 20 

The extent to which regulators' guidance included policies and 

procedures varied. But the guidance generally did not include procedures 

for evaluating a rule's potential economic impact on small entities; 

identifying and assessing regulatory alternatives that could minimize 

economic impact on small entities; disclosing methodology and data 

sources; and creating and maintaining documentation that supports 

findings. 

By developing policies and procedures that provide specific direction to 

rulemaking staff, the regulators could better ensure consistent and 

complete implementation of RFA requirements and more fully realize the 

RFA goal of appropriately considering and minimizing impacts on small 

entities during and after agency rulemakings. 

In our January 2018 report, we recommended that each of the regulators 

develop and implement specific policies and procedures for consistently 

complying with RFA requirements and related guidance for conducting 

RFA analyses. Five agencies generally agreed with this recommendation 

and one did not provide written comments. 

20GAO, Standards for Internal Control in the Federal Government, GA0~14-704G 

(Washington, D.C .. September 2014). 

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EGRPRA Reviews 

Resulted in Some 

Reduction in Burden, 

but the Reviews Have 

Limitations 

Results of 2017 EGRPRA 

Review Included Some 

Actions to Reduce 

Regulatory Burden 

Regulators took some actions to reduce burden as part of EGRPRA 

reviews, but we also identified opportunities to improve analyses and 

reporting. 

To conduct the most recent EGRPRA review, the Federal Reserve, FDIC, 

and OCC sought comments from banks and others and held public 

meetings to obtain views on the regulations they administer. In the report 

they issued in March 2017, the regulators identified six significant areas in 

which commenters raised concerns: (1) capital rules, (2) Call Reports, (3) 

appraisal requirements, (4) examination frequency, (5) Community 

Reinvestment Act, and (6) BSA/AML regulations. 21 In the report, these 

regulators described various actions that could address some of the 

concerns that commenters raised including: 

On September 27, 2017, the regulators proposed several revisions to 

capital requirements that would apply to banks with less than $250 

billion in assets and less than $10 billion in total foreign exposure. For 

example, the revisions simplify capital treatment for certain 

commercial real estate loans and would change the treatment of 

mortgage servicing assets. 

The regulators developed a new Call Report form for banks with 

assets of less than $1 billion and domestic offices only. In June 2017 

and November 2017, the regulators issued additional proposed 

revisions, effective June 2018, to the three Call Report forms that 

banks are required to complete. 22 For example, community banks 

would report certain assets (nonperforming loans not generating their 

stated interest rate) less frequently-semi-annually instead of 

quarterly. 

21 Consolidated Reports of Condition and Income are known as Cal! Reports. Banks file 

Cal! Reports with their regulators outlining their financial condition and performance on a 

quarterly basis. 

22See Proposed Agency Information Collection Activities; Comment Request, 82 Fed. 

Reg. 29147 (June 27, 2017) and Proposed Agency Information Collection Activities; 

Comment Request. 82 Fed. Reg. 51908 (Nov. 8, 2017). 

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CFPB Was Not Included in 

2017 Review and 

Significant Mortgage 

Regulations Were Not 

Assessed 

The regulators proposed raising the threshold for commercial real 

estate loans requiring an appraisal from $250,000 to $400,000. They 

also recently issued guidance on how institutions could obtain waivers 

or otherwise expand the pool of persons eligible to prepare appraisals 

if suitable appraisers are unavailable. 

The three regulators also issued a final rule in 2016 making qualifying 

depository institutions with less than $1 billion in total assets eligible 

for an 18-month examination cycle rather than a 12-month cycle. 23 

Although NCUA is not required to participate in the EGRPRA process, the 

2017 EGRPRA report also includes a section in which NCUA describes 

actions it has taken to address regulatory burdens on credit unions. In the 

report, NCUA identified five significant areas raised by commenters 

relating to credit union regulation, including: (1) field of membership and 

chartering; (2) member business lending; (3) federal credit union 

ownership of fixed assets; (4) expansion of national credit union share 

insurance coverage; and (5) expanded powers for credit unions. 

In response, NCUA took various actions. For example, NCUA modified 

and updated its field of credit union membership by revising the definition 

of a local community, rural district, and underserved area, which provided 

greater flexibility to federal credit unions seeking to add a rural district to 

their field of membership, NCUA also lessened some restrictions on 

member lending to small business and raised some asset thresholds for 

what would be defined as a small credit union so that fewer requirements 

would apply to these credit unions. 

One of the limitations in the EGRPRA process is that the statute 

mandating the process does not include CFPB and thus the significant 

mortgage-related regulations and other regulations that it administersregulations that banks and credit unions generally must follow-were not 

included in the most recent EGRPRA review. The depository institution 

regulators cannot address these mortgage regulation-related burdens 

because they no longer have rulemaking authority for certain consumer 

financial statutes. 

23See Expanded Examination Cycle for Certain Small Insured Depository Institutions and 

U.S. Branches and Agencies of Foreign Banks, 81 Fed. Reg. 10063 (Feb. 29, 2016) 

(interim final rule), and 81 Fed. Reg. 90949 (Dec. 16, 2016) (final rule). 

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Regulators Have Not 

Conducted or Reported 

Quantitative Analyses 

However, CFPB does have its own processes to assess the burden of 

regulations it has implemented. For example, section 1022(d) of the 

Dodd-Frank Wall Street Reform and Consumer Protection Act requires 

CFPB to conduct a one-time assessment of each significant rule it adopts 

under federal consumer financial law within 5 years of the rule's effective 

date. But CFPB staff told us that they have not yet determined whether 

certain other regulations that apply to banks and credit unions, such as 

the revisions to requirements, will be designated as significant and thus 

subjected to the one-time assessments. 

During 2017, CFPB launched an internal task force to coordinate and 

bolster its continuing efforts to identify and relieve regulatory burdens for 

small businesses, such as community banks, that potentially will address 

any regulation the agency has under its jurisdiction. However, CFPB has 

not provided public information on the extent to which it intends to review 

regulations applicable to community banks and credit unions or provided 

information on the timing and frequency of the reviews. In addition, it has 

not indicated the extent to which it will coordinate the reviews with 

depository institution regulators as part of EGRPRA reviews. 

Until CFPB publicly provides additional information indicating its 

commitment to periodically review the burden of all its regulations, 

community banks, credit unions, and other depository institutions may 

face diminished opportunities for regulatory relief. 

In our February 2018 report, we recommended that CFPB issue public 

information on its plans for reviewing regulations, including information on 

the scope of regulations, timing and frequency of reviews, and the extent 

to which the reviews will be coordinated with the other regulators as part 

of the EGRPRA reviews. CFPB agreed with the recommendation and 

committed to developing additional plans for reviews of key regulations 

and publicly releasing such information. In the interim, CFPB stated it 

intends to solicit public input on how it should approach reviewing 

regulations. 

Another limitation in the EGRPRA process conducted by the Federal 

Reserve, FDIC, OCC, and NCUA was that these regulators did not 

conduct or report on quantitative analyses during the EGRPRA process to 

help them determine if changes to regulations would be warranted. Our 

analysis of the 2017 EGRPRA report indicated that in responses to 

comments in which the regulators did not take any action, the regulators 

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Regulators Have Not 

Considered the 

Cumulative Effects of 

Regulations 

generally provided only their arguments against taking actions and did not 

cite analysis or data to support their narrative. 

EGRPRA does not require the regulators to collect and report on any 

quantitative data they collected or analyzed as part of assessing the 

potential burden of regulations. In contrast, executive branch agencies 

tasked under executive orders to conduct retrospective reviews of 

regulations generally must collect and analyze quantitative data as part of 

assessing the costs and benefits of changing existing regulations. 

Conducting quantitative analysis for retrospective reviews could serve as 

a best practice for the depository institution regulators. 

By not performing and reporting quantitative analyses where appropriate 

in the EGRPRA review, the regulators may be missing opportunities to 

better assess regulatory impacts, (including identifying the need for any 

changes or identifying benefits) and making their analyses more 

transparent to stakeholders. 

In our February 2018 report, we recommended that the four depository 

institution regulators develop plans for their regulatory analyses 

describing how they will conduct and report on quantitative analysis 

whenever feasible to strengthen the rigor and transparency of the 

EGRPRA process. The regulators agreed with the recommendation. For 

example, the Federal Reserve plans to coordinate with FDIC and OCC to 

identify opportunities to conduct quantitative analyses where feasible 

during future EGRPRA reviews. NCUA also said it should improve its 

quantitative analysis. 

An additional limitation in the EGRPRA process we identified was that the 

depository institution regulators had not assessed the ways in which the 

cumulative burden of the regulations they administer may have created 

overlapping or duplicative requirements. Under the current process, the 

regulators have responded to issues raised about individual regulations 

based on comments they have received, not on bodies of regulations. 

However, congressional intent in tasking regulators with EGRPRA 

reviews was to ensure they considered the cumulative effect of financial 

regulations. A 1995 Senate Committee on Banking, Housing, and Urban 

Affairs report stated while no one regulation can be singled out as being 

the most burdensome, and most have meritorious goals, the aggregate 

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Regulators' Approach 

to RFA-Required 

Retrospective 

Reviews Varied, 

Including the Extent 

to Which They 

Developed Policies 

Federal Banking 

Regulators Relied on 

Other Retrospective 

Reviews to Meet RFA 

Section 610 Requirements 

burden of banking regulations ultimately affects a bank's operations, its 

profitability, and the cost of credit to customers. 24 

In our February 2018 report, we recommended to the Federal Reserve, 

FDIC, NCUA, and OCC that as part of their EGRPRA review they develop 

plans for conducting evaluations that would identify opportunities to 

streamline bodies of regulation. The regulators generally agreed with the 

recommendation and said they would work together to identify ways and 

opportunities to decrease the regulatory burden created by bodies of 

regulation. In addition, FDIC stated it would continue to monitor the 

cumulative effects of regulation; for example, through a review of 

community and quarterly banking studies and community bank Call 

Report data. 

Financial regulators took varying approaches to performing retrospective 

reviews for RFA; additionally, some regulators had not yet developed 

policies and procedures for conducting and reporting reviews. 

We assessed section 610 reviews and found that the Federal Reserve, 

FDIC, and OCC conducted retrospective reviews that did not fully align 

with RFA's requirements. Officials at each of the agencies stated that 

they satisfy the requirements to perform section 610 reviews through the 

EGRPRA review process. 

But the requirements of the EGRPRA reviews differ from those of the 

RFA-required section 610 reviews. For example, the EGRPRA review 

process relies on public comments to identify rules that may be outdated, 

unnecessary, or unduly burdensome, while public comments are only one 

24Committee on Banking, Housing, and Urban Affairs, Economic Growth and Regulatory 

Paperwork Reduction Act of 1995, S. Rep. No 104-185 (1995). 

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SEC Reviews Were Late 

and Not Fully Consistent 

with RFA Requirements or 

Office of Advocacy 

Guidance 

component of section 610 reviews. The Office of Advocacy stated that 

agencies may satisfy section 61 0 requirements through other 

retrospective reviews if these other reviews meet the criteria of section 

610. 25 According to an official from the Office of Advocacy, the office has 

not yet made a determination on whether the EGRPRA review process 

satisfies those requirements. 

Although the agencies stated that they fulfill RFA requirements through 

EGRPRA, without confirming this with the Office of Advocacy, it is 

possible that they are not meeting RFA section 610 requirements and 

therefore may not be achieving the small-entity burden reduction that the 

statute seeks to ensure. 

In our January 2018 report, we recommended that the Federal Reserve, 

FDIC, and OCC coordinate with the Office of Advocacy to determine 

whether the EGRPRA review process satisfies the requirements of 

section 610 and, if not, what steps should be taken to align the process 

with section 610 requirements. The Federal Reserve and FDIC generally 

agreed with this recommendation, and OCC did not provide written 

comments. 

Our review of 46 SEC section 610 reviews found that they were 

conducted late and were not fully consistent with RFA requirements or the 

Office of Advocacy's guidance for such reviews. RFA requires rules to be 

reviewed within 10 years of their publication as final rules, but SEC 

conducted all but one of its reviews 12 years after the rules were 

published. The reviews generally lacked substantive analysis, and no 

rules were amended as a direct result of their section 610 review." The 

reviews generally provided no evidence of empirical analysis and no data 

to support the conclusions of the reviews, as recommended by the Office 

of Advocacy and OMB. In most cases, the reviews lacked a description of 

whether, or to what extent, the rule was affecting small entities. 

SEC does not have written policies or procedures for completing rule 

reviews pursuant to RFA section 610, potentially contributing to the 

25A Guide for Government Agencies.· How to Comply with the Regulatory Flexibility Act. 

26Three reviews concluded the rule needed to be amended to reduce burden on small 

entities; however. each of the rules already had been amended as a result of other 

ru!emaking analysis. 

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CFTC and CFPB Plan to 

Develop Policies and 

Procedures for Future 

Retrospective Reviews 

weaknesses we identified (timing and lack of data and analysis to support 

findings). Therefore, in our January 2018 report, we recommended that 

SEC develop and implement specific policies and procedures for 

performing section 610 reviews. SEC generally agreed with the 

recommendation. 

SEC also does not publicly disclose the findings or conclusions of its 

section 610 reviews. Although RFA does not require that agencies 

publish the results of 61 0 reviews, the Office of Advocacy recommends 

that to enhance transparency, agencies should communicate with 

interested entities about the reviews. Executive orders also highlight 

public disclosure of retrospective reviews. 27 Lack of public disclosure 

limits the transparency of the reviews, hindering the public's ability to hold 

agencies accountable for the quality and conclusions of their reviews. In 

our January 2018 report, we recommended that SEC publicly disclose its 

section 610 reviews, or summaries, with the basis for any conclusions. 

SEC generally agreed with the recommendation. 

CFTC and CFPB plan to put procedures in place for section 610 reviews. 

According to CFTC officials, the agency has not conducted any section 

610 reviews in at least the last 10 years. CFPB has not yet been required 

to conduct any section 610 reviews. Section 610 reviews are required 

within 10 years of a rule's publication as a final rule; to date, none of the 

rules issued by CFPB, which was created in 2010, have met this 

deadline. 

In our January 2018 report, we recommended that CFTC and CFPB 

develop policies and procedures for section 610 reviews that would 

include documenting analyses and public reporting of results. CFTC and 

CFPB generally agreed with the recommendation. 

27For example, Executive Order 13563 recommends that retrospective analyses, including 

supporting data, should be released online whenever possible. See Exec. Order No. 

13563,1mproving Regulation and Regulatory Review, 76 Fed. Reg. 3821 (Jan. 21, 2011). 

Executive Order 13610 reiterated this recommendation, stating that public disclosure 

promotes an open exchange of information. See Exec. Order No. 13610, Identifying and 

Reducing Regulatory Burdens, 77 Fed. Reg. 28469 (May 14. 2012). 

Page 17 GA0·18-404T Analyzing Regulatory Burden 
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GAO Contact and 

Staff 

Acknowledgments 

(102617) 

Chairman Chabot, Ranking Member Velazquez, and members of the 

Committee, this concludes my statement. I would be pleased to respond 

to any questions you may have. 

If you or your staff have any questions about this testimony, please 

contact Michael E. Clements, Director, Financial Markets and Community 

Investment, at (202) 512-8678 or clementsm@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this statement. GAO staff who made key contributions 

to this testimony are Cody Goebel (Assistant Director), Stefanie Jonkman 

(Assistant Director), Katherine Carter (Analyst in Charge), Kevin Averyl, 

Bethany Benitez, Jeremy A. Conley, Pamela R. Davidson, Nancy Eibeck, 

Andrew Emmons, Courtney L. LaFountain, William V. Lamping, Marc 

Molino, Lauren Mosteller, Barbara Roesmann, and Jena Y. Sinkfield. 

Other assistance was provided by Farrah Graham and Tim Bober. 

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This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately. 
40 

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February 2018 

GA0-18-213 

United States Government Accountability Office 

, Report to the Chairman, Committee on 

Small Business, House of 

Representatives 

COMMUNITY BANKS 

AND CREDIT 

UNIONS 

Regulators Could 

Take Additional Steps 

to Address 

Compliance Burdens 

This Report Is Temporarily Restricted Pending Official Public 

Release. 
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COMMUNITY BANKS AND CREDIT UNIONS 

Regulators Could Take Additional Steps to Address 

Compliance Burdens 

CFPB and the consumer flnancia! regulations for which it !s responsible were 

not included. 

Unlike executive branch 

not required to analyze 

responses to comments. 

do not assess the cumulative burden of the regulations they 

-------------Unlted States Government Accountabllity Office 
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Contents 

Letter 

Background 4 

Institutions Cited Mortgage and Anti-Money Laundering 

Regulations as Most Burdensome, although Others Noted Their 

Significant Public Benefits 11 

Reviews of Regulations Resulted in Some Reduction in Burden, 

but the Reviews Have Limitations 33 

Conclusions 51 

Recommendations for Executive Action 52 

Agency Comments and Our Evaluation 53 

Appendix I Objectives, Scope, and Methodology 56 

Appendix II Comments from Consumer Financial Protection Bureau 63 

Appendix Ill Comments from the Board of Governors of the Federal Reserve 

System 65 

Appendix IV Comments from the Federal Deposit Insurance Corporation 67 

Appendix V Comments from the National Credit Union Administration 70 

Appendix VI Comments from the Office of the Comptroller of the Currency 71 

Appendix VII GAO Contact and Staff Acknowledgments 73 

Table 

Table 1: Federal Depository Institution Regulators and Their 

Functions 5 

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Figure 

Figure 1: Time line ofTILA-RESPA Integrated Disclosure 

Requirements 24 

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Abbreviations 

AML 

BSA 

Call Reports 

CFPB 

CTR 

Dodd-Frank Act 

EGRPRA 

FDIC 

Federal Reserve 

FFIEC 

FinCEN 

HMDA 

NCUA 

occ 

RESPA 

RFA 

SAR 

TILA 

TRIO 

USA PATRIOT ACT 

anti-money laundering 

Bank Secrecy Act 

Consolidated Report of Condition and Income 

Consumer Financial Protection Bureau 

Currency Transaction Reports 

Dodd-Frank Wall Street Reform and Consumer 

Protection Act of 2010 

Economic Growth and Regulatory Paperwork 

Reduction Act of 1996 

Federal Deposit Insurance Corporation 

Board of Governors of the Federal Reserve System 

Federal Financial Institutions Examination Council 

Financial Crimes Enforcement Network 

Home Mortgage Disclosure Act of 1975 

National Credit Union Administration 

Office of the Comptroller of the Currency 

Real Estate Settlement Procedures Act 

Regulatory Flexibility Act 

Suspicious Activity Reports 

Truth-in-Lending Act 

TILA-RESPA Integrated Disclosure 

Uniting and Strengthening America by Providing 

Appropriate Tools Required to Intercept and 

Obstruct Terrorism Act of 2001 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately. 

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GAO u.s. GOVERNMENT ACCOUNTABILITY OFFICE 

441 G St. N.W. 

Washington, DC 20548 

February 13,2018 

The Honorable Steve Chabot 

Chairman 

Committee on Small Business 

House of Representatives 

Dear Mr. Chairman: 

Within the past two decades, financial regulators have implemented many 

new regulations in the aftermath of events such as the September 2001 

terrorist attacks and the financial crisis in 2007-2009, These regulations 

were intended to address the risks and problematic practices that 

contributed or led to the events, and included provisions that ranged from 

strengthening financial institutions' anti-money laundering (AML) 

programs to prevent terrorism financing to creating additional protections 

for mortgage lending. For example, in 2010 Congress passed the DoddFrank Wall Street Reform and Consumer Protection Act (Dodd-Frank 

Act), which includes numerous reforms to strengthen oversight of 

financial institutions. 1 As a result of this act and other actions taken by 

financial regulators, additional regulatory requirements were placed on 

financial institutions, including community banks and credit unions. These 

institutions historically have played an important role in serving their local 

customers, including providing credit to small businesses. 

We previously reported that representatives of community banks and 

credit unions expressed concerns about the burden that additional 

regulations create for them.' For example, some credit union, community 

bank, and industry association representatives told us in 2015 that 

several mortgage-related rules increased their overall compliance burden. 

In turn, some said this had begun to adversely affect some lending 

'Pub. L. No. 111-203. 124 Stat. 1376 (2010). We identified 236 provisions of the act that 

require regulators to issue rules. See GAO. Financial Regulatory Reform: Regulators 

Have Faced Challenges Finalizing Key Reforms and Unaddressed Areas Pose Potential 

Risks, GA0-13-195 (Washington, D.C.: Jan. 23, 2013). 

2GAO, Community Banks and Credit Unions: Impact of the Dodd-Frank Act Depends 

Largely on Future Rule Makings, GA0-12-881 (Washington, D.C Sep. 13, 2012): Bank 

Capital Reforms: Initial Effects of Base/Iff on Capital, Credit, and lntemational 

Competitiveness, GA0-15-67 (Washington, D.C: Nov. 20, 2014); and Dodd-Frank 

Regulations: Impacts on Community Banks, Credit Unions and Systemically Important 

Institutions, GA0-16-169 (Washington, D.C: Dec. 30, 2015). 

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activities, such as mortgage lending to customers not typically served by 

larger financial institutions, although the regulations provided exemptions 

or other provisions to reduce such impacts. But surveys conducted by 

regulators, industry associations, and academics on the impact of the 

Dodd-Frank Act on small banks suggested that credit availability had 

been reduced by moderate to minimal amounts among those responding 

to the various surveys, and regulatory data up to that point had not 

confirmed a negative impact on mortgage lending. 

You asked us to examine the impact of regulation on community banks 

and credit unions. This report examines (1) what regulations institutions 

regarded as most burdensome and why, and (2) what actions the 

regulators of these institutions have taken to address any burdens 

associated with financial regulations. In addition to this report, we will 

provide a separate report that addresses the effect of regulatory burden 

on lending activities by community banks and credit unions, the rate of 

formation of new institutions, and potential impacts of regulations that we 

expect to issue to you in spring 2018. 

To identify regulations that community banks and credit unions viewed as 

most burdensome, we obtained opinions from a non-probability selection 

of selected community banks and credit unions. We drew our sample 

from institutions whose characteristics (such as asset size and activities) 

were typical of traditional community banking activities. The asset 

thresholds we used for our sample were $1 .2 billion for banks (which 

represented 90 percent of banks as of March 2016) and $860 million for 

credit unions (which represented 95 percent of credit unions as of March 

2016). We excluded institutions that were primarily conducting activities 

that were not typical of community banking, including institutions 

functioning primarily as credit card banks or institutions with headquarters 

outside the United States. From this group, we used additional criteria to 

select institutions that were located in various regions of the country and 

whose lending asset levels indicated they would have experience with 

complying with relevant regulations. The sample also included institutions 

overseen by each of the depository institution regulators-the Board of 

Governors of the Federal Reserve (Federal Reserve), the Federal 

Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the 

Currency (OCC), and the National Credit Union Administration (NCUA). 

Using this sample, we obtained opinions from representatives 64 

institutions during individual interviews, focus groups, and a site visit. 

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More specifically, we interviewed 1 0 community banks and 7 credit 

unions. 

After the interviews demonstrated considerable consensus existed 

among institutions about the most burdensome regulations, we held 

six focus groups with an additional 46 banks and credit unions to 

identify the characteristics of the regulations that made them 

burdensome. 

We also reviewed 28 reports of examinations conducted by the 

regulators of banks and credit unions we selected for our interviews to 

identify the extent to which these examinations addressed regulations 

from which the banks were exempted. 

To determine what actions regulators took to address regulatory burden, 

we reviewed the reports the depository institution regulators issued for the 

2007 and 2017 Economic Growth and Regulatory Paperwork Reduction 

Act of 1996 (EGRPRA) reviews. We analyzed over 200 comment letters 

that the regulators received from community banks, credit unions, their 

trade associations, and others; and reviewed transcripts of all six public 

forums regulators held as part the 2017 EGRPRA regulatory review they 

conducted. We analyzed the extent to which they addressed the issues 

raised in comments received for the reviews. We also interviewed the 

depository institution regulators and the Consumer Financial Protection 

Bureau (CFPB) about their actions to address burden when creating rules 

and thereafter. We discussed issues that banks and credit unions 

identified with specific regulations with the depository institution 

regulators, CFPB, and the Financial Crimes Enforcement Network 

(FinCEN), which has delegated authority from the Secretary of the 

Treasury to implement, administer, and enforce compliance with antimoney laundering and terrorist financing regulations. We also interviewed 

associations representing consumers with knowledge of relevant activities 

to understand the benefits of these regulations and the Small Business 

Administration's Office of Advocacy, which reviews and comments on 

burdens of regulations, including those issued by banking regulators. 

For more information on our scope and methodology, see appendix I. We 

conducted this performance audit from March 2016 to February 2018 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 

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Background While no commonly accepted definition of a community bank exists, they 

are generally smaller banks that provide banking services to the local 

community and have management and board members who reside in the 

local community. In some of our past reports, we often defined community 

banks as those with under $10 billion in total assets.' However, many 

banks have assets well below $1 0 billion as data from the financial 

condition reports that institutions submit to regulators (Call Reports) 

indicated that of the more than 6,100 banks in the United States, about 90 

percent had assets below about $1.2 billion as of March 2016. 

Based on our prior interviews and reviews of documents, regulators and 

others have observed that small banks tend to differ from larger banks in 

their relationships with customers.' Large banks are more likely to 

engage in transactional banking, which focuses on the provision of highly 

standardized products that require little human input to manage and are 

underwritten using statistical information. Small banks are more likely to 

engage in what is known as relationship banking in which banks consider 

not only data models but also information acquired by working with the 

banking customer over time. Using this banking model, small banks may 

be able to extend credit to customers such as small business owners who 

might not receive a loan from a larger bank. 

Small business lending appears to be an important activity for community 

banks. As of June 2017, community banks had almost $300 billion 

outstanding in loans with an original principal balance of under $1 million 

(which banking regulators define as small business lending), or about 20 

percent of these institutions' total lending. In that same month, noncommunity banks had about $390 billion outstanding in business loans 

under $1 million representing 5 percent of their total lending. 

Credit unions are nonprofit member-owned institutions that take deposits 

and make loans. Unlike banks, credit unions are subject to limits on their 

membership because members must have a "common bond"-for 

example, working for the same employer or living in the same community. 

Financial reports submitted to NCUA (the regulator that oversees 

federally-insured credit unions) indicated that of the more than 6,000 

3

See GA0-12-881. GA0-15-67, and GA0-16-169. 

4

GAO, Financial Institutions: Causes and Consequences of Recent Bank Failures, 

GA0-13-71 (Washington, D.C.: Jan. 3, 2013). 

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Overview of Federal 

Financial Regulators for 

Community Banks and 

Credit Unions 

credit unions in the United States, 90 percent had assets below about 

$393 million as of March 2016. 

In addition to providing consumer products to their members, credit 

unions are also allowed to make loans for business activities subject to 

certain restrictions. These member business loans are defined as a loan, 

line of credit, or letter of credit that a credit union extends to a borrower 

for a commercial, industrial, agricultural, or professional purpose, subject 

to certain exclusions. 5 In accordance with rules effective January 2017, 

the total amount of business lending credit unions can do is not to 

generally exceed 1. 75 times the actual net worth of the credit union! 

Federal banking and credit union regulators have responsibility for 

ensuring the safety and soundness of the institutions they oversee, 

protecting federal deposit insurance funds, promoting stability in financial 

markets, and enforcing compliance with applicable consumer protection 

laws. All depository institutions that have federal deposit insurance have a 

federal prudential regulator. The regulator responsible for overseeing a 

community bank or credit union varies depending on how the institution is 

chartered, whether it is federally insured, and whether it is a Federal 

Reserve member (see table 1), 

Table 1: Federal Depository Institution Regulators and Their Functions 

Agency Basic function 

Office of the Comptroller of the Currency (OCC) Charters and supervises national banks, federal savings assodations and federally 

chartered branches and agencies of foreign banks 

Board of Governors of the Federal Reserve Supervises state~chartered banks that opt to be members of the Federal Reserve 

System (Federal Reserve) System, bank holding companies, savings and loan holding companies and the 

nondepository institution subsidiaries of those organizations, and nonbank financial 

companies designated for Federal Reserve supervision by the Financial Stability 

Oversight Council 

5

See 12 U.S.C. § 1757a(c)(1)(A). 

6See 12 U.S. C.§ 1757a(a). The statutory cap on outstanding member business loans 

does not apply in the case of an insured credit union that is chartered for the purpose of 

making, or that has a history of primarily making, member business loans to its members, 

that serves predominantly !ow-income members, or is a community development financial 

institution as defined by the Community Development Banking and Financial Institutions 

Act of 1994. 12 U.S. C. § 1757a(b). The net worth ratio is the total of a credit union's 

regular reserves, any secondary capital, its undivided earnings, and its net income or !ass 

divided by its total assets. See 12 C.F.R. § 702.2(g). 

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Agency Basic function 

Federal Deposit Insurance Corporation (FDIC) Insures the deposits of all banks and thrifts approved for federal deposit insurance; 

supervises insured state-chartered banks that are not members of the Federal 

Reserve System, as well as insured state savings associations and insured statechartered branches of foreign banks; resolves all failed insured banks and thrifts; 

and may be appointed to resolve large bank holding companies and nonbank 

financial companies supervised by the Federal Reserve. Also, has backup 

supervisory responsibility for all federally insured depository institutions 

National CredJt Union Administration (NCUA) Charters and supervises federally chartered credit unions and insures deposits in 

federally chartered and the majority of state-chartered credit unions 

Source G.l\0 jGAO·iS-21:> 

Other federal agencies also impose regulatory requirements on banks 

and credit unions. These include rules issued by CFPB, which has 

supervision and enforcement authority for various federal consumer 

protection laws for depository institutions with more than $10 billion in 

assets and their affiliates. The Federal Reserve, OCC, FDIC, and NCUA 

continue to supervise for consumer protection compliance at institutions 

that have $10 billion or less in assets. Although community banks and 

credit unions with less than $10 billion in assets typically would not be 

subject to CFPB examinations, they generally are required to comply with 

CFPB rules related to consumer protection. 

In addition, FinCEN also issues requirements that financial institutions, 

including banks and credit unions, must follow. FinCEN is a component of 

Treasury's Office of Terrorism and Financial Intelligence that supports 

government agencies by collecting, analyzing, and disseminating financial 

intelligence information to combat money laundering. It is responsible for 

administering the Bank Secrecy Act, which, with its implementing 

regulations, generally requires banks, credit unions, and other financial 

institutions, to collect and retain various records of customer transactions, 

verify customers' identities in certain situations, maintain AML programs, 

and report suspicious and large cash transactions. 7 FinCEN relies on 

financial regulators and others to examine U.S. financial institutions to 

determine compliance with these requirements. 8 In addition, financial 

institutions also have to comply with requirements by Treasury's Office of 

7Pub. L. No. 91-508, tits. I and II, 84 Stat. 1114 (1970) (codified as amended at 12 U.S. C. 

§§ 1829b,1951-1959: 18 U.S. C.§§ 1956-1957 and 1960: and 31 U.S.C. §§ 5311-5314 

and 5316~5332). The Bank Secrecy Act is the commonly used term for the Currency and 

Foreign Transactions Reporting Act, its amendments, and the other statutes relating to the 

subject matter of that act. 31 C.F.R. § 1010.100(e). 

6See GAO, Anti-Money Laundering: U.S. Efforts to Combat Narcotics-Refated Money 

Laundering in the Western Hemisphere GA0-17-684 (Washington, D.C.: Aug. 22, 2017). 

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Recent Regulatory 

Changes 

Foreign Asset Control to review transactions to ensure that business is 

not being done with sanctioned countries or individuals. 

In response to the 2007-2009 financial crisis, Congress passed the DoddFrank Act, which became law on July 21, 2010. The act includes 

numerous reforms to strengthen oversight of financial services firms, 

including consolidating consumer protection responsibilities within CFPB. 

Under the Dodd-Frank Act, federal financial regulatory agencies were 

directed to or granted authority to issue hundreds of regulations to 

implement the act's reforms. Many of the provisions in the Dodd-Frank 

Act target the largest and most complex financial institutions, and 

regulators have noted that much of the act is not meant to apply to 

community banks. 

Although the Dodd-Frank Act exempts small institutions, such as 

community banks and credit unions, from several of its provisions, and 

authorizes federal regulators to provide small institutions with relief from 

certain regulations, it also contains provisions that impose additional 

restrictions and compliance costs on these institutions. As we reported in 

2012, federal regulators, state regulatory associations, and industry 

associations collectively identified provisions within 7 of the act's 16 titles 

that they expected to affect community banks and credit unions. 9 The 

provisions they identified as likely to affect these institutions included 

some of the act's mortgage reforms, such as those requiring institutions 

to 

ensure that a consumer obtaining a residential mortgage loan has the 

reasonable ability to repay the loan at the time the loan is 

consummated; 

comply with a new CFPB rule that combines two different mortgage 

loan disclosures that had been required by the Truth-in-Lending Act 

and the Real Estate Settlement Procedures Act of 1974; and 

ensure that property appraisers are sufficiently independent. 

In addition to the regulations that have arisen from provisions in the 

Dodd-Frank Act, we reported that other regulations have created potential 

burdens for community banks. For example, the depository institution 

regulators also issued changes to the capital requirements applicable to 

9

GA0-12-881. 

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on 

Regulatory Burden 

Generally Focused on 

Costs 

these institutions. 10 Many of these changes were consistent with the 

Basel ill framework, which is a comprehensive set of reforms to 

strengthen global capital and liquidity standards issued by an international 

body consisting of representatives of many nations' central banks and 

regulators. These new requirements significantly changed the risk-based 

capital standards for banks and bank holding companies. As we reported 

in November 2014, officials interviewed from community banks did not 

anticipate any difficulties in meeting the U.S. Basel Ill capital 

requirements but expected to incur additional compliance costs. 11 

In addition to regulatory changes that could increase burden or costs on 

community banks, some of the Dodd-Frank Act provisions have likely 

resulted in reduced costs for these institutions. For example, revisions to 

the way that deposit insurance premiums are calculated reduced the 

amount paid by banks with less than $10 billion in assets by $342 million 

or 33 percent from the first to second quarter of 2011 after the change 

became effective. Another change reduced the audit-related costs that 

some banks were incurring in complying with provisions of the SarbanesOxley Act 

A literature search indicated that prior studies by other entities, including 

regulators, trade associations or others, which examined how to measure 

regulatory burden generally focused on direct costs resulting from 

compliance with regulations, and our analysis of them identified various 

limitations that restrict their usefulness in assessing regulatory burden. 

For example, researchers commissioned by the Credit Union National 

Association, which advocates for credit unions, found costs attributable to 

regulations totaled a median of 0.54 percent of assets in 2014 for a nonrandom sample of the 53 small, medium, and large credit unions 

10 Regulatory Capita! Rules: Regulatory Capital, Implementation of Basel !I!, Capital 

Adequacy, Transition Provisions, Prompt Corrective Action, Standardized Approach for 

Risk~weighted Assets, Market Discipline and Disclosure Requirements, Advanced 

Approaches Risk-Based Capital Rule, and Market Risk Capital Rule, 78 Fed. Reg. 62018 

(Oct. 11, 2013) (Federal Reserve and OCC) and 78 Fed. Reg. 55340 (Sept 10, 2013) 

(FDIC Interim Final Rule). W1th minor changes, the September 2013 FDIC interim final 

rule became a final rule in April2014. See 79 Fed. Reg. 20754 (Apr. 14, 2014). The Basel 

Ill framework has no legal force but was issued by the agreement of the Basel Committee 

members With the expectat1on that individual national authont1es would implement the 

standards. 

11GA0-15-67. 

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responding to a nationwide survey. 12 However, one of the study's 

limitations was its use of a small, non-random sample of credit unions. In 

addition, the research was not designed to conclusively link changes in 

regulatory costs for the sampled credit unions to any one regulation or set 

of regulations. 

CFPB also conducted a study of regulatory costs associated with specific 

regulations applicable to checking accounts, traditional savings accounts, 

debit cards, and overdraft programs. 13 Through case studies involving 

200 interviews with staff at seven commercial banks with assets over $1 

billion, the agency's staff determined that the banks' costs related to 

ongoing regulatory compliance were concentrated in operations, 

information technology, human resources, and compliance and retail 

functions, with operations and information technology contributing the 

highest costs. While providing detailed information about the case study 

institutions, reliance on a small sample of mostly large commercial banks 

limits the conclusions that can be drawn about banks' regulatory costs 

generally. In addition, the study notes several challenges to quantifying 

compliance costs that made their cost estimates subject to some 

measurement error, and the study's design limits the extent to which a 

causal relationship between financial regulations and costs could be fully 

established. Researchers from the Mercatus Center at George Mason 

University used a nongeneralizable survey of banks to find that 

respondents believed they were spending more money and staff time on 

compliance than before due to Dodd-Frank regulations." From a universe 

12See Vincent Hui, Ryan Myers, and Kaleb Seymour, Credit Union National Association, 

Regulatory Burden Financial Impact Study, report prepared for the Credit Union National Association (February 2016). 

13See Consumer Financial Protection Bureau, Understanding the Effects of Certain 

Deposit Regulations on Financial Institutions' Operations (Washington, D.C.: November 

2013). The regulations were: Regulations DO {Truth~in-Savings Act), E (Electronic Fund 

Transfer Act), P (Gramm-Leach-B!iley Act), and V (Fair Credit Reporting Act). 

14Hester Peirce, ian Robinson, and Thomas Stratmann, How Are Small Banks Faring 

Under Dodd-Frank? {Arlington, VA, February 2014).The Mercatus Center survey was 

based on convenience nonprobabi!ity sampling (sampling respondents who are easy to 

reach) and was conducted between July and September 2013, before the effective dates 

of some of the rules covered in the survey. The survey was distributed by national and 

state~level banking associations to their members and to 500 additional small banks. The 

survey had about 200 respondents with tess than $10 billion in assets, although the 

number of respondents differed for each section of the survey. A majority of respondents 

fell in the asset-size range from $10 million to $1 billion. Because the survey relied on a 

nonprobability, convenience sample, it is not possible to use the results to draw inferences 

about the population of small banks. 

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of banks with less than $10 billion of assets, the center's researchers 

used a non-random sample to collect 200 responses to a survey sent to 

500 banks with assets less than $10 billion about the burden of complying 

with regulations arising from the Dodd-Frank Act. The survey sought 

information on the respondents' characteristics, products, and services 

and the effects various regulatory and compliance activities had on 

operations and decisions, including those related to bank profitability, 

staffing, and products. About 83 percent ofthe respondents reported 

increased compliance costs of greater than or equal to 5 percent due to 

regulatory requirements stemming from the Dodd-Frank Act. The study's 

limitations include use of a non-random sample selection, small response 

rate, and use of questions that asked about the Dodd-Frank Act in 

general. In addition, the self-reported survey items used to capture 

regulatory burden-compliance costs and profitability-have an increased 

risk of measurement error and the causal relationship between DoddFrank Act requirements and changes in these indicators is not wellestablished. 

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Institutions Cited 

Mortgage and AntiMoney Laundering 

Regulations as Most 

Burdensome, 

although Others 

Noted Their 

Significant Public 

Benefits 

HMDA Requirements 

Deemed Time Consuming 

by Institutions but Critical 

to Others 

Community bank and credit union representatives that we interviewed 

identified three sets of regulations as most burdensome to their 

institutions: (1) data reporting requirements related to loan applicants and 

loan terms under the Home Mortgage Disclosure Act of 1975 (HMDA): (2) 

transaction reporting and customer due diligence requirements as part of 

the Bank Secrecy Act and related anti-money laundering laws and 

regulations (collectively, BSAIAML): and (3) disclosures of mortgage loan 

fees and terms to consumers under the TILA-RESPA Integrated 

Disclosure (TRIO) regulations. 15 In focus groups and interviews, many of 

the institution representatives said these regulations were timeconsuming and costly to comply with, in part because the requirements 

were complex, required preparation of individual reports that had to be 

reviewed for accuracy, or mandated actions within specific timeframes. 

However, federal regulators and consumer advocacy groups said that 

benefits from these regulations were significant 

Representatives of community banks and credit unions in all our focus 

groups and in most of our interviews told us that HMDA's data collection 

and reporting requirements were burdensome. Under HMDA and its 

implementing Regulation C, banks and credit unions with more than $45 

million in assets that do not meet regulatory exemptions must collect, 

record, and report to the appropriate federal regulator, data about 

applicable mortgage lending activity. 16 For every covered mortgage 

application, origination, or purchase of a covered loan, lenders must 

collect information such as the loan's principal amount, the property 

location, the income relied on in making the credit decision, and the 

applicants' race, ethnicity, and sex. Institutions record this on a form 

called the loan/application register, compile these data each calendar 

15To identify regulations deemed most burdensome, we interviewed institutions and 

rev1ewed comments made to regulators in !etters or public forums. We selected a nongenerallzab!e sample of10 community banks and 7 credit unions to include institutions 

with certain asset levels, loan activity characteristics, and geographic locations. After the 

interviews demonstrated that considerable consensus existed among institutions about 

the most burdensome regulations, we conducted six focus groups with 46 banks and 

credit unions to identify the characteristics of the regulations that made them burdensome. 

Where possible, we corroborated these findings by reviewing the comment letters 

regulators received from banks, credit unions, their trade associations and other parties as 

part of regulatory review efforts conducted under EGRPRA in 2014-2016. 

16See 12 U.S. C.§§ 2801-2810 and 12 C.F.R. pt 1003. Effective July 2011, the DoddFrank Act transferred HMDA rulemaking authority to CFPB. See 12 U.S C.§ 2804(a) and 

12 U.S.C. § 5481(12)(K). 

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year, and submit them to Institutions have also been required to 

make these data available to the public upon request, after modifying 

them to protect the privacy of applicants and borrowers." 

Representatives of many community banks and credit unions with whom 

we spoke said that complying with HMDA regulations was time 

consuming. For example, representatives from one community bank we 

interviewed said it completed about 1,100 transactions that required 

HMDA reporting in 2016, and that its staff spent about 16 hours per week 

complying with Regulation C. In one focus group, participants discussed 

how HMDA compliance was time consuming because the regulations 

were complex, which made determining whether a loan was covered and 

should be reported difficult. As a part of that discussion, one bank 

representative told us that it was not always clear whether a residence 

that was used as collateral for a commercial loan was a reportable 

mortgage under HMDA. In addition, representatives in all of our focus 

groups in which HMDA was discussed and in some interviews said that 

they had to provide additional staff training for HMDA compliance. Among 

the 28 community banks and credit unions whose representatives 

commented on HMDA in our focus groups, 61 percent noted having to 

conduct additional HMDA-related training. 

In most of our focus groups and three of our interviews, representatives of 

community banks and credit unions also expressed concerns about how 

federal bank examiners review HMDA data for errors. When regulatory 

examiners conducting compliance examinations determine that an 

institution's HMDA data has errors above prescribed thresholds, the 

institution has to correct and resubmit its data, further adding to the time 

required for compliance. While regulators have revised their procedures 

for assessing errors as discussed later, prior to 2018, if 10 percent or 

more of the loan/application registers that examiners reviewed had errors, 

an institution was required to review all of their data, correct any errors, 

17Through December 2017, institutions were required to subm!t their HMDA data to the 

Federal Reserve, which administered the data for all Federal Financial Institution 

Examination Council (FF!EC) agencies. As of January 2018, institutions submit their 

HMDA data to CFPB. 

"see 12 C.F.R. § 1003.5(c). CFPB will modify submitted HMDA data for public disclosure 

on the CFPB website for HMDA data reported on or after January 1, 2018. In response to 

a request for HMDA data from a member of the publlc, a covered institution will be 

required to provide a notice that its disclosure statement and modified data are available 

on the CFPB's website. 

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and resubmit them. If 5 percent or more of the reviewed loan/application 

registers had errors in a single data field, an institution had to review all 

other registers and correct the data in that field. 19 Participants in one 

focus group discussed how HMDA's requirements left them little room for 

error and that they were concerned that examiners weigh all HMDA fields 

equally when assessing errors. For example, representatives of one 

institution noted that for purposes of fair lending enforcement, errors in 

fields such as race and ethnicity can be more important than errors in the 

action taken date (the field for the date when a loan was originated or 

when an application not resulting in an origination was received). 

Representatives of one institution also noted that they no longer have 

access to data submission software that allowed them to verify the 

accuracy of some HMDA data, and this has led to more errors in their 

submissions. Representatives of another institution told us that they had 

to have staff conduct multiple checks of HMDA data to ensure the data 

met accuracy standards, which added to the time needed for compliance. 

Representatives of many community banks and credit unions with whom 

we spoke also expressed concerns that compliance requirements for 

HMDA were increasing. The Dodd-Frank Act included provisions to 

expand the information institutions must collect and submit under HMDA, 

and CFPB issued rules implementing these new requirements that mostly 

became effective January 2018. 20 In addition to certain new data 

requirements specified in the act, such as age and the total points and 

fees payable at origination, CFPB's amendments to the HMDA reporting 

requirements also added additional data points, including some intended 

to collect more information about borrowers such as credit scores, as well 

as more information about the features of loans, such as fees and 

19Subsequent to our focus groups, FFIEC member agencies issued revised data 

resubmission guidelines effective for the 2018 data collection year. Among other things, 

under the revised guidelines, testing will be divided into two stages. there will be 

tolerances for certain data fields, and the revised guidelines eliminate the file error 

resubmission threshold under which a financial institution would be directed to correct and 

resubmit its entire Loan Application Register (LAR) if the total number of sample files with 

one or more errors equaled or exceeded a certain threshold. 

20See Pub. L. No. 111-203, § 1094, 124 Stat. 2097 (2010) (codified as amended at 12 

U.S.C. § 2803(b)) and Home Mortgage Disclosure (Regulation C), 80 Fed. Reg. 66128 

(Oct. 28, 2015) 

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terms. 21 In the final rule implementing the new requirements, CFPB also 

expanded the types of loans on which some institutions must report 

HMDA data to include open-ended lines of credit and reverse mortgages. 

Participants in two of our focus groups with credit unions said reporting 

this expanded information will require more staff time and training and 

cause them to purchase new or upgraded computer software. 

In most of our focus groups, participants said that changes should be 

made to reduce the burdens associated with reporting HMDA data. For 

example, in some focus groups, participants suggested raising the 

threshold for institutions that have to file HMDA reports above the then 

current $44 million in assets, which would reduce the number of small 

banks and credit unions that are required to comply. Representatives of 

two institutions noted that because small institutions make very few loans 

compared to large ones, their contribution to the overall HMDA data was 

of limited value in contrast to the significant costs to the institutions to 

collect and report the data. Another participant said their institution 

sometimes make as few as three loans per month. In most of our focus 

groups, participants also suggested that regulators could collect mortgage 

data in other ways. For example, one participant discussed how it would 

be less burdensome for lenders if federal examiners collected data on 

loan characteristics during compliance examinations. 

However, staff of federal regulators and consumer groups said that 

HMDA data are essential for enforcement of fair lending laws and 

regulations. 22 Representatives of CFPB, FDIC, NCUA, and OCC and 

groups that advocate for consumer protection issues said that HMDA 

data has helped address discriminatory practices. For example, some 

representatives noted a decrease in "redlining" (refusing to make loans to 

certain neighborhoods or communities). CFPB staff noted that HMDA 

data provides transparency about lending markets, and that HMDA data 

21The new fields thatwm be required to be included in HMDA reports after January 2018 

include applicant or borrower age, credit score, automated underwriting system 

information, unique loan identifier, property value, application channel, points and fees, 

borrower~paid origination charges, discount points, lender credits, loan term, prepayment 

penalty, nonamortizing loan features, interest rate, and loan originator identifier as well as 

other data. See Home Mortgage Disclosure (Regulation C). 80 Fed. Reg. 66128 (Oct. 28, 

2015). 

22Among other things, the act is intended to provide data that can help the public and 

policymakers determine whether financial institutions are serving the housing needs of 

their communities and to assist in identifying possible discriminatory lending patterns and 

enforcing antidiscrimination statutes. See 12 U.S. C.§ 2801(b) and 12 C.F.R. 1003.1(b)(1). 

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from community banks and credit unions is critical for this purpose, 

especially in some rural parts of the country where they make the majority 

of mortgage loans. While any individual institution's HMDA reporting 

might not make up a large portion of HMDA data for an area, CFPB staff 

told us that if all smaller institutions were exempted from HMDA 

requirements, regulators would have little or no data on the types of 

mortgages or on lending patterns in some areas. 

Agency officials also told us that lew good alternatives to HMDA data 

exist and that the current collection regime is the most effective available 

option lor collecting the data. NCUA officials noted that collecting 

mortgage data directly from credit unions during examinations to enforce 

fair lending rules likely would be more burdensome for the institutions. 

CFPB staff and consumer advocates we spoke with also said that HMDA 

provides a low-cost data source for researchers and local policy makers, 

which leads to other benefits that cannot be directly measured but are 

included in HMDA's statutory goals-such as allowing local policymakers 

to target community investments to areas with housing needs. 23 

While representatives of some community banks and credit unions 

argued that HMDA data were no longer necessary because practices 

such as redlining have been reduced and they receive few requests for 

HMDA data from the public, representatives of some consumer advocate 

groups responded that eliminating the transparency that HMDA data 

creates could allow discriminatory practices to become more common. 

CFPB staff and representatives of one of these consumer groups also 

said that before the financial crisis of 2007-2009, some groups were not 

being denied credit outright but instead were given mortgages with terms, 

such as high interest rates, which made them more likely to default. The 

expanded HMDA data will allow regulators to detect such problematic 

lending practices for mortgage terms. CFPB and FDIC staff also told us 

that while lenders will have to collect and report more information, the 

new fields will add context to lending practices and should reduce the 

likelihood of incorrectly flagging institutions for potential discrimination. 

For example, with current data, a lender may appear to be denying 

mortgage applications to a particular racial or ethnic group, but with 

expanded data that includes applicant credit scores, regulators may 

230ne of HMDA's purposes is to assist public officials in distributing pub!ic~sector 

investmentto attract private investment to areas in which it 1s needed. See 12 U.S.C. § 

2801(b). 

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determine that the denials were appropriate based on credit score 

underwriting. 

CFPB staff acknowledged that HMDA data collection and reporting may 

be time consuming, and said they have taken steps to reduce the 

associated burdens for community banks and credit unions. 

First, in its final rule implementing the Dodd-Frank Act's expanded 

HMDA data requirements, CFPB added exclusions for banks and 

credit unions that make very few mortgage loans. Effective January 

2018, an institution will be subject to HMDA requirements only if it has 

originated at least 25 closed-end mortgage loans or at least 100 

covered open-end lines of credit in each of the 2 preceding calendar 

years and also has met other applicable requirements. In response to 

concerns about the burden associated with the new requirement for 

reporting open-end lines of credit, in 2017. CFPB temporarily 

increased the threshold for collecting and reporting data for open-end 

lines of credit from 100 to 500 for the 2018 and 2019 calendar 

years. 24 CFPB estimated that roughly 25 percent of covered 

depository institutions will no longer be subject to HMDA as a result of 

these exclusions. 

Second, the Federal Financial Institutions Examination Council 

(FFIEC), which includes CFPB, announced the new FFIEC HMDA 

Examiner Transaction Testing Guidelines that specify when agency 

examiners should direct an institution to correct and resubmit its 

HMDA data due to errors found during supervisory examinations. 25 

CFPB said these revisions should greatly reduce the burden 

associated with resubmissions. Under the revised standards, 

institutions will no longer be directed to resubmit all their HMDA data if 

they exceeded the threshold for HMDA files with errors, but will still be 

directed to correct specific data fields that have errors exceeding the 

24Financial institutions originating fewer than 500 open-end lines of credit in either of the 2 

preceding years will not be required to begin collecting such data until January 1, 2020. 

See Home Mortgage Disclosure (Regulation C), 82 Fed. Reg. 43088 (Sept. 13, 2017). 

25Federa! Financial Institutions Examination Council, FF!EC HMDA Examiner Transaction 

Testing Guidelines {Washington, D.C .. Aug. 22, 2017) for accessed OctoberS. 2017 at 

https://wwvv.consumerfinance.gov/about-us/blog/heres~what·you~need-know-about-newfflec-hmda-examiner-transaction-test!ng..guidelines/. 

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specified threshold. 26 The revised guidelines also include new 

tolerances for some data fields, such as application date and loan 

amount. 

Third, CFPB also introduced a new online system for submitting 

HMDA data in November 2017. CFPB staff said that the new system, 

the HMDA Platform, will reduce errors by including features to allow 

institutions to validate the accuracy and correct the formatting of their 

data before submitting. 27 They also noted that this platform will reduce 

burdens associated with the previous system for submitting HMDA 

data. For example, institutions no longer will have to regularly 

download software, and multiple users within an institution will be able 

to access the platform. NCUA officials added that some credit unions 

had tested the system and reported that it reduced their reporting 

burden. 

Finally, on December 21, 2017, CFPB issued a public statement 

announcing that, for HMDA data collected in 2018, CFPB does not 

intend to require resubmission of HMDA data unless errors are 

material, and does not intend to assess penalties for errors in 

submitted data. CFPB also announced that it intends to open a rule 

making to reconsider various aspects of the 2015 HMDA rule, such as 

the thresholds for compliance and data points that are not required by 

statute. 

26The thresholds for data resubmiss1on in a single HMDA data field are based on the 

number of loans that an institution made in the previous year, and range from 2.5 percent 

for banks that made more than 100,000 loans to 10 percent for Institutions that made 100 

loans or fewer. 

27Th is software is available at https://wvvw.consumerfinance.gov/data~research/hmda/for~ 

filers. 

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Institutions Found 

BSAIAML Regulations 

Burdensome and 

Regulators Have Been 

Considering Steps to 

Reduce Burden 

In all our focus groups and many of our interviews, participants said they 

found BSAIAML requirements to be burdensome due to the staff time and 

other costs associated with their compliance efforts. 28 To provide 

regulators and law enforcement with information that can aid in pursuing 

criminal, tax, and regulatory investigations, BSA/AML statutes and 

regulations require covered financial institutions to 

file Currency Transaction Reports (CTR) for cash transactions 

conducted by a customer for aggregate amounts of more than 

$10,000 per day and Suspicious Activity Reports (SAR) for activity 

that might signal criminal activity (such as money laundering or tax 

evasion); and 

establish BSA/AML compliance programs that include efforts to 

identify and verify customers' identities and monitor transactions to 

report, for example, transactions that appear to violate federal law. 29 

Participants in all of our focus groups discussed how BSA/AML 

compliance was time-consuming, and in most focus groups participants 

said this took time away from serving customers. For example, 

representatives of one institution we interviewed told us that completing a 

single SAR could take 4 hours, and that they might complete 2 to 5 SARs 

per month. However, representatives of another institution said that at 

28The Currency and Foreign Transactions Reporting Act, commonly known as the Bank 

Secrecy Act (BSA). as amended by the Uniting and Strengthening America by Providing 

Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 {USA 

PATRIOT Act), establishes reporting, recordkeeping, and other anti-money laundering 

requirements for financial institutions, including a customer identification program and 

performance of customer due diligence or enhanced due diligence ln certain situations, 

unless they are exempted by regulation. Pub. L. No. 91-508, tits. I and IL 84 Stat. 1114 

(1970) (codified as amended at 12 U.S. C.§§ 1829b, 1951-1959: 18 U.S. C.§§ 1956-1957 

and 1960: and 31 U.S. C.§§ 5311-5314 and 5316-5332); Pub. L. No. 107-506, § 352, 115 

Stat. 272,322 (codified at31 U.S.C. § 5318(h)). Additionally. during BSNAML 

examinations, regulators evaluate institutions' programs for identifying and reporting 

transactions that involve sanctioned countries and persons to ensure they comply with the 

economic sanctions administered and enforced by the Office of Foreign Assets Control. 

29Financial institutions are required to have AML compliance programs that incorporate {1) 

compliance policies, procedures, and controls; (2) an independent audit review; (3) the 

designation of an individual to assure day~to-day compliance: and {4) ongoing training for 

appropriate personnel. See 31 U.S.C. § 5318(h)(1). Financial institutions also must satisfy 

the elements of the customer identification and customer due diligence programscollectively, the Know Your Customer process-which includes having written risk-based 

procedures for verifying the identity of each customer, verifying the identify of ITbenefic!al 

owners" of legal-entity customers, and conducting ongoing monitoring to maintain 

customer identification and identify suspicious transactions. See 31 C.F.R. § 

1020.220(a)(2) and§ 1010.230, 

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some times of the year it has filed more than 300 SARs per month. In a 

few cases, representatives of institutions saw BSA/AML compliance as 

burdensome because they had to take actions that seemed unnecessary 

based on the nature of the transactions. For example, one institution's 

representatives said that filing a CTR because a high school band 

deposited more than $10,000 after a fundraising activity seemed 

unnecessary, while another's said that it did not see the need to file SARs 

for charitable organizations that are well known in their community. 

Representatives of institutions in most of our focus groups also noted that 

BSNAML regulations required additional staff training. Some of these 

representatives noted that the requirements are complex and the 

activities, such as identifying transactions potentially associated with 

terrorism, are outside of their frontline staffs core competencies. 

Representatives in all focus groups and a majority of interviews said BSA 

imposes financial costs on community banks and credit unions that must 

be absorbed by those institutions or passed along to customers. In most 

of our focus groups, representatives said that they had to purchase or 

upgrade software systems to comply with BSNAML requirements, which 

can be expensive. Some representatives also said they had to hire third 

parties to comply with BSA/AML regulations. Representatives of some 

institutions also noted that the compliance requirements do not produce 

any material benefits for their institutions. 

In most of our focus groups, participants were particularly concerned that 

the compliance burden associated with BSNAML regulations was 

increasing. In 2016, FinCEN-the bureau in the Department of the 

Treasury that administers BSA/AML rules-issued a final rule that 

expanded due-diligence requirements for customer identification. The 

final rule was intended to strengthen customer identification programs by 

requiring institutions to obtain information about the identities of the 

beneficial owners of businesses opening accounts at their institutions. 30 

The institutions covered by the rule are expected to be in compliance by 

May 11,2018. Some representatives of community banks and credit 

unions that we spoke with said that this new requirement will be 

30Under the final rule, the beneficial owners of a legal entity include each individual, \f any, 

who directly or indirectly owns 25 percent or more of the legal entity; and a single 

individual with significant responsibility to control, manage, or direct the legal entity, such 

as an executive officer or senior manager. Customer Due Diligence Requirements for 

Financial Institutions. 81 Fed. Reg. 29398 (May 11, 2016) (codified at 31 C.F.R. pts. 1010, 

1020, 1023, 1024, and 1026). 

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burdensome. For example, one community bank's representatives said 

the new due-diligence requirements will require more staff time and 

training and cause them to purchase new or upgraded computer systems. 

Representatives of some institutions also noted that accessing beneficial 

ownership information about companies can be difficult, and that entities 

that issue business licenses or tax identification numbers could perform 

this task more easily than financial institutions. 

In some of our focus groups, and in some comment letters that we 

reviewed that community banks and credit unions submitted to bank 

regulators and NCUA as part of the EGRPRA process, representatives of 

community banks and credit unions said regulators should take steps to 

reduce the burdens associated with BSNAML. Participants in two of our 

focus groups and representatives of two institutions we interviewed said 

that the $10,000 CTR threshold, which was established in 1972, should 

be increased, noting it had not been adjusted for inflation. One participant 

told us that if this threshold had been adjusted for inflation over time, it 

likely would be filing about half of the number of CTRs that it currently 

files. In several focus groups, participants also indicated that transactions 

that must be checked against the Office of Foreign Assets Control list 

also should be subject to a threshold amount. Representatives of one 

institution noted that they have to complete time-consuming compliance 

work for even very small transactions (such as less than $1). 

Representatives of some institutions suggested that the BSA/AML 

requirements be streamlined to make it easier for community banks and 

credit unions to comply. For example, representatives of one institution 

that participated in the EGRPRA review suggested that institutions could 

provide regulators with data on all cash transactions in the format in 

which they keep these records rather than filing CTRs. Finally, 

participants in one focus group said that regulators should better 

communicate how the information that institutions submit contributes to 

law enforcement successes in preventing or prosecuting crimes. 

Staff from FinCEN told us that the reports and due-diligence programs 

required in BSA/AML rules are critical to safeguarding the U.S. financial 

sector from illicit activity, including illegal narcotics and terrorist financing 

activities. They said they rely on CTRs and SARs that financial institutions 

file for the financial intelligence they disseminate to law enforcement 

agencies, and noted that they saw all BSA/AML requirements as 

essential because activities are designed to complement each other. 

Officials also pointed out that entities conducting terrorism, human 

trafficking, or fraud all rely heavily on cash, and reporting frequently made 

deposits makes tracking criminals easier. They said that significant 

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reductions in BSNAML reporting requirements would hinder law 

enforcement, especially because depositing cash through ATMs has 

become very easy. 

FinCEN staff said they utilize a continuous evaluation process to look for 

ways to reduce burden associated with BSNAML requirements, and 

noted actions taken as a result. They said that FinCEN has several 

means of soliciting feedback about potential burdens, including through 

its Bank Secrecy Act Advisory Group that consists of industry, regulatory, 

and law enforcement representatives who meet twice a year, and also 

through public reporting and comments received through FinCEN's 

regulatory process. FinCEN officials said that based on this advisory 

group's recommendations, the agency provided SAR filing relief by 

reducing the frequency of submission for written SAR summaries on 

ongoing activity from 90 days to 120 days. FinCEN also has recognized 

that financial institutions do not generally see the beneficial impacts of 

their BSA/AML efforts, and officials said they have begun several different 

feedback programs to address this issue. 

FinCEN staff said they have been discussing ways to improve the CTR 

filing process, but in response to comments obtained as part of a recent 

review of regulatory burden they noted that the staff of law enforcement 

agencies do not support changing the $10,000 threshold for CTR 

reporting. 31 FinCEN officials said that they have taken some steps to 

reduce the burden related to CTR reporting, such as by expanding the 

ability of institutions to seek CTR filing exemptions, especially for low-risk 

customers. FinCEN is also utilizing its advisory group to examine aspects 

of the CTR reporting obligations to assess ways to reduce reporting 

burden, but officials said it is too early to know the outcomes of the effort. 

However, FinCEN officials said that while evaluation of certain reporting 

thresholds may be appropriate, any changes to them or other CTR 

requirements to reduce burden on financial institutions, must still meet the 

needs of regulators and law enforcement, and prevent misuse of the 

financial system. 

FinCEN staff also said that some of the concerns raised about the 

upcoming requirements on beneficial ownership may be based on 

31We discuss this regulatory review process (EGRPRA) in the next section of this report 

FinCEN officials said that the law enforcement agencies they spoke with included the 

Federal Bureau of Investigation, the Internal Revenue Service, and the Drug Enforcement 

Agency. 

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Institutions Found New 

Mortgage Term Disclosure 

Rules Burdensome, but 

Some May Be 

Misinterpreting 

Requirements 

misunderstandings of the rule. FinCEN officials told us that under the final 

rule, financial institutions can rely on the beneficial ownership information 

provided to them by the entity seeking to open the account. Under the 

final rule, the party opening an account on behalf of the legal entity 

customer is responsible for providing beneficial ownership information, 

and the financial institution may rely on the representations of the 

customer unless it has information that calls into question the accuracy of 

those representations. The financial institution does not have to confirm 

ownership; rather, it has to verify the identity of the beneficial owners as 

reported by the individual seeking to open the account, which can be 

done with photocopies of identifying documents such as a driver's 

license. FinCEN issued guidance explaining this aspect of the final rule in 

2016. 32 

In all of our focus groups and many of our interviews, representatives of 

community banks and credit unions said that new requirements 

mandating consolidated disclosures to consumers for mortgage terms 

and fees have increased the time their staff spend on compliance, 

increased the cost of providing mortgage lending services, and delayed 

the completion of mortgages for customers. The Dodd Frank Act directed 

CFPB to issue new requirements to integrate mortgage loan disclosures 

that previously had been separately required by the Truth-in-Lending Act 

(TILA) and the Real Estate Settlement Procedures Act (RESPA). and 

their implementing regulations, Regulation Z and X, respectively. 33 

Effective in October 2015, the combined TILA-RESPA Integrated 

Disclosure (known as TRIO) requires mortgage lenders to disclose certain 

mortgage terms, conditions, and fees to loan applicants during the 

origination process for certain mortgage loans and prescribe how the 

disclosures should be made." The disclosure provisions also require 

32Financial Crimes Enforcement Network, Frequently Asked Questions Regarding 

Customer Due Diligence Requirements for Financial Institutions, FIN-2016--G003 

{Washmgton, D.C: July 1R 2016), accessed September 28, 2017 at 

https flwww.frncen.gov/sites/defaultfflles/2016-

09fFAQs_for_CDD_Fmai_Rule_%287 _15_16"/o29.pdL 

33See Pub. L. No. 111-203, § 1032(D. 124 Stat. 1376,2007 (2010) (codified at 12 U.S.C. 

§ 5532(0); see also 15 U.S.C. § 1604. 

34See Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act 

(Regulation X) and the Truth-in-Lending Act (Regulation Z), 78 Fed. Reg. 79730 (Dec. 31, 

2013), TRIO stands for TILA-RESPA Integrated Disclosure, which combined previously 

separate disclosures required under the Truth-in-Lending Act and the Rea! Estate 

Settlement Procedures Act. 

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lenders, in the absence of specified exceptions, to reimburse or refund to 

borrowers portions of certain fees that exceed the estimates previously 

provided in order to comply with the revised regulations. 

Under TRIO, lenders generally must provide residential mortgage loan 

applicants with two forms, and deliver these documents within specified 

time frames (as shown in fig. 1). 

Within 3 business days of an application and at least 7 business days 

before a loan is consummated, lenders must provide the applicant 

with the loan estimate, which includes estimates for all financing costs 

and fees and other terms and conditions associated with the potential 

loan. 35 If circumstances change after the loan estimate has been 

provided (for example, if a borrower needs to change the loan 

amount), a new loan estimate may be required. 

At least 3 days before a loan is consummated, lenders must provide 

the applicant with the closing disclosure, which has the loan's actual 

terms, conditions, and associated fees. If the closing disclosure is 

mailed to an applicant, lenders must wait an additional 3 days for the 

applicant to receive it before they can execute the loan, unless they 

can demonstrate that the applicant has received the closing 

disclosure. 

If the annual percentage rate or the type of loan change after the 

closing disclosure is provided, or if a prepayment penalty is added, a 

new closing disclosure must be provided and a new 3-day waiting 

period is required. Other changes made to the closing disclosure 

require the provision of a revised closing disclosure, but a new 3-day 

waiting period is not required. 

If the fees in the closing disclosure are more than the fees in the loan 

estimate (subject to some exceptions and tolerances discussed later in 

this section), the lender must reimburse the applicant for the amount of 

the increase in order to comply with the applicable regulations. 

35Consummation occurs when the borrower becomes contractually obligated to the 

creditor on the loan. ConsummatiOn may commonly occur at the same time as closing or 

settlement. but it is a legally distinct event. The point in time when a borrower becomes 

contractually obligated to the creditor on the loan depends on applicable state law. CFPB 

instructs creditors and settlement agents to verify the applicable state laws to determine 

when consummation will occur and make sure dehvery of the closing disclosure occurs at 

least 3 days before that event For additional information, see CFPB TfLA-RESPA 

Integrated Disclosure Rule Smalf Entity Compliance Guide (Washington, D.C.: March 

2014). 

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Figure 1: Timeline of TILA~RESPA Integrated Disclosure Requirements 

Within 3 At least 7 business days 

Source GAO analy$fS o! apphcable sta\Utes and regulations. I GAO- 18·213 

Note; TILA =Truth-in-Lending Act and RESPA =the Real Estate Settlement Procedures Act. 

In all of our focus groups and most of our interviews, representatives of 

community banks and credit unions said that TRIO has increased the time 

required to comply with mortgage disclosure requirements and increased 

the cost of mortgage lending. In half of our focus groups, participants 

discussed how they have had to spend additional time ensuring the 

accuracy of their initial estimates of mortgage costs, including fees 

charged by third parties, in part because they are now financially 

responsible for changes in fees during the closing process. Some 

participants also discussed how they have had to hire additional staff to 

meet TRIO's requirements. In one focus group of community banks, 

participants described how mortgage loans frequently involve the use of 

multiple third parties, such as appraisers and inspectors, and obtaining 

accurate estimates of the amounts these parties will charge for their 

services within the 3-day period prescribed by TRIO can be difficult. The 

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community banks we spoke with also discussed how fees from these 

parties often change at closing, and ensuring an accurate estimate at the 

beginning of the process was not always possible. As a result, some 

representatives said that community banks and credit unions have had to 

pay to cure or correct the difference in changed third-party fees that are 

outside their control. In most of our focus groups and some of our 

interviews, representatives told us that this TRIO requirement has made 

originating a mortgage more costly for community banks and credit 

unions. 

Community banks and credit unions in half of our focus groups and some 

of our interviews also told us that TRIO's requirements are complex and 

difficult to understand, which adds to their compliance burden. 

Participants in one focus group noted that CFPB's final rule implementing 

TRIO was very long-the rule available on CFPB's website is more than 

1,800 pages including the rule's preamble-and has many scenarios that 

require different actions by mortgage lenders or trigger different 

responsibilities as the following examples illustrate. 

Some fees in the loan estimate, such as prepaid interest, may be 

subsequently changed provided that the estimates were in good faith. 

Other fees, such as for third-party services where the charge is not 

paid to the lender or the lender's affiliate, may be changed by as 

much as 1 0 percent in aggregate before the lender becomes liable for 

the difference. 

However, for some charges the lender must reimburse or refund to 

the borrower portions of subsequent increases, such as fees paid to 

the creditor, mortgage broker, or a lender affiliate, without any 

percentage tolerance. 

Based on a poll we conducted in all six focus groups, 40 of 43 

participants said that they had to provide additional training to staff to 

ensure that TRIO's requirements were understood, which takes additional 

time from serving customers. 

In all of our focus groups and most of our interviews, community banks 

and credit unions also said that TRIO's mandatory waiting periods and 

disclosure schedules increased the time required to close mortgage 

loans, which created burdens for the institutions and their customers. 

Several representatives we interviewed told us that TRIO's waiting 

periods led to delays in closings of about 15 days. The regulation 

mandates that mortgage loans generally cannot be consummated sooner 

than 7 business days after the loan estimate is provided to an applicant, 

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and no sooner than 3 business days after the closing disclosure is 

received by the applicant If the closing disclosure is mailed, the lender 

must add another 3 business days to the closing period to allow for 

delivery. Representatives in some of our focus groups said that when 

changes needed to be made to a loan during the closing period, TRID 

requires them to restart the waiting periods, which can increase delays. 

For example, if the closing disclosure had been provided, and the loan 

product needed to be changed, a new closing disclosure would have to 

be provided and the applicant given at least 3 days to review it. Some 

representatives we interviewed said that their customers are frustrated by 

these delays and would like to close their mortgages sooner than TRID 

allows. Others said that TRIO's waiting periods decreased flexibility in 

scheduling the closing date, which caused problems for homebuyers and 

sellers (for instance, because transactions frequently have to occur on the 

same day). 

However, CFPB officials and staff of a consumer group said that TRID 

has streamlined previous disclosure requirements and is important for 

ensuring that consumers obtaining mortgages are protected. CFPB 

reported that for more than 30 years lenders have been required by law to 

provide mortgage disclosures to borrowers, and CFPB staff noted that 

prior time frames were similar to those required by TRID and Regulation 

Z. CFPB also noted that information on the disclosure forms that TRI D 

replaced was sometimes overlapping, used inconsistent terminology, and 

could confuse consumers. In addition, CFPB staff and staff of a consumer 

group said that the previous disclosures allowed some mortgage-related 

fees to be combined, which prevented borrowers from knowing what 

charges for specific services were. They said that TRID disclosures better 

highlight important items for home buyers, allowing them to more readily 

compare loan options. Furthermore, CFPB staff told us that before TRID, 

lenders and other parties commonly increased a mortgage loan's fees 

during the closing process, and then gave borrowers a "take it or leave it" 

choice just before closing. As a result, borrowers often just accepted the 

increased costs. CFPB representatives said that TRID protects 

consumers from this practice by shifting the responsibility for most fee 

increases to lenders, and increases transparency in the lending process. 

CFPB staff told us that it is too early to definitively identify what impact 

TRID has had on borrowers' understanding of mortgage terms, but told us 

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that some information they have seen indicated that it has been helpful. 36 

For example, CFPB staff said that preliminary results from the National 

Survey of Mortgage Originations conducted in 2017 found that consumer 

confidence in mortgage lending increased. 37 While CFPB staff said that 

this may indicate that TRIO, which became effective in October 2015, has 

helped consumers better understand mortgage terms, they noted that the 

complete survey results are not expected to be released until2018. CFPB 

staff said that these results should provide valuable information on how 

well consumers generally understood mortgage terms and whether 

borrowers were comparison shopping for loans that could be used to 

analyze TRIO's effects on consumer understanding of mortgage products. 

CFPB staff also told us that complying with TRIO should not result in 

significant time being added to the mortgage closing process. Based on 

the final rule, they noted that TRIO's waiting periods should not lead to 

delays of more than 3 days. CFPB staff also pointed out that the overall 

7 -day waiting period and the 3-day waiting period can be modified or 

waived if the consumer has a bona fide personal financial emergency, 

and thus should not be creating delays for those consumers. To waive the 

waiting period, consumers have to provide the lender with a written 

statement that describes the emergency. CFPB staff also said that 

closing times are affected by a variety of factors and can vary 

substantially, and that the delays that community banks and credit unions 

we spoke with reported may not be representative of the experiences of 

other lenders. A preliminary CFPB analysis of industry-published 

mortgage closing data found that closing times increased after it first 

implemented TRIO, but that the delays subsequently declined. CFPB staff 

also said that they plan to analyze closing times using HMOA data now 

that they are collecting these data, and that they expect that delays that 

community banks and credit unions may have experienced so far would 

decrease as institutions adjusted to the new requirements. 

Based on our review of TRIO's requirements and discussions with 

community banks and credit unions, some of the burden related to TRIO 

36As part of the rulemaklng process, CFPB conducted a cost-benefit analysis that 

indicated the rule would benefit consumers without imposing significant burdens on 

covered parties. 

37The Federal Housing Finance Administration and CFPB conduct the survey every 2 

years. CFPB officials said that the most recent survey for which complete data are 

available was conducted in 2015, and therefore did not reflect the impact of TRIO 

implementation. 

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that community banks and credit unions described appeared to result 

from institutions taking actions not required by regulations, and 

community banks and credit unions told us they still were confused about 

TRID requirements. For example, representatives of some institutions we 

interviewed said that they believed TRID requires the entire closing 

disclosure process to be restarted any time any changes were made to a 

loan's amount. CFPB staff told us that this is not the case, and that 

revised loan estimates can be made in such cases without additional 

waiting periods. Representatives of several other community banks and 

credit unions cited 5- and 1 0-day waiting periods not in TRID 

requirements, or believed that the 7-day waiting period begins after the 

closing disclosure is received by the applicant, rather than when the loan 

estimate is provided. Participants in one focus group discussed that they 

were confused about when to provide disclosures and what needs to be 

provided. Representatives of one credit union said that if they did not 

understand a requirement, it was in their best interest to delay closing to 

ensure they were in compliance. 

CFPB staff said that they have taken several steps to help lenders 

understand TRID requirements. CFPB has published a Small Entity 

Compliance Guide and a Guide to the Loan Estimate and Closing 

Disclosure Forms. 38 As of December 2017, these guides were accessible 

on a TRID implementation website that has links to other information 

about the rule, as well as blank forms and completed samples. 39 CFPB 

staff told us that the bureau conducted several well-attended, in-depth 

webinars to explain different aspects of TRID, including one with more 

than 20,000 participants, and that recordings of the presentations 

remained available on the bureau's TRID website. CFPB also encourages 

institutions to submit questions about TRID through the website, and the 

staff said that they review submitted questions for any patterns that may 

indicate that an aspect of the regulation is overly burdensome. 

38Consumer Financial Protection Bureau, T/LA-RESPA Integrated Disclosure Rule, Small 

Entity Compliance Guide {Washington, D.C.: October 2016), accessed on December 14, 

2017, at https://www.consumerfinance.gov/policy-compliance/guidance/implementationguidance/tlla-respa-disclosure-ru!e/. 

39See https://www.consumerfinance.gov/po!icy-comp\iance/guidance/implementationguidance/ti!a-respa-disclosure-ru!e/. 

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However, the Mortgage Bankers Association reported that CFPB's 

guidance for TRID had not met the needs of mortgage lenders. ' 0 In a 

2017 report on reforming CFPB, this association stated that timely and 

accessible answers to frequently asked questions about TRID were still 

needed, noting that while CFPB had assigned staff to answer questions, 

these answers were not widely circulated'' The association also reported 

that it had made repeated requests for additional guidance related to 

TRID, but the agency largely did not respond with additional materials in 

response to these requests. 

Although we found that misunderstandings of TRID requirements could 

be creating unnecessary compliance burdens for some small institutions, 

CFPB had not assessed the effectiveness of the guidance it provided to 

community banks and credit unions. Under the Dodd-Frank Act, CFPB 

has a general responsibility to ensure its regulations are not unduly 

burdensome, and internal control standards direct federal agencies to 

analyze and respond to risks related to achieving their defined objectives. 

However, CFPB staff said that they have not directly assessed how well 

community banks and credit unions have understood TRID requirements 

and acknowledged that some of these institutions may be applying the 

regulations improperly. They said that CFPB intends to review the 

effectiveness of its guidance, but did not indicate when this review would 

be completed. Until the agency assesses how well community banks and 

credit unions understand TRID requirements, CFPB may not be able to 

effectively respond to the risk that some smaller institutions have 

implemented TRID incorrectly, unnecessarily burdening their staff and 

delaying consumers' home purchases. 

40Mortgage Bankers Association, CFPB 2.0: Advancing Consumer Protection 

(Washington, D.C.: August 2017), accessed on Dec<>mber 14, 2017, at· 

https:/lwww.mba.org/issues/resldential-issuesfcfpb-20~advancing-consumer-protection. 

41CFPB made an audio recording of answers to frequently asked questions available on 

its website, but as of December 2017 had not published a document with these answers. 

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Community Banks and 

Credit Unions Appeared to 

Be Receiving Applicable 

Regulatory Exemptions, 

but Expressed Concerns 

about Examiner 

Expectations 

We did not find that regulators directed institutions to comply with 

regulations from which they were exempt, although institutions were 

concerned about the appropriateness of examiner expectations. To 

provide regulatory relief to community banks and credit unions, Congress 

and regulators have sometimes exempted smaller institutions from the 

need to comply with all or part of some regulations. Such exemptions are 

often based on the size of the financial institution or the level of particular 

activities. For example, CFPB exempted institutions with Jess than $45 

million in assets and fewer than 25 closed-end mortgage loans or 500 

open-end Jines of credit from the expanded HMOA reporting 

requirements. In January 2013, CFPB also included exemptions for some 

institutions in a rule related to originating loans that meet certain 

characteristics-known as qualified mortgages-in order for the 

institutions to receive certain liability protections if the loans later go into 

default. To qualify for this treatment, the lenders must make a good faith 

effort to determine a borrower's ability to repay a loan and the loan must 

not include certain risky features (such as interest-only or balloon 

payments). In its final rule, CFPB included exemptions that allow small 

creditors to originate loans with certain otherwise restricted features (such 

as balloon payments) and still be considered qualified mortgage loans'' 

Concerns expressed to legislators about exemptions not being applied 

appeared to be based on misunderstandings of certain regulations. For 

example, in June 2016, a bank official testified that he thought his bank 

would be exempt from all of CFPB's requirements. However, CFPB's 

rules applicable to banks apply generally to all depository institutions, 

although CFPB only conducts compliance examinations for institutions 

with assets exceeding $10 billion. The depository institution regulators 

continue to examine institutions with assets below this amount (the 

overwhelming majority of banks and credit unions) for compliance with 

regulations enacted by CFPB. 

Although not generalizable, our analysis of select examinations did not 

find that regulators directed institutions to comply with requirements from 

which they were exempt. In our interviews with representatives from 17 

42 A small creditor, under CFPB's current rules, is a creditor that 1) together with its 

affiliates, must not have extended more than 2,000 covered transactions secured by first 

liens (excluding loans held in portfolio) in the preceding calendar year (with certain 

exceptions); and (2) together, With its affiliates that regularly extended covered 

transactions, must have had less than $2 billion in in total assets (adjusted annually) as of 

the end of the preceding calendar years (with certain exceptions). 

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community banks and credit unions, none of the institutions' 

representatives identified any cases in which regulators required their 

institution to comply with a regulatory requirement from which they should 

have been exempt. We also randomly selected and reviewed examination 

reports and supporting material for 28 examinations conducted by the 

regulators to identify any instances in which the regulators had not 

applied exemptions. 43 From our review of the 28 examinations, we found 

no instances in the examination reports or the scoping memorandums 

indicating that examiners had required these institutions to comply with 

the regulations covered by the eight selected exemptions. Because of the 

limited number of the examinations we reviewed, we cannot generalize 

our findings to the regulatory treatment of all institutions qualifying for 

exemptions. 

Although not identifying issues relating to exemptions, representatives of 

community banks and credit unions in about half of our interviews and 

focus groups expressed concerns that their regulators expected them to 

follow practices they did not feel corresponded to the size or risks posed 

by their institutions. For example, representatives from one institution we 

interviewed said that examiners directed them to increase BSA/AML 

activities or staff, whereas they did not see such expectations as 

appropriate for institutions of their size. Similarly, in public forums held by 

regulators as part of their EGRPRA reviews (discussed in the next 

43For this analysis, we identified eight exemptions in regulations, resulting from the DoddFrank Act that apply to banks and credit unions wlth less than $1 billion in assets. Under 

the CFPB's current rules, these exemptions included (1) a special category of qualified 

mortgage, which applies to creditors that, together with their affiliates, did not originate 

more than 2,000 first-lien covered transactions (excluding loans held in portfolio) in the 

preceding calendar year; had, with their affiliates that regularly extended covered 

transactions. less than $2 billion in assets at the end of the proceeding calendar year; and, 

for an exemption allowing the origination of balloon payment qualified mortgages. 

originated a first-hen covered transaction on a property located in a rural or underserved 

area in the proceeding calendar year; (2) escrow account exemption-which applies to 

creditors that meet both the same small creditor, and small creditor operating in a rural or 

underserved area, requirements specified above for the qualified mortgage exemption; (3) 

TRIO exemption-which applles to !enders that normally do not extend consumer cred1t; 

(4) appraisals for higher-priced mortgages exemption-which applies to creditors of 

mortgage transactions of $25,000 or less and creditors of certain manufactured home 

loans: (5) mortgage servicing exemption-which applies to servicers that service 5,000 

and less mortgage loans; (6) international remittances exemption-which applies to 

companies that consistently provide 100 or fewer remittance transfers per year: (7) debit 

interchanges fee cap exemption-which applies to issuers, together with their affiliates, 

that have less than $10 bH!ion in assets; and (8) regulatory capital rule stress test 

exemption-which applies to banks with less than $10 bilhon in total assets (they are not 

required or expected to conduct institution-wide stress testing). 

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section) a few bank representatives stated that regulators sometimes 

considered compliance activities by large banks to be best practices, and 

then expected smaller banks to follow such practices. However, institution 

representatives in the public forums and in our interviews and focus 

groups that said sometimes regulators' expectations for their institutions 

were not appropriate, but did not identify specific regulations or practices 

they had been asked to consider following when citing these concerns. 

To help ensure that applicable exemptions and regulatory expectations 

are appropriately applied, federal depository institution regulators told us 

they train their staff in applicable requirements and conduct senior-level 

reviews of examinations to help ensure that examiners only apply 

appropriate requirements and expectations on banks and credit unions. 

Regulators said that they do not conduct examinations in a one-size-fitsall manner, and aim to ensure that community banks and credit unions 

are held to standards appropriate to their size and business model. To 

achieve this, they said that examiners undergo rigorous training. For 

example, FDIC staff said that its examiners have to complete four core 

trainings and then receive ongoing on-the-job instruction. Each of the four 

regulators also said they have established quality assurance programs to 

review and assess their examination programs periodically. For example, 

each Federal Reserve Bank reviews its programs for examination 

inconsistency and the Federal Reserve Board staff conducts continuous 

and point-in-time oversight reviews of Reserve Banks' examination 

programs to identify issues or problems, such as examination 

inconsistency. 

The depository institution regulators also said that they have processes 

for depository institutions to appeal examination findings if they feel they 

were held to inappropriate standards. In addition to less formal steps, 

such as contacting a regional office, each of the four regulators have an 

ombudsman office to which institutions can submit complaints or 

concerns about examination findings. Staffs of the various offices are 

independent from the regulators' management and work with the 

depository institutions to resolve examination issues and concerns. If the 

ombudsman is unable to resolve the complaints, then the institutions can 

further appeal their complaints through established processes. 

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Reviews of 

Regulations Resulted 

in Some Reduction in 

Burden, but the 

Reviews Have 

Limitations 

Mechanisms for 

Regulators to Address 

Regulatory Burden Include 

Mandated Decennial 

Reviews 

Federal depository institution regulators address regulatory burden of 

their regulated institutions through the rulemaking process and also 

through retrospective reviews that may provide some regulatory relief to 

community banks. However, the retrospective review process has some 

limitations that limit its effectiveness in assessing and addressing 

regulatory burden on community banks and credit unions. 

Federal depository institution regulators can address the regulatory 

burden of their regulated institutions throughout the rule making process 

and through mandated, retrospective or "look back" reviews. According to 

the regulators, attempts to reduce regulatory burden start during the initial 

rulemaking process. Staff from FDIC, Federal Reserve, NCUA, and OCC 

all noted that when promulgating rules, their staff seek input from 

institutions and others throughout the process to design requirements that 

achieve the goals of the regulation at the most reasonable cost and effort 

for regulated entities. 44 Once a rule has been drafted, the regulators 

publish it in the Federal Register for public comment. The staff noted that 

regulators often make revisions in response to the comments received to 

try to reduce compliance burdens in the final regulation. 

After regulations are implemented, banking regulators also address 

regulatory burdens by periodically conducting mandated reviews of their 

regulations. The Economic Growth and Regulatory Paperwork Reduction 

Act of 1996 (EGRPRA) directs three regulators (Federal Reserve, FDIC, 

and OCC, as agencies represented on the Federal Financial Institutions 

Examination Council) to review at least every 1 0 years all of their 

regulations and through public comment identify areas of the regulations 

that are outdated, unnecessary or unduly burdensome on insured 

depository institutions. 45 Under the act. the regulators are to categorize 

their regulations and provide notice and solicit public comment on all the 

regulations for which they have regulatory authority. The act also includes 

a number of requirements on how the regulators should conduct the 

44As part of its rulemaking process CFPB is required to convene small business review 

panels for rulemaking efforts that are expected to have a significant economic impact on a 

substantial number of small entities (this requirement does not apply to the depository 

institution regulators). See 5 U.S. C.§ 609. These panels are mtended to seek direct input 

early in the rulemaking process from small entities. 

45See 12 u.s. c.§ 3311. 

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Bank Regulators' 2017 

EGRPRA Review Process and 

Results 

review, including reporting results to Congress. The first EGRPRA review 

was completed in 2007. The second EGRPRA review began in 2014 and 

the report summarizing its results was submitted to Congress in March 

2017. 

While NCUA is not required to participate in the EGRPRA review 

(because EGRPRA did not include the agency in the list of agencies that 

must conduct the reviews), NCUA has been participating voluntarily. 

NCUA's assessment of its regulations appears in separate sections of the 

reports provided to Congress for each of the 2007 and 2017 reviews. 

Regulators began the most recent EGRPRA review by providing notice 

and soliciting comments in 2014-2016. The Federal Reserve, FDIC, and 

OCC issued four public notices in the Federal Register seeking 

comments from regulated institutions and interested parties on 12 

categories of regulations they promulgated. The regulators published a 

list of all the regulations they administer in the notices and asked for 

comments, including comments on the extent to which regulations were 

burdensome'' Although not specifically required under EGRPRA, the 

regulators also held six public meetings across the country with several 

panels of banks and community groups. At each public meeting, at least 

three panels of bank officials represented banks with assets of generally 

less than $5 billion and a large number of the panels included banks with 

less than $2 billion in assets. Panels were dedicated to specific 

regulations or sets of regulations. For example, one panel covered 

capital-related rules, consumer protection, and director-related rules, and 

another addressed BSNAML requirements. Although panels were 

dedicated to specific regulations or sets of regulations, the regulators 

invited comment on all of their regulations at all public meetings. 

46The categories were (1) applications and reporting; (2) powers and activities; {3) 

international operations; (4) banking operations: (5) capital; (6) Community Reinvestment 

Act; (7) consumer protection; {8) directors, officers, and employees; (9) money laundering; 

(1 0) rules and procedures; (11) safety and soundness; and (12} securities. Regulatory 

Pub!lcation and Review Under the Economic Growth and Regulatory Paperwork 

Reduction Act of 1996. 79 Fed. Reg. 32172 (June 4, 2014); 80 Fed. Reg. 7980 (Feb. 13, 

2015); 80 Fed. Reg. 32046 (June 5, 2015); and 80 Fed. Reg. 79724 (Dec. 23, 2015). The 

EGRPRA review process commences with the publication of the first Federal Register 

notice. 

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The regulators then assessed the public comments they received and 

described actions they intended to take in response. EGRPRA requires 

that the regulators identify the significant issues raised by the comments. 

The regulators generally deemed the issues that received the most public 

comments as significant. For the 2017 report, representatives at the 

Federal Reserve, FDIC, and OCC reviewed, evaluated, and summarized 

more than 200 comment letters and numerous oral comments they 

received. 47 For interagency regulations that received numerous 

comments, such as those relating to capital and BSNAML requirements, 

the comment letters for each were provided to staff of one of the three 

regulators or to previously established interagency working groups to 

conduct the initial assessments. 

The regulators' comment assessments also included reviews by each 

agency's subject-matter experts, who prepared draft summaries of the 

concerns and proposed agency responses for each of the rules that 

received comments. According to one bank regulator, the subject-matter 

experts assessed the comments across three aspects: ( 1) whether a 

suggested change to the regulation would reduce bank burdens; (2) how 

the change to the regulation would affect the safety and soundness of the 

banking system; and (3) whether a statutory change would be required to 

address the comment. The summaries drafted by the subject-matter 

experts then were shared with staff representing all three regulators and 

further revised. The staff of the three regulators said they then met jointly 

to analyze the merits of the comments and finalize the comment 

responses and the proposed actions for approval by senior management 

at all three regulators. 

In the 2017 report summarizing their assessment of the comments 

received, the regulators identified six significant areas in which 

commenters raised concerns: (1) capital rules, (2) financial condition 

reporting (Call Reports), (3) appraisal requirements, (4) examination 

frequency, (5) Community Reinvestment Act, and (6) BSNAML. Based 

on our analysis of the 2017 report, the Federal Reserve, FDIC, and OCC 

had taken or pledged to take actions to address 11 of the 28 specific 

concerns commenters had raised across these six areas. We focused our 

analysis on issues within the six significant issues that affected the 

47 Of the more than 150 regulations for which they sought comments, the regulators 

rece1ved comments on almost 50 Interagency regulations. 

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smaller institution and defined an action taken by the regulators as a 

change or revision to a regulation or the issuance of guidance. 

Capital rules. The regulators noted in the 2017 EGRPRA report that they 

received comment letters from more than 30 commenters on the recently 

revised capital requirements. Although some of the concerns commenters 

expressed related to issues affecting large institutions, some commenters 

sought to have regulators completely exempt smaller institutions from the 

requirements. Others objected to the amounts of capital that had to be 

held for loans made involving more volatile commercial real estate. 

In response, the regulators stated that the more than 500 failures of 

banks in the recent crisis, most of which were community banks, justified 

requiring all banks to meet the new capital requirements. However, they 

pledged in the report to make some changes, and have recently proposed 

rules that would alter some of the requirements. For example, on 

September 27, 2017, the regulators proposed several revisions to the 

capital requirements that would apply to banks not subject to the 

advanced approach requirements under the capital rules (generally, 

banks with less than $250 billion in assets and less than $10 billion in 

total foreign exposure)." For example, the proposed rule simplifies the 

capital treatment for certain commercial acquisition, development, and 

construction loans, and would change the treatment of mortgage 

servicing assets. 49 

Call Reports. The regulators also received more than 30 comments 

relating to the reports-known as Call Reports-that banks file with the 

regulators outlining their financial condition and performance. Generally, 

the commenters requested relief (reducing the number of items required 

to be reported) for smaller banks and also asked that the frequency of 

reporting for some items be reduced. 

48See Simplifications to the Capita! Rule Pursuant to the Economic Growth and 

Regulatory Paperwork Reduction Act of 1996, 82 Fed. Reg. 49984 (Oct 27, 2017). 

Generally, advanced approaches banks are those with consolidated total assets of $250 

billion or more or with consolidated total on-balance sheet foreign exposure of $10 billion 

or more. 

49A mortgage servicing right is created only when the act of servicing a mortgage loan :s 

contractually separated from the underlying loan. A firm, for example, that originates a 

mortgage, sells it to a third party, and retains the servicing would report a mortgage 

servicing asset on its balance sheet. if certain conditions are met. 

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In response to these concerns, the regulators described a review of the 

Call Report requirements intended to reduce the number of items to be 

reported to the regulators. The regulators had started this effort to 

address Call Report issues soon after the most recent EGRPRA process 

had begun in June 2014. In the 2017 EGRPRA report, the regulators 

noted that they developed a new Call Report form for banks with assets 

of less than $1 billion and domestic offices only. For instance, according 

to the regulators, the new form reduced the number of items such banks 

had to report by 40 percent. Staff from the regulators told us that about 

3,500 banks used the new small-bank reporting form in March 2017, 

which represented about 68 percent of the banks eligible to use the new 

form. OCC officials told us that an additional 1 00 federally chartered 

banks submitted the form for the 2017 second quarter reporting period. 

After the issuance of the 2017 EGRPRA report, in June 2017 the 

regulators issued additional proposed revisions to the three Call Report 

forms that banks are required to complete. These proposed changes are 

to become effective in June 2018. 50 For example, one of the proposed 

changes to the new community bank Call Report form would change the 

frequency of reporting certain data on non-accrual assetsnon performing loans that are not generating their stated interest ratefrom quarterly to semi-annually. In November 2017, the agencies issued 

further proposed revision to the community bank Call Report that would 

delete or consolidate a number of items and add a new, or raise certain 

existing, reporting thresholds. The proposed revision would take effect as 

of June 2018. 51 

Appraisals. The three bank regulators and NCUA received more than 

160 comments during the 2017 EGRPRA process related to appraisal 

requirements. The commenters included banks and others that sought to 

raise the size of the loans that require appraisals, and a large number of 

appraisers that objected to any changes in the requirements According to 

the EGRPRA report, several professional appraiser associations argued 

that raising the threshold could undermine the safety and soundness of 

lenders and diminish consumer protection for mortgage financing. These 

commenters argued that increasing the thresholds could encourage 

banks to neglect collateral risk-management responsibilities. 

50 See Proposed Agency Information Collection Activities; Comment Request, 82 Fed< 

Reg. 29147 (June 27, 2017) 

51 See Proposed Agency Information Collection Activities; Comment Request, 82 Fed, 

Reg. 51908 (Nov. 8, 2017). 

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In response, in July 2017, the regulators proposed raising the threshold 

for when an appraisal is required from $250,000 to $400,000 for 

commercial real estate loans. 52 The regulators indicated that the appraisal 

requirements for 1-4 family residential mortgage loans above the current 

$250,000 would not be appropriate at the this time because they believed 

having such appraisals for loans above that level increased the safety of 

those loans and better protected consumers and because other 

participants in the housing market, such as the Department of Housing 

and Urban Development and the government-sponsored enterprises, also 

required appraisals for loans above that amount. However, the depository 

institution regulators included in the proposal a request for comment 

about the appraisal requirements for residential real estate and what 

banks think are other factors that should be included when considering 

the threshold for these loans. As part of the 2017 EGRPRA process, the 

regulators also received comments indicating that banks in rural areas 

were having difficulty securing appraisers. In the EGRPRA report, the 

regulators acknowledged this difficulty and in May 2017, the bank 

regulators and NCUA issued agency guidance on how institutions could 

obtain temporary waivers and use other means to expand the pool of 

persons eligible to prepare appraisals in cases in which suitable appraiser 

staff were unavailable. The agencies also responded to commenters who 

found the evaluation process confusing by issuing an interagency 

advisory on the process in March 2016. 53 Evaluations may be used 

instead of an appraisal for certain transactions including those under the 

threshold. 

Frequency of safety and soundness examinations. As part of the 

2017 EGRPRA process, the agencies also received comments 

requesting that they raise the total asset threshold for an insured 

depository institution to qualify for the extended 18-month examination 

cycle from $1 billion to $2 billion and to further extend the examinations 

cycle from 18 months to 36 months. 

During the EGRPRA process, Congress took legislative action to reduce 

examination frequency for smaller, well-capitalized banks. In 2015, the 

FAST Act raised the threshold for the 18-month examination cycle from 

52 See Real Estate Appraisals, 82 Fed. Reg. 35478 (July 31, 2017). 

53Board of Governors of the Federal Reserve System, Federal Deposit Insurance 

Corporation, and Office of the Comptroller of the Currency, Interagency Advisory on the 

Use of Evaluations in Real-Estate Related Transactions (Washmgton, D.C .. Mar. 4, 2016). 

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less than $500 million to less than $1 billion for certain well-capitalized 

and well-managed depository institutions with an "outstanding" composite 

rating and gave the agencies discretion to similarly raise this threshold for 

certain depository institutions with an "outstanding" or "good" composite 

rating. 54 The agencies exercised this discretion and issued a final rule in 

2016 making qualifying depository institutions with less than $1 billion in 

total assets eligible for an 18-month (rather than a 12-month) examination 

cycle. 55 According to the EGRPRA report, agency staff estimated that the 

final rules allowed approximately 600 more institutions to qualify for an 

extended 18-month examination cycle, bringing the total number of 

qualifying institutions to 4,793. 

Community Reinvestment Act. The commenters in the 2017 EGRPRA 

process also raised various issues relating to the Community 

Reinvestment Act, including the geographic areas in which institutions 

were expected to provide loans to low- and moderate-income borrowers 

and whether credit unions should be required to comply with the act's 

requirements. 56 

The regulators noted that they were not intending to take any actions to 

revise regulations relating to this act because many of the revisions the 

commenters suggested would require changes to the statute (that is, 

legislative action). The regulators also noted that they had addressed 

some of the concerns by revising the Interagency Questions and Answers 

relating to this act in 2016. Furthermore, the agencies noted that they 

have been reviewing their existing examination procedures and practices 

to identify policy and process improvements. 

BSAIAML. The regulators also received a number of comments as part of 

the 2017 EGRPRA process on the burden institutions encounter in 

54 See Pub. l. No. 114-94, Div. G, tit LXXXIII.§ 83001, 129 Stat. 1312, 1796 (2015) 

(amending 12 U.S. C. 1820(d)): 12 U.S. C.§ 1820(d)(4). Each financial institution 1s 

assigned a composite rating based on an evaluation of six financial and operational 

components, which are also rated. The component ratings reflect an mstitution's capital 

adequacy, asset quality, management capabilities, earnings sufficiency, liquidity position, 

and sensitivity to market risk (commonly referred to as CAMELS ratings). 

55 see Expanded Examination Cycle for Certain Small Insured Depository Institutions and 

U.S. Branches and Agencies of Foreign Banks, 81 Fed. Reg. 10063 (Feb. 29, 2016) 

(interim final rule) and 81 Fed. Reg. 90949 (Dec. 16, 2016) (final rule). 

56Credit unions are not included under the definition of depository institutions under the 

purpose of the Commun1ty Reinvestment Act 

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complying with BSA/AML requirements. These included the threshold for 

reporting currency transactions and suspicious activities. The regulators 

also received comments on both BSA/AML examination frequency and 

the frequency of safety and soundness examinations generally. 

Agencies typically review BSA/AML compliance programs during safety 

and soundness examinations. As discussed previously, regulators 

allowed more institutions of outstanding or good composite condition to 

be examined every 18 months instead of every 12 months. 57 Institutions 

that qualify for less frequent safety-and-soundness examinations also will 

be eligible for less frequent BSA/AML examinations. For the remainder of 

the issues raised by commenters. the regulators noted they do not have 

the regulatory authority to revise the requirements but provided the 

comments to FinCEN, which has authority for these regulations. A letter 

with FinCEN's response to the comments was included as an appendix of 

the EGRPRA report. In the letter, the FinCEN Acting Director stated that 

FinCEN would work through the issues raised by the comments with its 

advisory group consisting of regulators, law enforcement staff, and 

representatives of financial institutions. 

Additional Burden Reduction Actions. In addition to describing some 

changes in response to the comments deemed significant, the regulators' 

2017 report also includes descriptions of additional actions the individual 

agencies have taken or planned to take to reduce the regulatory burden 

for banks, including community banks. 

The Federal Reserve Board noted that it changed its Small Bank 

Holding Company Policy Statement that allows small bank holding 

companies to hold more debt than permitted for larger bank holding 

companies. 58 In addition, the Federal Reserve noted that it had made 

changes to certain supervisory policies, such as issuing guidance on 

assessing risk management for banks with less than $50 billion in 

57BSA/AML is examined as part of the bank's safety and soundness examination. 

Therefore, institutions with assets between $500 million and less than $1 b1111on that are 

now eligible for safety-and-soundness examinations every 18 months generally also w11! 

be subject to less frequent BSA reviews. 

58The Federal Reserve Board's Small Bank Holding Company Policy Statement permits 

the formation and expans1on of small bank ho!dmg companies w1th debt levels that are 

higher than typically permitted for larger bank holding companies. The policy excludes 

small bank holding companies, which own community banks, from certain consolidated 

capital requirements. 

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assets and launching an electronic application filing system for banks 

and bank holding companies. 

OCC noted that it had issued two final rules amending its regulations 

for licensing/chartering and securities-related filings, among other 

things. According to OCC staff, the agency conducted an internal 

review of its agency-specific regulations and many of the changes to 

these regulations came from the internal review. The agency also 

noted that it integrated its rules for national banks and federal savings 

associations where possible. In addition, OCC noted that it removed 

redundant and unnecessary information requests from those made to 

banks before examinations. 

FDIC noted that it had rescinded enhanced supervisory procedures 

for newly insured banks and reduced the consumer examination 

frequency for small and newly insured banks. Similarly to OCC, FDIC 

is integrating its rules for both non-state member banks and statechartered savings and loans associations. In addition, FDIC noted it 

had issued new guidance on banks' deposit insurance filings and 

reduced paperwork for new bank applications. 

NCUA 2017 EGRPRA Process The 2017 report also presents the results of NCUA's concurrent efforts to 

and Results obtain and respond to comments as part of the EGRPRA process. NCUA 

conducts its review separately from the bank regulators' review. In four 

Federal Register notices in 2015, NCUA sought comments on 76 

regulations that it administers. NCUA received about 25 comments 

raising concerns about 29 of its regulations, most of which were 

submitted by credit union associations. NCUA received no comments on 

47 regulations. 

NCUA's methodology for its regulatory review was similar to the bank 

regulators' methodology. According to NCUA, all comment letters 

responding to a particular notice were collected and reviewed by NCUA's 

Special Counsel to the General Counsel, an experienced, senior-level 

attorney with overall responsibility for EGRPRA compliance. NCUA staff 

told us that criteria applied by the Special Counsel in his review included 

relevance, depth of understanding and analysis exhibited by the 

comment, and degree to which multiple commenters expressed the same 

or similar views on an issue. The Special Counsel prepared a report 

summarizing the substance of each comment. The comment summary 

was reviewed by the General Counsel and circulated to the NCUA Board 

and reviewed by the Board members and staff. 

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Bank Regulators and NCUA 

2007 EGRPRA Review 

Process and Results 

NCUA identified in its report the following as significant issues relating to 

credit union regulation: (1) field of membership and chartering; (2) 

member business lending; (3) federal credit union ownership of fixed 

assets; (4) expansion of national credit union share insurance coverage; 

and (5) expanded powers for credit unions. For these, NCUA took various 

actions to address the issues raised in the comments. For example, 

NCUA modified and updated its field of credit union membership by 

revising the definition of a local community, rural district and underserved 

area, which provided greater flexibility to federal credit unions seeking to 

add a rural district to their field of membership. NCUA also lessened 

some of the restrictions on member lending to small business; and raised 

some of the asset thresholds for what would be defined as a small credit 

union so that fewer requirements would apply to these credit unions. Also, 

in April2016, the NCUA Board issued a proposed rule that would 

eliminate the requirement that federal credit unions must have a plan by 

which they will achieve full occupancy of premises within an explicit time 

frame. 59 The proposal would allow for federal credit unions to plan for and 

manage their use of office space and related premises in accordance with 

their own strategic plans and risk-management policies. 

The bank and credit union regulators' process for the 2007 EGRPRA 

review also began with Federal Register notices that requested 

comments on regulations. The regulators then reviewed and assessed 

the comments and issued a report in 2007 to Congress in which they 

noted actions they took in some of the areas raised by commenters. 

Our analysis of the regulators' responses indicated that the regulators 

took responsive actions in a few areas. The regulators noted they already 

had taken action in some cases (including after completion of a pending 

study and as a result of efforts to work with Congress to obtain statutory 

changes). However, for the remaining specific concerns, the four 

regulators indicated that they would not be taking actions. 

Similar torts response in 2017, NCUA discussed its responses to the 

significant issues raised about regulations in a separate section of the 

2007 report. Our analysis indicated that NCUA took responsive actions in 

about half of the areas. For example, NCUA adjusted regulations in one 

case and in another case noted previously taken actions. For comments 

59 See Federal Credit Union Occupancy, Planning, and Disposal of Acquired and 

Abandoned Premises; Incidental Powers, 81 Fed. Reg. 24738 (Apr, 27, 2016). 

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Other Retrospective Reviews 

related to three other areas, NCUA took actions not reflected in the 2007 

report because the actions were taken over a longer time frame (in some 

cases, after 8 years). In the remaining areas, NCUA deemed actions as 

not being desirable in four cases and outside of its authority in two other 

cases. 

The bank regulators do not conduct other retrospective reviews of 

regulations outside of the EGRPRA process. We requested information 

from the Federal Reserve, FDIC, and OCC about any discretionary 

regulatory retrospective reviews that they performed in addition to the 

EGRPRA review during 2012-2016. All three regulators reported to us 

they have not conducted any retrospective regulatory reviews outside of 

EGRPRA since 2012. However, under the Regulatory Flexibility Act 

(RFA), federal agencies are required to conduct what are referred to as 

section 61 0 reviews. The purpose of these reviews is to determine 

whether certain rules should be continued without change, amended, or 

rescinded consistent with the objectives of applicable statutes, to 

minimize any significant economic impact of the rules upon a substantial 

number of small entities. 60 Section 61 0 reviews are to be conducted 

within 10 years of an applicable rule's publication. As part of other work, 

we assessed the bank regulators' section 610 reviews and found that the 

Federal Reserve, FDIC, and OCC conducted retrospective reviews that 

did not fully align with the Regulatory Flexibility Act's requirements. 61 

Officials at each of the agencies stated that they satisfy the requirements 

to perform section 610 reviews through the EGRPRA review process. 

However, we found that the requirements of the EGRPRA reviews differ 

from those of the RFA-required section 610 reviews, and we made 

recommendations to these regulators to help ensure their compliance 

with this act in a separate report issued in January 2018. 

In addition to participating in the EGRPRA review, NCUA also reviews 

one-third of its regulations every year (each regulation is reviewed every 

3 years). NCUA's "one-third" review employs a public notice and 

comment process similar to the EGRPRA review. If a specific regulation 

does not receive any comments, NCUA does not review the regulation. 

For the 2016 one-third review, NCUA did not receive comments on 5 of 

16 regulations and thus these regulations were not reviewed. NCUA 

60See 5 U.S C.§ 610(a). 

61 GAO, Financial Services Regulations: Procedures for Reviews under Regulatory 

Flexibility Act Need to Be Enhanced, GA0-18-256 (Washington, D.C .. Jan. 30, 2018). 

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Burden Include CFPB 

Exclusion and Lack of 

Quantitative Analysis 

CFPB Not Included and 

Significant Mortgage 

Regulations Not Assessed 

made technical changes to 4 of the 11 regulations that received 

comments. 

In August 2017, NCUA staff announced they developed a task force for 

conducting additional regulatory reviews, including developing a 4-year 

agenda for reviewing and revising NCUA's regulations62 The primary 

factors they said they intend to use to evaluate their regulations will be 

the magnitude of the benefit and the degree of effort that credit unions 

must expend to comply with the regulations. Because the 4-year reviews 

will be conducted on all of NCUA's regulations, staff noted that the annual 

one-third regulatory review process will not be conducted again until 

2020. 

Our analysis of the EGRPRA review found three limitations to the current 

process. 

First, the EGRPRA statute does not include CFPB and thus the significant 

mortgage-related regulations and other regulations that it administersregulations that banks and credit unions must follow-were not included 

in the EGRPRA review. Under the Dodd-Frank Act, CFPB was given 

financial regulatory authority, including for regulations implementing the 

Home Mortgage Disclosure Act (Regulation C); the Truth-in-lending Act 

(Regulation Z); and the Truth-in-Savings Act (Regulation DO). These 

regulations apply to many of the activities that banks and credit unions 

conduct; the four depository institution regulators conduct the large 

majority of examinations of these institutions' compliance with these 

CFPB-administered regulations63 However, EGRPRA was not amended 

62See Regulatory Reform Agenda. 82 Fed. Reg. 39702 (Aug. 22, 2017). 

63CFPB has primary supervisory and enforcement authority for federal consumer 

protection laws for depository institutions with more than $10 billion in assets and for their 

affiliates. See 12 U.S. C.§ 5515. The Federal Reserve, OCC, FDtC. and NCUA-which 

previously supervised and examined a !I depository institutions and credit unions for 

consumer protection-share with CFPB supervisory and enforcement authority for certain 

consumer protection laws for those depository institutions with more than $10 billion in 

assets and for their affiliates. In addition, they continue to supervise for consumer 

protection institutions n that have $10 billion or less in assets. 

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after the Dodd-Frank Act to include CFPB as one of the agencies that 

must conduct the EGRPRA review. 

During the 2017 EGRPRA review, the bank regulators only requested 

public comments on consumer protection regulations for which they have 

regulatory authority. But the banking regulators still received some 

comments on the key mortgage regulations and the other regulations that 

CFPB now administers. Our review of 2017 forum transcripts identified 

almost 60 comments on mortgage regulations, such as HMDA and 

TRIO,. 

The bank regulators could not address these mortgage regulation-related 

comments because they no longer had regulatory authority over these 

regulations; instead, they forwarded these comment letters to CFPB staff. 

According to CFPB staff, their role in the most recent EGRPRA process 

was very limited. CFPB staff told us they had no role in assessing the 

public comments received for purposes of the final 2017 EGRPRA report. 

According to one bank regulator, the bank regulators did not share nonmortgage regulation-related letters with CFPB staff because those 

comment letters did not involve CFPB regulations. Another bank regulator 

told us that CFPB was offered the opportunity to participate in the 

outreach meetings and were kept informed of the EGRPRA review during 

the quarterly FFIEC meetings that occurred during the review. Before the 

report was sent to Congress, CFPB staff said that they reviewed several 

late-stage drafts, but generally limited their review to ensuring that 

references to CFPB's authority and regulations and its role in the 

EGRPRA process were properly characterized and explained. As a 

member of FFIEC, which issued the final report, CFPB's Director was 

given an opportunity to review the report again just prior to its approval by 

FFIEC. 

CFPB must conduct its own reviews of regulations after they are 

implemented. Section 1022(d) ofthe Dodd-Frank Act requires CFPB to 

conduct an assessment of each significant rule or order adopted by the 

bureau under federal consumer financial law. 65 CFPB must publish a 

report of the assessment not later than 5 years after the effective date of 

64A number of comments included statements on the Home Mortgage Disclosure Act, 

TRIO, and Qualified Mortgage/Ability-to-Repay regulations. 

65See Pub. L. No. 111-203, § 1022(d), 124 Stat 1376, 1984 (2010) (codified at 12 U.S. C. 

§ 5512(d)), 

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such rule or order. The assessment must address, among other relevant 

factors, the rule's effectiveness in meeting the purposes and objectives of 

title X of the Dodd-Frank Act and specific goals stated by CFPB. The 

assessment also must reflect available evidence and any data that CFPB 

reasonably may collect. Before publishing a report of its assessment, 

CFPB must invite public comment on recommendations for modifying, 

expanding, or eliminating the significant rule or order. 

CFPB announced in Federal Register notices in spring 2017 that it was 

commencing assessments of rules related to Qualified Mortgage/Abilityto-Repay requirements, remittances, and mortgage servicing 

regulations66 The notices described how CFPB planned to assess the 

regulations. In each notice, CFPB requested comment from the public on 

the feasibility and effectiveness of the assessment plan, data, and other 

factual information that may be useful for executing the plan; 

recommendations to improve the plan and relevant data; and data and 

other factual information about the benefits, costs, impacts, and 

effectiveness of the significant rule. Reports of these assessments are 

due in late 2018 and early 2019. According to CFPB staff, the requests 

for data and other factual information are consistent with the statutory 

requirement that the assessment must reflect available evidence and any 

data that CFPB reasonably may collect. The Federal Register notices 

also describe other data sources that CFPB has in-house or has been 

collecting pursuant to this requirement. 

CFPB staff told us that they have not yet determined whether certain 

other regulations that apply to banks and credit unions, such as the 

revisions to TRID and HMDA requirements, will be designated as 

significant and thus subjected to the one-time assessments. CFPB staff 

also told us they anticipate that within approximately 3 years after the 

effective date of a rule, it generally will have determined whether the rule 

is a significant rule for section 1022(d) assessment purposes. 

In tasking the bank regulators with conducting the EGRPRA reviews, 

Congress indicated its intent was to require these regulators to review all 

regulations that could be creating undue burden on regulated institutions. 

66See Request for Information Regarding Remittance Rule Assessment, 82 Fed. Reg. 

15009 (March 24, 2017); Request for Information Regarding 2013 Real Estate Settlement 

Procedures Act Servicing Rule Assessment, 82 Fed. Reg. 21952 (May 11, 2017); and 

Request for Information Regarding Ability-to-Repay/Quallfied Mortgage Rule Assessment. 

82 Fed. Reg. 25246 (June 1, 2017). 

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According to a Senate committee report relating to EGRPRA, the purpose 

of the legislation was to minimize unnecessary regulatory impediments for 

lenders, in a manner consistent with safety and soundness, consumer 

protection, and other public policy goals, so as to produce greater 

operational efficiency. 67 Some in Congress have recognized that the 

omission of CFPB in the EGRPRA process is problematic, and in 2015 

legislation was introduced to require that CFPB-and NCUA-formally 

participate in the EGRPRA review!' 

Currently, without CFPB's participation, key regulations that affect banks 

and credit unions may not be subject to the review process. In addition, 

these regulations may not be reviewed if CFPB does not deem them 

significant. Further, if reviewed, CFPB's mandate is for a one-time, not 

recurring, review. CFPB staff told us that they have two additional 

initiatives designed to review its regulations, both of which have been 

announced in CFPB's spring and fall 2017 Semiannual Regulatory 

Agendas. First, CFPB launched a program to periodically review 

individual existing regulations-or portions of large regulations-to 

identify opportunities to clarify ambiguities, address developments in the 

marketplace, or modernize or streamline provisions. 69 Second, CFPB 

launched an internal task force to coordinate and bolster their continuing 

efforts to identify and relieve regulatory burdens, including with regard to 

small businesses such as community banks that potentially will address 

any regulation the agency has under its jurisdiction. Staff told us the 

agency has been considering suggestions it received from community 

banks and others on ways to reduce regulatory burden. However, CFPB 

has not provided public information specifically on the extent to which it 

intends to review regulations applicable to community banks and credit 

unions and other institutions or provided information on the timing and 

frequency of the reviews. In addition, it has not indicated the extent to 

which it will coordinate the reviews with the federal depository institution 

regulators as part of the EGRPRA reviews. Until CFPB publicly provides 

additional information indicating its commitment to periodically review the 

67 Committee on Bank1ng, Housing, and Urban Affairs, Economic Growth and Regulatory 

Paperwork Reduction Act of 1995, S. Rep. No. 104-185 (1995). 

68See Financial Regulatory Improvement Act of 2015, S. 1484, § 125, 114th Gong. 

69CFPB announced in its fall 2017 Semiannual Regulatory Agenda that for its first review, 

the CFPB expects to focus primarily on subparts 8 and G of Regulation Z. which 

implement the Truth~in~Lending Act with respect to open~end credit generally and credit 

cards in particular. 

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Regulators Have Not 

Conducted or Reported 

Quantitative Analyses 

burden of all its regulations, community banks, credit unions, and other 

depository institutions may face diminished opportunities for relief from 

regulatory burden. 

Second, the federal depository institution regulators have not conducted 

or reported on quantitative analyses during the EGRPRA process to help 

them determine if changes to regulations would be warranted. Our 

analysis of the 2017 report indicated that in responses to comments in 

which the regulators did not take any actions, the regulators generally 

only provided their arguments against taking actions and did not cite 

analysis or data to support their narrative. In contrast, other federal 

agencies that are similarly tasked with conducting retrospective regulatory 

reviews are required to follow certain practices for such reviews that could 

serve as best practices for the depository institution regulators. For 

example, the Office of Management and Budget's Circular A-4 guidance 

on regulatory analysis notes that a good analysis is transparent and 

should allow qualified third parties reviewing such analyses to clearly see 

how estimates and conclusions were determined70 In addition, executive 

branch agencies that are tasked under executive orders to conduct 

retrospective reviews of regulations they issue generally are required 

under these orders to collect and analyze quantitative data as part of 

assessing the costs and benefits of changing existing regulations. 71 

However, EGRPRA does not require the regulators to collect and report 

on any quantitative data they collected or analyzed as part of assessing 

the potential burden of regulations. Conducting and reporting on how they 

analyzed the impact of potential regulatory changes to address burden 

could assist the depository institution regulators in conducting their 

EGRPRA reviews. For example, as discussed previously, Community 

Reinvestment Act regulations were deemed a significant issue, with 

commenters questioning the relevance of requiring small banks to make 

700ffice of Management and Budget, Regulatory Analysis, Circular A-4 (Washington, 

D.C.: Sept 17, 2003). As independent agencies, the depository institution regulators that 

conduct the EGRPRA rev1ew are not required to follow Circular A~4. 

71 GAO, Reexamining Regulations Agencies Often Made Regulatory Changes, but Could 

Strengthen Linkages to Performance Goals, GA0~14~268 (Washington D.C.: ApL 11. 

2014). In this report, we reviewed executive orders, tncluding Executive Order 13563, 

"Improving Regulation and Regulatory Review,fi and Executive Order 13610, ''ldenttfying 

and Reducing Regulatory Burdens." We found that the orders included eight primary 

requirements for executive branch agencies to follow when conducting retrospective 

reviews of regulations, including the need to conduct a quantifiable assessment of current 

costs and benefits of changing regulations. 

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Reviews Have Not Considered 

Cumulative Effects of 

Regulations 

community development loans and suggesting that the asset threshold for 

this requirement be raised from $1 billion to $5 billion. The regulators told 

us that if the thresholds were raised, then community development loans 

would decline, particularly in underserved communities. However, 

regulators did not collect and analyze data for the EGRPRA review to 

determine the amount of community development loans provided by 

banks with assets of less than $1 billion; including a discussion of 

quantitative analysis might have helped show that community 

development loans from smaller community banks provided additional 

credit in communities-and thus helped to demonstrate the benefits of not 

changing the requirement as commenters requested. 

By not performing and reporting quantitative analyses where appropriate 

in the EGRPRA review, the regulators may be missing opportunities to 

better assess regulatory impacts after a regulation has been 

implemented, including identifying the need for any changes or benefits 

from the regulations and making their analyses more transparent to 

stakeholders. As the Office of Management and Budget's Circular A-4 

guidance on the development of regulatory analysis noted, sound 

quantitative estimates of costs and benefits, where feasible, are 

preferable to qualitative descriptions of benefits and costs because they 

help decision makers understand the magnitudes of the effects of 

alternative actions. 72 By not fully describing their rationale for the 

analyses that supported their decisions, regulators may be missing 

opportunities to better communicate their decisions to stakeholders and 

the public. 

Lastly, in the EGRPRA process, the federal depository institution 

regulators have not assessed the ways that the cumulative burden of the 

regulations they administer may have created overlapping or duplicative 

requirements. Under the current process, the regulators have responded 

to issues raised about individual regulations based on comments they 

have received, not on bodies of regulations. However, congressional 

intent in tasking the depository institution regulators with the EGRPRA 

reviews was to ensure that they considered the cumulative effect of 

financial regulations. A 1995 Senate Committee on Banking, Housing, 

and Urban Affairs report stated while no one regulation can be singled out 

as being the most burdensome, and most have meritorious goals, the 

720ffice of Management and Budget, Regulatory Analysis, Circular A~4 (Washington, 

D.C.· Sept. 17, 2003). 

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aggregate burden of banking regulations ultimately affects a bank's 

operations, its profitability, and the cost of credit to customers. 73 For 

example, financial regulations may have created overlapping or 

duplicative regulations in the areas of safety and soundness. One primary 

concern noted in the EGRPRA 2017 report was the amount of information 

or data banks are required to provide to regulators. For example, the 

cumulative burden of information collection was raised by commenters in 

relation to Call Reports, Community Reinvestment Act, and BSA/AML 

requirements. But in the EGRPRA report, the regulators did not examine 

how the various reporting requirements might relate to each other or how 

they might collectively affect institutions. 

In contrast, the executive branch agencies that conduct retrospective 

regulatory reviews must consider the cumulative effects of their own 

regulations, including cumulative burdens. 74 For example, Executive 

Order 13563 directs agencies, to the extent practicable, to consider the 

costs of cumulative regulations." Executive Order 13563 does not apply 

to independent regulatory agencies such as the Federal Reserve, FDIC, 

OCC, NCUA, or CFPB. A memorandum from the Office of Management 

and Budget provided guidance to the agencies required to follow this 

order for assessing the cumulative burden and costs of regulations. 76 The 

actions suggested for careful consideration include conducting early 

consultations with affected stakeholders to discuss potential interactions 

between rulemaking under consideration and existing regulations as well 

as other anticipated regulatory requirements. The executive order also 

directs agencies to consider regulations that appear to be attempting to 

achieve the same goal. However, other researchers often acknowledge 

that cumulative assessments of burden are difficult. Nevertheless, until 

the Federal Reserve, FDIC, OCC, and NCUA identify ways to consider 

the cumulative burden of regulations. they may miss opportunities to 

streamline bodies of regulations to reduce the overall compliance burden 

among financial institutions, including community banks and credit 

unions. For example, regulations applicable to specific activities of banks, 

73Committee on Banking, Housing, and Urban Affairs, Economic Growth and Regulatory 

Paperwork Reduction Act of 1995, S. Rep. No 104-185 (1995). 

74See GA0-14-268 for additional information. 

75See Exec. Order No. 13563, Improving Regulation and Regulatory Review, 76 Fed. 

Reg. 3821 (Jan. 21, 2011). 

76The Office of Management and Budget additional guidance about Executive Order 

13563 was issued on March 20. 2012. 

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Conclusions 

such as lending or capital, could be assessed to determine if they have 

overlapping or duplicative requirements that could be revised without 

materially reducing the benefits sought by the regulations. 

New regulations for financial institutions enacted in recent years have 

helped protect mortgage borrowers, increase the safety and soundness of 

the financial system, and facilitate anti-terrorism and anti-money 

laundering efforts. But the regulations also entail compliance burdens, 

particularly for smaller institutions such as community banks and credit 

unions, and the cumulative burden on these institutions can be significant. 

Representatives from the institutions with which we spoke cited three sets 

of regulations-HMDA, BSA/AML, and TRIO-as most burdensome for 

reasons that included their complexity. In particular, the complexity of 

TRIO regulations appears to have contributed to misunderstandings that 

in turn caused institutions to take unnecessary actions. While regulators 

have acted to reduce burdens associated with the regulations, CFPB has 

not assessed the effectiveness of its TRIO guidance. Federal internal 

control standards require agencies to analyze and respond to risks to 

achieving their objectives, and CFPB's objectives include addressing 

regulations that are unduly burdensome. Assessing the effectiveness of 

TRIO guidance represents an opportunity to reduce misunderstandings 

that create additional burden for institutions and also affect individual 

consumers (for instance, by delaying mortgage closings). 

The federal depository institution regulators (FDIC, Federal Reserve, 

OCC, as well as NCUA) also have opportunities to enhance the activities 

they undertake during EGRPRA reviews. Congress intended that the 

burden of all regulations applicable to depository institutions would be 

periodically assessed and reduced through the EGRPRA process. But 

because CFPB has not been included in this process, the regulations for 

which it is responsible were not assessed, and CFPB has not yet 

provided public information about what regulations it will review, and 

when, and whether it will coordinate with other regulators during EGPRA 

reviews. Until such information is publicly available, the extent to which 

the regulatory burden of CFPB regulation will be periodically addressed 

remains unclear. The effectiveness of the EGRPRA process also has 

been hampered by other limitations, including not conducting and 

reporting on depository institution regulators' analysis of quantitative data 

and assessing the cumulative effect of regulations on institutions. 

Addressing these limitations in their EGRPRA processes likely would 

make the analyses the regulators perform more transparent, and 

potentially result in additional burden reduction. 

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Recommendations for 

Executive Action 

We make a total of 10 recommendations, which consist of 2 

recommendations to CFPB, 2 to FDIC, 2 to the Federal Reserve, 2 to 

OCC, and 2 to NCUA. 

The Director of CFPB should assess the effectiveness of TRIO 

guidance to determine the extent to which TRIO's requirements are 

accurately understood and take steps to address any issues as 

necessary. (Recommendation 1) 

The Director of CFPB should issue public information on its plans for 

reviewing regulations applicable to banks and credit unions, including 

information describing the scope of regulations the timing and 

frequency of the reviews, and the extent to which the reviews will be 

coordinated with the federal depository institution regulators as part of 

their periodic EGRPRA reviews. (Recommendation 2) 

The Chairman, FDIC, should, as part of the EGRPRA process, 

develop plans for their regulatory analyses describing how they will 

conduct and report on quantitative analysis whenever feasible to 

strengthen the rigor and transparency of the EGRPRA process. 

(Recommendation 3) 

The Chairman, FDIC, should, as part of the EGRPRA process, 

develop plans for conducting evaluations that would identify 

opportunities for streamlining bodies of regulation. (Recommendation 

4) 

The Chair, Board of Governors of the Federal Reserve System, 

should, as part of the EGRPRA process develop plans for their 

regulatory analyses describing how they will conduct and report on 

quantitative analysis whenever feasible to strengthen the rigor and 

transparency of the EGRPRA process. (Recommendation 5) 

The Chair, Board of Governors of the Federal Reserve System, 

should, as part of the EGRPRA process, develop plans for conducting 

evaluations that would identify opportunities to streamline bodies of 

regulation. (Recommendation 6) 

The Comptroller of the Currency should, as part of the EGRPRA 

process, develop plans for their regulatory analyses describing how 

they will conduct and report on quantitative analysis whenever 

feasible to strengthen the rigor and transparency of the EG RPRA 

process. (Recommendation 7) 

The Comptroller of the Currency should, as part of the EGRPRA 

process, develop plans for conducting evaluations that would identify 

opportunities to streamline bodies of regulation. (Recommendation 8) 

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Agency Comments 

and Our Evaluation 

The Chair of NCUA should, as part of the EGRPRA process, develop 

plans for their regulatory analyses describing how they will conduct 

and report on quantitative analysis whenever feasible to strengthen 

the rigor and transparency of the EGRPRA process. 

(Recommendation 9) 

The Chair of NCUA should, as part of the EGRPRA process, develop 

plans for conducting evaluations that would identify opportunities to 

streamline bodies of regulation. (Recommendation 1 0) 

We provided a draft of this report to CFPB, FDIC, FinCEN, the Federal 

Reserve, NCUA, and OCC. We received written comments from CFPB, 

FDIC, the Federal Reserve, NCUA, and OCC that we have reprinted in 

appendixes II through VI, respectively. CFPB, FDIC, FinCEN, the Federal 

Reserve, NCUA, and OCC also provided technical comments, which we 

incorporated as appropriate. 

In its written comments, CFPB agreed with the recommendation to 

assess its TRIO guidance to determine the extent to which it is 

understood. CFPB stated it intends to solicit public input on how it can 

improve its regulatory guidance and implementation support. In addition, 

CFPB agreed with the recommendation on issuing public information on 

its plan for reviewing regulations. CFPB committed to developing 

additional plans with respect to their reviews of key regulations and to 

publicly releasing such information and in the interim, CFPB stated it 

intends to solicit public input on how it should approach reviewing 

regulations. 

FDIC stated that it appreciated the two recommendations and stated that 

it would work with the Federal Reserve and OCC to find the most 

appropriate ways to ensure that the three regulators continue to enhance 

their rulemaking analyses as part of the EGRPRA process. In addition, 

FDIC stated that as part of the EGRPRA review process, it would 

continue to monitor the cumulative effects of regulation through for 

example, a review of the community and quarterly banking studies and 

community bank Call Report data. 

The Federal Reserve agreed with the two recommendations pertaining to 

the EGRPRA process. Regarding the need conduct and report on 

quantitative analysis whenever feasible to strengthen and to increase the 

transparency of the EGRPRA process, the Federal Reserve plans to 

coordinate with FDIC and OCC to identify opportunities to conduct 

quantitative analyses where feasible during future EGRPRA reviews. With 

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respect to the second recommendation, the Federal Reserve agreed that 

the cumulative impact of regulations on depository institutions is important 

and plans to coordinate with FDIC and OCC to identify further 

opportunities to seek comment on bodies of regulations and how they 

could be streamlined. 

NCUA acknowledged the report's conclusions as part of their voluntary 

compliance with the EGRPRA process; NCUA should improve its 

qualitative analysis and develop plans for continued reductions to 

regulatory burden within the credit union industry. In its letter, NCUA 

noted it has appointed a regulatory review task force charged with 

reviewing and developing a four-year plan for revising their regulations 

and the review will consider the benefits of NCUA's regulations as well as 

the burden they have on credit unions. 

In its written comments, OCC stated that it understood the importance of 

GAO's recommendations. They stated they OCC will consult and 

coordinate with the Federal Reserve and FDIC to develop plans for 

regulatory analysis, including how the regulators should conduct and 

report on quantitative analysis and also, will work with these regulators to 

increase the transparency of the EGRPRA process. OCC also stated it 

will consult with these regulators to develop plans, as part of the 

EGRPRA process, to conduct evaluations that identify ways to decrease 

the regulatory burden created by bodies of regulations. 

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to CFPB, FDIC, FinCEN, the 

Federal Reserve, NCUA, and OCC. In addition, the report will be 

available at no charge on the GAO website at http://www.gao.gov. 

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If you or your staff have any questions concerning this report, please 

contact me at (202) 512-8678 or evansl@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made major contributions to 

this report are listed in appendix VII. 

Sincerely yours, 

Lawrance L. Evans, Jr. 

Managing Director, Financial Markets and 

Community Investment 

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Appendix I: Objectives, Scope, and 

Methodology 

This report examines the burdens that regulatory compliance places on 

community banks and credit unions and actions that federal regulators 

have taken to reduce these burdens; specifically: (1) the financial 

regulations that community banks and credit unions reported viewing as 

the most burdensome, the characteristics of those regulations that make 

them burdensome, and the benefits are associated with those regulations 

and (2) federal financial regulators' efforts to reduce any existing 

regulatory burden on community banks and credit unions. 

To identify the regulations that community banks and credit unions 

viewed as the most burdensome, we first constructed a sample frame of 

financial institutions that met certain criteria for being classified as 

community banks or community-focused credit unions for the purposes of 

this review. These sample frames were then used as the basis for 

drawing our non-probability samples of institutions for purposes of 

interviews, focus group participation, and document review. Defining a 

community bank is important because, as we have reported, regulatory 

compliance may be more burdensome for community banks and credit 

unions than for larger banks because they are not as able to benefit from 

economies of scale in compliance resources. 1 While there is no single 

consensus definition for what constitutes a community bank, we reviewed 

criteria for defining community banks developed by the Federal Deposit 

Insurance Corporation (FDIC), officials from the Independent Community 

Bankers Association, the Office of the Comptroller of the Currency 

(OCC) 2 Based on this review, we determined that institutions that had the 

following characteristics would be the most appropriate to include in our 

universe of institutions, (1) fewer total assets, (2) engage in traditional 

lending and deposit taking activities, have limited geographic scope, and 

(3) did not have complex operating structures. 

To identify banks that met these characteristics, we began with all banks 

that filed a Consolidated Reports of Condition and Income (Call Report) 

for the first quarter of 2016 (March 31, 2016) and are not themselves 

subsidiaries of another bank that filed a Call Report. 3 We then excluded 

1

GAO, Community Banks and Credit Unions: Impact of the Dodd-Frank Act Depends 

Largely on Future Rule Makings. GA0-12-881 (Washington, D.C.: Sep. 13, 2012). 

2See Federal Deposit Insurance Corporation, Community Banking Study, December 

2012. 

3Every national bank, state member bank, insured state nonmember bank, and savings 

association is required to file a consolidated Call Report normally as of the dose of 

business on the last calendar day of each calendar quarter. 

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Appendix 1: Objectives, Scope, and 

Methodology 

banks using an asset-size threshold, to ensure we are including only 

small institutions. Based on interviews with regulators and our review of 

the FDIC's community bank study, we targeted institutions around the $1 

billion in assets as the group that could be relatively representative of the 

experiences of many community banks in complying with regulations. 

Upon review of the Call Reports data, we found that the banks in the 90th 

percentile by asset size were had about $1.2 billion, and we selected this 

to be an appropriate cutoff for our sample frame. In addition we excluded 

institutions with characteristics suggesting they do not engage in typical 

community banking activities like such as deposit-taking and lending; and 

those with characteristics suggesting they conduct more specialized 

operations not typical of community banking, such as credit card banks. 4 

In addition to ensure that we excluded banks whose views of regulatory 

compliance might be influenced by being part of a large and/or complex 

organization, we also excluded banks with foreign offices and banks that 

are subsidiaries of either foreign banks or of holding companies with $50 

billion or more in consolidated assets. Finally, as a practical matter, we 

excluded banks for which we could not obtain data on one or more of the 

characteristics listed below. 

We also relied on a similar framework to construct a sample frame for 

credit unions. We sought to identify credit unions that were relatively 

small, engaged in traditional lending and deposit taking activities, and had 

limited geographic scope. To do this, we began with all insured credit 

unions that filed a Call Report for the first quarter of 2016 (March 31, 

2016). We then excluded credit unions using an asset-size threshold of 

$860 million, which is the 95th percentile of credit unions, to ensure we 

are including only smaller institutions. The percentile of credit unions was 

higher than the percentile of banks because there are more large banks 

than there are credit unions. We then excluded credit unions that did not 

engage in activities that are typical of community lending, such as taking 

deposits, making loans and leases, and providing consumer checking 

accounts, as well as those credit unions with headquarters outside of the 

United States. 

We assessed the reliability of data from FFIEC, FDIC, the Federal 

Reserve Bank of Chicago, and NCUA by reviewing relevant 

documentation and electronically testing the data for missing values or 

obvious errors, and we found the data from these sources to be 

4For example, we excluded banks that were considered credit card banks. 

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Appendix 1: Objectives, Scope, and 

Methodology 

sufficiently reliable for the purpose of creating sample frames of 

community banks and credit unions. The sample frames were then used 

as the basis for drawing our nonprobability samples of institutions for 

purposes of interviews and focus groups. 

To identify regulations that community banks and credit unions viewed as 

among the most burdensome, we conducted structured interviews and 

focus groups with a sample of a total of 64 community banks and credit 

unions. To reduce the possibility of bias, we selected the institutions to 

ensure that banks and credit unions with different asset sizes and from 

different regions of the country were included. We also included at least 

one bank overseen by each of the three primary federal depository 

institution regulators, Federal Reserve, FDIC, NCUA, and OCC in the 

sample. We interviewed 17 institutions (10 banks and 7 credit unions) 

about which regulations their institutions experienced the most 

compliance burden. On the basis of the results ol these interviews, we 

determined that considerable consensus existed among these institutions 

as to which regulations were seen as most burdensome, including those 

relating to mortgage lees and terms disclosures to consumers, mortgage 

borrower and loan characteristics reporting, and anti-money laundering 

activities. 5 As a result, we determined to conduct focus groups with 

institutions to identify the characteristics ol the regulations identified in our 

interviews that made these regulations burdensome. To identify the 

burdensome characteristics ol the regulations identified in our preliminary 

interviews, we selected institutions to participate in three locus groups ol 

community banks and three locus groups of credit unions. 

For the first locus group of community banks, we randomly selected 

20 banks among 64 7 banks between $500 million and $1 billion 

located in nine U.S. census geographical areas using the sample 

frame ol community banks we developed, and contacted them asking 

lor their participation. Seven of the 20 banks agreed to participate in 

the first locus group. However, mortgages represented a low 

percentage of the assets of two participants in the first focus group, so 

we revised our selection criteria because two of the regulations 

identified as burdensome were related to mortgages. 

5

Home Mortgage Disclosure Act and its implementing regulation, Regulation C (codified at 

12 C.F.R pt 1003); BSAIAML statutes include the Currency and Foreign Transactions 

Reporting Act, commonly known as the Bank Secrecy Act (BSA), and the 2001 USA 

PATRIOT Act; Integrated Mortgage Disclosure Rule Under the Rea! Estate Settlement 

Procedures Act {Regulation X) and the Truth-in-Lending Act (Regulation Z) (codified at 12 

C.F.R. pt. 1024 and 12 C.F.R. pt. 1026). 

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Appendix I; Objectives, Scope, and 

Methodology 

For the remaining two focus groups with community banks, we 

randomly selected institutions with more than $45 million and no more 

than $1.2 billion in assets to ensure that they would be required to 

comply with the mortgage characteristics reporting and with at least a 

10 percent mortgage to asset ratio to better ensure that they would be 

sufficiently experienced with mortgage regulations. After identifying 

the large percentage of FDIC regulated banks in the first 20 banks we 

contacted, we decided to prioritize contact with banks regulated by 

OCC and the Federal Reserve for the institutions on our list. When 

banks declined or when we determined an institution merged or was 

acquired, we selected a new institution from that state and 

preferenced institutions regulated by OCC and the Federal Reserve. 

The three focus groups totaled 23 community banks with a range of 

assets. We used a similar selection process for three focus groups of 

credit unions consisting of 23 credit unions. We selected credit unions 

with at least $45 million in assets so that they would be required to 

comply with the mortgage regulations and with at least a 10 percent 

mortgage-to-asset ratio. 

During each of the focus groups, we asked the representatives from 

participating institutions what characteristics of the relevant regulations 

made them burdensome with which to comply. We also polled them about 

the extent to which they had to take various actions to comply with 

regulations, including hiring or expanding staff resources, investing in 

additional information technology resources, or conducting staff training. 

During the focus groups, we also confirmed with the participants that the 

three sets of regulations (on mortgage fee and other disclosures to 

consumers, reporting of mortgage borrower and loan characteristics, and 

anti-money laundering activities) were generally the ones they found most 

burdensome. 

To identify in more detail the steps a community bank or credit union may 

take to comply with the regulations identified as among the most 

burdensome, we also conducted an in-depth on-site interview with one 

community bank. We selected this institution by limiting the community 

bank sample to only those banks in the middle 80 percent of the 

distribution in terms of assets, mortgage lending, small business lending, 

and lending in general that were no more than 70 miles from Washington, 

D.C. We limited the sample in this way to ensure that the institution was 

not an outlier in terms of activities or size, and to limit the travel resources 

needed to conduct the site visit. 

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Appendix 1: Objectives, Scope, and 

Methodology 

We also interviewed associations representing consumers to understand 

the benefits of these regulations. These groups were selected using 

professional judgement of their knowledge of relevant banking 

regulations. We interviewed associations representing banks and credit 

unions. 

To identify the requirements of the regulations identified as among the 

most burdensome, we reviewed the Home Mortgage Disclosure Act 

(HMDA) and its implementing regulation, Regulation C; Bank Secrecy Act 

and anti-money laundering (BSA/AML) regulations, including those 

deriving from the Currency and Foreign Transactions Reporting Act, 

commonly known as the Bank Secrecy Act (BSA), and the 2001 USA 

PATRIOT Act; and the Integrated Mortgage Disclosure Rule Under the 

Real Estate Settlement Procedures Act (RESPA) with the implementing 

Regulation X; and the Truth-in-Lending Act (TILA) with implementing 

Regulation Z. We reviewed the Consumer Financial Protection Bureau's 

(CFPB) small entity guidance and supporting materials on the TILARESPA Integrated Disclosure (TRID) regulation and HMDA to clarify the 

specific requirements of each rule and to analyze the information included 

in the CFPB guidance. 

We interviewed staff from each of the federal regulators responsible for 

implementing the regulations, as well as from the federal regulators 

responsible for examining community banks and credit unions. To identify 

the potential benefits of the regulations that were considered burdensome 

by community banks and credit unions, we interviewed representatives 

from four community groups to document their perspectives on the 

benefits provided by the identified regulations. 

To determine whether the bank regulators had required banks to comply 

with certain provisions from which the institutions might be exempt, we 

identified eight exemptions from the Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010 from which community banks and credit 

unions should be exempt and reviewed a small group of the most recent 

examinations to identify instances in which a regulator may not have 

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Appendix 1: Objectives, Scope, and 

Methodology 

applied an exemption for which a bank was eligible. 6 We reviewed 20 

safety and soundness and consumer compliance examination reports of 

community banks and eight safety and soundness examination reports of 

credit unions. The bank examination reports we reviewed were for the 

first 20 community banks we contacted requesting participation in the first 

focus group. The bank examination reports included examinations from 

all three bank regulators (FDIC, Federal Reserve, and OCC). The NCUA 

examination reports we reviewed were for the eight credit unions that 

participated in the second focus group of credit unions. Because of the 

limited number of the examinations we reviewed, we cannot generalize 

whether regulators extended the exemptions to all qualifying institutions. 

To assess the federal financial regulators' efforts to reduce the existing 

regulatory burden on community banks and credit unions, we identified 

the mechanisms the regulators used to identify burdensome regulations 

and actions to reduce potential burden. We reviewed laws and 

congressional and agency documentation. More specifically, we reviewed 

the Economic Growth and Regulatory Paperwork Reduction Act of 1996 

(EGRPRA) that requires the Federal Reserve, FDIC, and OCC to review 

all their regulations every 10 years and identify areas of the regulations 

that are outdated, unnecessary, or unduly burdensome and reviewed the 

1995 Senate Banking Committee report, which described the intent of the 

legislation. 7 We reviewed the Federal Register notices that bank 

6Under CFPB's current rules, these exemptions included (1) a special category of 

qualified mortgage, which applies to creditors that, together with their affiliates, did not 

originate more than 2,000 first~lien covered transactions (excluding loans held 1n portfolio) 

in the preceding calendar year; had, W!th their affiliates that regularly extended covered 

transactions, less than $2 billion in assets at the end of the proceeding calendar year: and, 

for an exemption allowing the origination of balloon payment qualified mortgages, 

originated a first-lien covered transaction on a property located in a rural or underserved 

area in the proceeding calendar year: (2) escrow account exemption-which applies to 

creditors that meet both the same small creditor, and small creditor operating in a rural or 

underserved area, requirements specified above for the qualified mortgage exemption; (3) 

TRIO exemption-which applies to lenders that normally do not extend consumer credit; 

(4) appraisals for higher-priced mortgage exemption-which applies to creditors of 

mortgage transactions of $25,000 or less and creditors of certain manufactured home 

loans; (5) mortgage servicing exemption-which applies to servicers that service 5,000 

and less mortgage loans; (6) international remittances exemption-which applies to 

companies that consistently provide 100 or fewer remittance transfers per year; (7) debit 

interchanges fee cap exemption-which applies to issuers, together with their affiliates, 

that have less than $10 bilhon in assets; and (8) regulatory capital rule stress test 

exempt!on-which applies to banks with less than $10 billion 1n total assets (they are not 

required or expected to conduct institution~wide stress testing). 

7 12 U.S. C. § 3311; Committee on Banking, Housing, and Urban Affairs, Economic Growth 

and Regulatory Paperwork Reduction Act of 1995. S. Rep. No 104-185 (1995). 

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Appendix 1: Objectives, Scope, and 

Methodology 

regulators and NCUA published requesting comments on their 

regulations. We also reviewed over 200 comment letters that the 

regulators had received through the EGRPRA process from community 

banks, credit unions, their trade associations, and others, as well as the 

transcripts of all six public forums regulators held as part the 2017 

EGRPRA regulatory review efforts they conducted. We analyzed the 

extent to which the depository institutions regulators addressed the issues 

raised in comments received for the review. In assessing the 2017 and 

2007 EGRPRA reports sent to Congress, we reviewed the significant 

issues identified by the regulators and determined the extent to which the 

regulators proposed or took actions in response to the comments relating 

to burden on small entities. 

We compared the requirements of Executive Orders 12866, 13563, and 

1361 0 issued by Office of Management and Budget with the actions taken 

by the regulators in implementing their 10-year regulatory retrospective 

review. The executive orders included requirements on how executive 

branch agencies should conduct retrospective reviews of their 

regulations. 

For both objectives, we interviewed representatives from CFPB, FDIC, 

Federal Reserve, Financial Crimes Enforcement Network, NCUA, and 

OCC to identify any steps that regulators took to reduce the compliance 

burden associated with each of the identified regulations and to 

understand how they conduct retrospective reviews. We also interviewed 

representatives of the Small Business Administration's Office of 

Advocacy, which reviews and comments on the burdens of regulations 

affecting small businesses, including community banks. 

We conducted this performance audit from March 2016 to February 2018 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 

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Appendix II: Comments from the Consumer 

Financial Protection Bureau 

Janumy 18,2018 

Lawrence L. Evans, Jr., 

Managing Director, Financial Markets and Community Investment 

Government Accountability Office 

441 GStreet,NW 

Washington DC, 20548 

Dear Mr. Evans: 

Thank you for the opportunity to oomment on the Govemment Accountability Office's (GAO) 

draft report, titled Community Banks and Credit Unions: RegulaJors Could Take Addflional Steps 

to Address Compliance Burdens (GA0-18-213). We greatly appreciate GAO's work over the 

course of this engagement and believe the report provides valuable insights regarding (1) the 

regulations that community banks and credit unions identified as being the most burdensome and 

(2) the efficacy of federal financial regulators' regulatory review programs. 

The Bureau is committed to fulfilling its statutory objective of ensuring that outdated, unnecessary, 

or unduly burdensome regulations are regularly identified and addressed in order to reduce 

unwarranted regulatory burdens. 1 The Bureau recognizes the critical role community banks and 

credit unions play in the financial marlcetplace, and the unique challenges that regulatory 

compliance can pose for them. GAO's work in this report, including interviewing and conducting 

focus groups with representatives of over 60 community banks and credit unions, provides valuable 

information that will further inform the Bureau's work. 

After identifying the regulations that community banks and credit unions stated were most 

burdensome, the report found that some of the burden affecting community banks and credit unions 

stemmed from misunderstandings of regulatory ret~uiremenb, leading institutions to take actions 

not actually required. Specifically, GAO found that community banks and credit unions were confused about the Bureau's TILA-RESPA Integrated Disclosure rule (TRIO). Therefore, GAO 

recommended that the Bureau "assess the effectiveness of TRIO guidance to detennioe the extent 

to which TRIO's requirements are accurately understood and take steps to address any issues as 

necessary." 

The Bureau agrees with this recommendation and commits to evaluating the effectiveness of its 

guidance and updating it as appropriate. As such, the Bureau intends to solicit public input on how 

the Bureau can improve its regulatory guidance and implementation support. 

•uU.S.C.ssn{b)(3). 

consuml!rfiiHinte,gov 

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Appendix II: Comments from the Consumer 

Financial Protection Bureau 

OAO alro examined how federal financial regulators addressed regulatory burden through 

regulatory review. With respect to the Bureau, GAO found that because the Bureau is not required 

to participate in the Economic Growth and Regulatory Paperwork Reduction Act of 1996 

(EGRPRA) review process, key regulations that affect banks and credit unions may not be subject 

to ~view. Therefore, GAO reeommended that the Bureau "issue public infonnation on its plans for 

reviewing regulations applicable to banks and credit unions, including information describing the 

sco~ of regulations the timing and frequency of the reviews, and the extent to they wil! be 

coo.rdinated with the federal depository institution regulators as part of their periodic EGRPRA reviews." 

The: Bureau agrees with this recommendation and commits to developing additional plans with 

respe1:t to the review of key regulations and to publicly releasing such infonnation. In the interim, 

the Bureau intends to solicit public input on bow it should approach reviewing regulations. 

The Bureau looks forward to continuing to work with GAO as it monitors the Bureau's progress in 

implementing these recommendations. 

Sincerely, 

David Silberman 

Associate Director for Research, Markets., and Regulations 

com>um&rftn~:~nce,gov 

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Appendix Ill: Comments from the Board 

Governors of the Federal Reserve System 

BOARD OF GOVERNORS OF THE FE!)£RAt. RESERVE SYSTEM 

WAS!l!C>IGTON, D. C. 20551 

Januury Jl, 2018 

Mr. Lawrance Evans, Jr. 

tJnitcd States Government Accoumabitlty Oftice 

441 ~.w. 

20548 

Dear Mr. Evam: 

The GAO's report makes two recommendations to the Federal Reserve regarding 

the EGRPRA process· 

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Appendix Ill: Comments from the Board of 

Governors of the Federal Reserve System 

streamlined. 

\Vc appre-eiatc the GAO's review of th.e Federal 

bnnks, Cor its proJCsskmal approach to the rcvkw, forthc ,opporton;ty 

Sincerely, 

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Appendix IV: Comments from the Federal 

Deposit Insurance Corporation 

FDII 

Federal Oepo.sit lnsurnnce Corporation 

~'1\'as.'.,ngb.'.D,.;~::'!~ -------··-~·----~~·~::;~: 

Ja.;uary 19, 2.0!8 

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Appendix IV: Comments from the Federal 

Deposit Insurance Corporation 

-2- January :9,20J8 

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Appendix IV: Comments from the Federal 

Deposit Insurance Corporation 

Mr. Lllwra.nc~; L Ev:m~, Jr. -JPage 69 

Cbarle~Y! 

(iClld~ll CtnL1Sel 

Jmmaryl9,20l8 

GA0w18.213 Community Banks and Credit Unions 
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Appendix V: Comments from the Nationa 

Credit Union Administration 

(}I'!':\ Nat1onal Credit Union Admm1strat1on ------ \~~r-- Officeofthe ExecutiveDfrector 

January 16.2018 

SENT BY E-MAIL 

Mr. Lawrence L Evans, Jr. 

Managing Director, Financial Markets and Community Investment 

U.S. Government Accountability Office 

441 G Street, NW 

Washington, DC 20548 

evJ.ms!ia)gao.gov 

Dear Managing Director Evans: 

We reviewed the GAO report, Community Banks and Credit Unions Regulator.i Could Take 

Additional Steps to Address Compliance Burdens, which identifies regulations community banks 

and credit unions view as the most burdensome and discusses what regulators are doing to 

reduce regulatory burden. 

We ilCkMWiedge the report's conclusions that, as part of the NCUA 's continued voluntary 

compliance with the EGRPRA process, we should improve our quantitative analysis and develop 

plans for continued reductions to regulatory burden within the credit union industry. NCUA 

appointed a regulatory review task force charged with reviewing and developing a four-year plan 

fbr revising NCUA 's regulations, This review will consider the benefit of our regulations as well 

as the burden they have on the credit unions we regulate. 

Thank you for the opportunity to comment 

Sincerely, ~ 

'1M:.;~,]:: Executive Director 

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Appendix VI: Comments from the Office of 

the Comptroller of the Currency 

February 01,2018 

Mr. Lawrance L. Evans, Jr. 

Managing Director, Financial Markets and Community Investment 

U.S. Government Accountability Office 

Washington, DC 20548 

Dear Mr. Evans: 

Washington, DC 20219 

The Office of the Comptroller of the Currency (OCC) has reviewed the Government 

Accountability Office's {GAO) draft report titled "Community Banks and Credit Unions 

Regulators Could Take Additional Steps to Address Compliance Burdens." The report examined 

{1) the regulations community banks and credit unions viewed as most burdensome and why, 

and (2) efforts by depository institution regulators to reduce any regulatory burden. 

As part of this review, the GAO makes two recommendations to the OCC. The GAO 

recommends that the OCC should, as part of the Economic Growth and Regulatory Paperwork 

Reduction Act (EGRPRA) process, develop plans for regulatory analyses describing how the 

agency \\ill conduct and report on quantitative analysis whenever f~asible to strengthen the rigor 

and transparency of the EGRPRA process. The GAO also recommends that the OCC should, as 

part of the EGRPRA process, develop: plans for conducting evaluations that would identify 

opportunities to streamline bodies of regulation. 

The OCC appreciates the GAO's recommendations and understands their importance. As a 

result, the OCC will consult and coordinate with the Federal Reserve Board {Board) and the 

Federal Deposit Insurance Corporation (FDIC) to develop plans for the agencies' regulatory 

analyses, including how the agencies will conduct and report on quantitative analysis. 

We note that the OCC already conducts impact a<>sessments for proposed and final rules. These 

impact assessments infonn the OCC about opportunities to reduce regulatory burden on national 

banks and Federal savings associations, including community banks. In addition, the OCC will 

work with the Board and the FDIC to increase the transparem:y of the EGRPRA process, while 

also considering the availability of data and legal \:onstraints on the ability to disclose certain 

infonnation. To supplement the OCC's ongoing efforts to review and streamline regulations 

while preserving the safety and soundness of !he Federal banking system, the OCC wit! consult 

with the Board and the FDIC to develop, as part of the EGRPRA process, plans for conducting 

evaluations for identifying opportunities to decrease regulatory burden created by bodies of 

regulation. 

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Appendix VI: Comments from the Office of the 

Comptroller of the Currency 

If you need additional infonnation, please contact Patrick Tierney, Assistant Director, 

Legislative and Regulatory Activities Division, (202) 649·5490. 

Sincerely, 

Karen Solomon 

Acting Senior Deputy Comptroller and Chief Counsel 

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Appendix VII: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Staff 

Acknowledgments 

(100773) 

Lawrance L. Evans, Jr., (202) 512-8678 or evansl@gao.gov 

In addition to the contact name above, Cody J. Goebel (Assistant 

Director); Nancy Eibeck (Analyst in Charge); Bethany Benitez; Kathleen 

Boggs; Jeremy A. Conley; Pamela R. Davidson; Courtney L. LaFountain; 

William V. Lamping; Barbara M. Roesmann; and Jena Y. Sinkfield made 

key contributions to this report. 

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Please Print on Recycled Paper. 
120 

Question from Hon. John Curtis to Mr. Michael Clements 

Question: Is there a pattern of assigning the new guys to the 

smaller institutions? 

Answer: Federal banking regulators generally assign examiners 

to examine financial institutions based on various factors including 

size, geography, risk profile, and complexity of the financial institution. Newer, or less experienced examines are generally assigned to 

smaller, less complex financial institutions, and may be assigned to 

examine larger, more complex financial institutions as they obtain 

additional and specific training and examination experience. 

SBREP-219A with DISTILLER

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CUNA 

Credit Union 

National 

Association 

February 27, 2018 

Chairman Chabot 

House Small Business Committee 

2361 Rayburn House Office Building 

Washington, D.C 20515 

Jim Nussle 

President &. CEO 

Phone: 202-508-6745 

jnusste@cuna.coop 

601 Pennsylvama Avenue NW 

South Building, Suite 600 

Washington, D.C. 20004·2601 

Ranking Member Veh\zquez 

House Small Business Committee 

2069 Rayburn House Office Building 

Washington, D.C, 20515 

Dear Chairman Chabot and Ranking Member Vehizquez, 

On behalf of America's Credit Unions, I am writing regarding today's hearing entitled "How Red Tape Affects 

Community Banks and Credit Unions: A GAO Report." The Credit Union National Association (CUNA) 

represents America's credit unions and their 110 million members. 

Credit union members depend on safe and affordable financial services provided by their credit unions; 

unfortunately, the regulatory scheme created by the Dodd-Frank Act has made it more difficult and more expensive 

to provide these services. The current regulatory scheme favors the largest banks and nonbank financial services 

providers that can afford to absorb regulatory and compliance changes from thousands of pages of new rules and 

requirements. 

A recent study of the current financial impact on credit unions confirms this trend. The study, "2017 Regulatory 

Burden Financial Impact Study: An Elevated New Normal," shows that credit union regulatory burden costs have 

increased to an "elevated new normal," totaling an estimated $6.1 billion in 2016. Overall, costs are up more than 

$800 million compared with 2014. That is a 15.1 percent increase, which far exceeds the 2.8 percent inflation rate 

over the two-year period. In total, the credit union regulatory burden costs for 2016 translate to $115 per credit 

union household. 

Congress is considering legislation that would help address credit unions' regulatory burden. This legislation, S. 

2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act includes a number of the provisions 

which would provide much needed relief and give credit union members more access to credit. For example, the 

bill would allow loans held in portfolio by credit unions and other small financial institutions with less than $10 

billion in assets to be considered qualified mortgages for the purposes of the CFPB's Ability-to-Repay rule. This 

legislation also includes important provisions to address burdens imposed on small credit unions as a result of the 

qualified mortgage rule and the Home Mortgage Disclosure Act. It also provides important new protections again 

elder financial abuse. These are all commonsense provisions that will help small financial institutions, like credit 

unions, manage regulatory burden. 

In addition to the regulatory burdens faced by credit unions, recent actions taken by predatory plaintiffs' firms have 

also harmed their ability to serve consumers. CUNA's member credit unions have recently become the subject of a 

wave of frivolous litigation alleged under the Americans with Disabilities Act and the Telephone Consumer 

Protection Act. 

Credit unions as smaller financial institutions and member-owned not for profit entities, are particularly at risk 

when lawyers take advantage of a lack of clarity in the marketplace and engage in frivolous litigation. Many credit 

unions are small businesses with extremely limited staff and resources and they often serve smaller or rural local 

communities that may otherwise have limited options for financial services. In the United States, nearly half of all 

credit unions, 2,708 out of approximately 6,000 credit unions, employ five or fewer full time employees. More 
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than half(3,457) have assets of less than $50 million. Moreover, credit unions with less $20 million in assets 

account for over 40% of all U.S. credit unions (2,369). 

When they are targeted for litigation as a result of unclear guidelines, resources are depleted from the pooled 

resources of the entire membership. Certain smaller credit unions have considered taking down their entire website 

or even closing their doors because of these threats. This harms all consumers, who rely on credit unions for safe 

and affordable products and services. 

We appreciate the leadership of the Small Business Committee to highlight the burdens of overregulation and 

predatory litigation on credit unions and other small businesses. We look forward to working with you on these 

issues, 

On behalf of America's credit unions and their 110 million members, thank you very much for your consideration 

of our views. 

Sincerely, 
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On behalf ofthe nearly 5,700 community banks represented by ICBA, we thank Chairman Chabot, Ranking Member 

Velazquez, and members of the Small Business Committee for convening today's hearing titled ''How Red Tape 

Affects Community Banks and Credit Unions: A GAO Report" ICBA is pleased to have the opportunity to offer this 

statement for the hearing record. 

We hope that this hearing will highlight the need for enactment of meaningful regulatory relief for community banks 

before the close of the 1 I S'h Congress. As discussed below, S. 2 I 55 presents the best and most realistic opportunity 

for enacting this relief. We ask the members of this committee to support expeditious consideration of this critical 

legislation when it is sent over from the Senate. 

Community Banks and the American Economy 

Community banks are locally operated and often closely held institutions with simple, conservative balance sheets 

and strong capitalization. Located in urban, suburban and rural areas. they are funded primarily by local deposits and 

deeply rooted in their communities. Community banks have a vital stake in the success of their local economies 

because the fortunes of the local bank and the local economy are closely linked. 

The economic life of thousands of American communities depends on customized financial products and services 

that only community banks provide. According to a 2016 report by the Federal Deposit Insurance Corporation 

(FDIC), more than 20 percent of our nation's 3,100 counties are exclusively served by community banks. 1 

Collectively, community banks provide nearly 50 percent of all small business loans in the country and 77 percent of 

all agricultural loans, according to a study from Harvard's Kennedy SchooL2 Community banks are playing a vital 

About ICBA 

is 

community. For more information, \'isit!CBA ·s website at m·vw.icba org 

1 h ttps :/ /www. fd i c. gov f regu I ati ons/ resources/ cbi/ conference/ cb i-boo k12 -19-16. pdf. 2 "The State and Fate of Community Banking," Marshall lux and Robert Greene. Mossavar-Rahmani Center for Business and Government at 

the Harvard Kennedy SchooL February 2015. 
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role in ensuring the economic recovery is robust and broad-based, reaching communities of all sizes and in every 

region of the country, 

Overregulation a Critical Challenge for Community Banks 

The onerous regulatory burden on community banks is growing both in volume and complexity, suffocating the true 

potential of community banks to spur economic growth and job creation in their communities and across the nation. 

These regulations are issued by a spectrum of federal agencies and run the gamut from Bank Secrecy Act to credit 

card regulation to the multiple code sections that govern mortgage lending and servicing. 

Even when a regulation docs not apply to a particular bank, that bank must still evaluate each one to determine to 

what extent its organization is impacted. Every change requires software updates. a lengthy process that includes a 

risk assessment, installation on a test network, testing, installation on a production network, more testing, procedural 

review, training and audit. What's more, policy revisions require committee review and Board approvaL Compliance 

changes result in legal and audit expenses and sometimes the expense of printing and mailing new disclosures. But 

most significant is the drain on staff time. In contrast to larger banks, community banks have limited resources to 

devote to compliance. They must divert valuable staff from other duties, including serving customers\ to implement 

new rules and other changes, a process that can take weeks or months depending on the complexity of the change and 

the bank processes impacted. 

ICBA's 2014 Community Bank Lending Survey surveyed over 500 community banks nationwide 3 Seventy-eight 

percent of respondents reported they had increased the number of staff dedicated to lending compliance in the past 

five years. In a lightly staffed community bank, any additional hiring is significant. Hiring dedicated to compliance, 

rather than serving customers, is a dead-v,1cight loss that diverts resources from community lending. The survey 

clearly illustrated the negative impact new rules are having on credit availability and consumer choice. 

Consolidation 

This increase in regulatory burden has contributed significantly to the rapid pace of consolidation in recent years. 

Banks need scale to amortize compliance costs. As these costs have grown dramatically in recent years, banks have 

acquired or merged with other banks to achieve this scale. Today there are I ,700 fewer community banks in the 

United States than there were in 2010. Regulatory-driven consolidation has particularly reduced the ranks of the 

smallest community banks. The number of banks with assets below $100 million shrunk by 32 percent, while the 

3 2014 !CBA Community Bank Lending Survey. January 2015. 
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number of banks with assets between$ I 00 million and$ I billion fell by I I percent. 

Of course, consolidation would be less of a concern if there were an influx of de novo charters to replenish lost 

banks. In the years before the financial crisis. de novo bank formation averaged over I 70 per year. Even in the depths 

of the savings and loan crisis in the I 980s, when I .800 banks and savings institutions failed, an average of 196 de 

novo banks and savings institutions were formed annually from 1984 through 1992. In recent years, by contrast, de 

novo formation has ground to a virtual halt The current regulatory environment for community banks acts as a strong 

deterrent to potential de novo applicants. 

What are the consequences of consolidation without the creation of de novo charters? More communities are stranded 

without a dedicated, locally-based community bank to invest in their growth and prosperity. These communities will 

be challenged in the current economic recovery and in future economic cycles. In addition, there will be less 

competition in financial services in every American community. Less competition means lower rates paid on 

deposits, higher rates charged on loans, higher fees, and ultimately an erosion in the quality of service. 

There are additional consequences to consolidation that must be considered. A financial system with fewer, larger 

banks is more vulnerable to the risk of another financial crisis. Consolidation makes the megahanks even larger, 

securing their implicit too-big-to-fail status, inducing risk taking, and ultimately leading to taxpayer bailouts. 

For the sake of our communities and the stability of our financial system, it is imperative that we slow the pace of 

consolidation and restart the de novo process. There is a direct linkage from regulatory burden to consolidation to 

consumer harm, too-big-to-fail mcgabanks and taxpayer bailouts. We must provide regulatory relief for community 

banks that will break this dangerous cycle. Regulation should be tiered and proportionate to the systemic and 

consumer risk posed by classes of banks. 

Solutions 

lCBA is grateful for the dozens of bills passed by the House in the 115'h Congress that would alleviate regulatory 

burden for community banks. The Small Business Committee has played a critical role in promoting these bills by 

highlighting the problem of regulatory burden for community banks and all small businesses. Members of the 

committee have sponsored and cosponsored many of these bills, many of w-hich have bipartisan support. The 

Financial Choice Act (H.R. I 0), passed by the House in June 20 I 7, contains some two dozen community bank 

provisions. We hope that before the close of the 115'" Congress meaningful community bank regulatory relief 

legislation can be signed into law. This will require bicameral and bipartisan agreement. 
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S. 2155 Presents the Best Opportunity to Enact Community Bank Regulatory Relief 

ICBA anticipates Senate passage ofS. 2155 in the coming weeks with a strong bipartisan vote. S. 2155 contains 

robust regulatory relief for community banks, including relief from HMDA reporting, short form call reports, deemed 

qualified mortgage status for mortgages held in portfolio by community banks, a lengthened exam cycle for banks 

with less than $3 billion in assets, and numerous other provisions that would strengthen economic growth and job 

creation. 

It is clear that S. 2155 owes a great deal to the work of the House. The numerous hearings, markups, and House floor 

votes on community bank regulatory relief in this Congress and recent Congresses have all contributed to the recent 

work of the Senate Banking Committee. Regulatory relief is a multi-year effort spanning both sides of the Capitol. 

With this in mind, ICBA urges the members of this committee and the House to seize this opportunity by quickly 

taking upS. 2155 following Senate passage without amendments that would split the bipartisan coalition needed to 

enact this long-awaited regulatory relief for community banks. 

Closing 

Thank you again for convening this hearing and raising the profile of a critical issue for the American economy. 

ICBA looks forward to working with this to enact meaningful, comprehensive regulatory relief for community banks. 
127 

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