[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
EXAMINING CREDIT UNION
REGULATORY BURDENS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
APRIL 10, 2013
__________
Printed for the use of the Committee on Financial Services
Serial No. 113-11
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
GARY G. MILLER, California, Vice MAXINE WATERS, California, Ranking
Chairman Member
SPENCER BACHUS, Alabama, Chairman CAROLYN B. MALONEY, New York
Emeritus NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota DAVID SCOTT, Georgia
KEVIN McCARTHY, California AL GREEN, Texas
STEVAN PEARCE, New Mexico EMANUEL CLEAVER, Missouri
BILL POSEY, Florida GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK, KEITH ELLISON, Minnesota
Pennsylvania ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia JAMES A. HIMES, Connecticut
BLAINE LUETKEMEYER, Missouri GARY C. PETERS, Michigan
BILL HUIZENGA, Michigan JOHN C. CARNEY, Jr., Delaware
SEAN P. DUFFY, Wisconsin TERRI A. SEWELL, Alabama
ROBERT HURT, Virginia BILL FOSTER, Illinois
MICHAEL G. GRIMM, New York DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois DENNY HECK, Washington
DENNIS A. ROSS, Florida
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
Subcommittee on Financial Institutions and Consumer Credit
SHELLEY MOORE CAPITO, West Virginia, Chairman
SEAN P. DUFFY, Wisconsin, Vice GREGORY W. MEEKS, New York,
Chairman Ranking Member
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
GARY G. MILLER, California MELVIN L. WATT, North Carolina
PATRICK T. McHENRY, North Carolina RUBEN HINOJOSA, Texas
JOHN CAMPBELL, California CAROLYN McCARTHY, New York
KEVIN McCARTHY, California DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico AL GREEN, Texas
BILL POSEY, Florida KEITH ELLISON, Minnesota
MICHAEL G. FITZPATRICK, NYDIA M. VELAZQUEZ, New York
Pennsylvania STEPHEN F. LYNCH, Massachusetts
LYNN A. WESTMORELAND, Georgia MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri PATRICK MURPHY, Florida
MARLIN A. STUTZMAN, Indiana JOHN K. DELANEY, Maryland
ROBERT PITTENGER, North Carolina DENNY HECK, Washington
ANDY BARR, Kentucky
TOM COTTON, Arkansas
C O N T E N T S
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Page
Hearing held on:
April 10, 2013............................................... 1
Appendix:
April 10, 2013............................................... 31
WITNESSES
Wednesday, April 10, 2013
Burrow, Robert D., President and Chief Executive Officer, Bayer
Heritage Federal Credit Union, on behalf of the National
Association of Federal Credit Unions (NAFCU)................... 8
Reiver, Mitchell, General Counsel, Melrose Credit Union.......... 11
Stephens, Pamela, President and Chief Executive Officer, Security
One Federal Credit Union, on behalf of the Credit Union
National Association (CUNA).................................... 9
APPENDIX
Prepared statements:
Burrow, Robert D............................................. 32
Reiver, Mitchell............................................. 64
Stephens, Pamela............................................. 68
Additional Material Submitted for the Record
Capito, Hon. Shelley Moore:
Letter to Financial Services Committee Chairman Jeb
Hensarling and Ranking Member Maxine Waters from the
American Mutual Share Insurance Corporation (ASI), dated
April 9, 2013.............................................. 122
Written statement of the Coalition for Credit Union Access
(CCUA)..................................................... 125
EXAMINING CREDIT UNION
REGULATORY BURDENS
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Wednesday, April 10, 2013
U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:03 p.m., in
room 2128, Rayburn House Office Building, Hon. Shelley Moore
Capito [chairwoman of the subcommittee] presiding.
Members present: Representatives Capito, Miller, McHenry,
Campbell, Pearce, Posey, Fitzpatrick, Luetkemeyer, Duffy,
Stutzman, Pittenger, Barr, Cotton; Meeks, Maloney, Watt,
McCarthy of New York, Scott, Green, Murphy, Delaney, and Heck.
Ex officio present: Representative Hensarling.
Also present: Representative Royce.
Chairwoman Capito. Without objection, I am going to call
the Financial Institutions and Consumer Credit Subcommittee to
order. I would like to note that my favorite ranking member,
Mrs. Maloney from New York, has sustained a disability that
requires her to stay on the bottom row rather than come up to
the top row. But I don't take that as any diminishment of her
engagement or whether she is paying attention and is
knowledgeable of the topics. So, hello down there, I say.
[laughter].
Without objection, the Chair is authorized to declare a
recess of the committee at any time. It seems as though votes
are going to be occurring at 4 p.m., so I think we will be in
good shape.
This afternoon's hearing is the first in a series of
hearings that our Subcommittee on Financial Institutions and
Consumer Credit will be holding about the regulatory burden for
community financial institutions. Today, we are going to focus
on the unique challenges that credit unions face in the current
regulatory environment. The purpose of these hearings is to
gain a better understanding of the regulatory framework for
community financial institutions.
These institutions are critical to the flow of credit in
our communities across the Nation. And in particular, I will
put a plug in for rural America, where I live. Credit union
employees know their members and are intimately involved in the
communities that they serve. Rather than relying on purely
data-driven decisions, community lenders take a more
relationship-based model to lending that is integral to the
survival of many communities in this country. Over the last 2
years, we have heard credit union representatives express
concern about the growing regulatory burden.
In fact, one of our witnesses today, Mr. Robert Burrow,
from Proctor, West Virginia, will quantify the effect
regulatory burden is having on his credit union. Excuse me, I
would like to recognize my current ranking member, Mr. Meeks. I
mistakenly said Mrs. Maloney, because we were together last
time. So I am sorry about that. I started before you got here.
I apologize.
Mr. Burrow states in his written testimony, ``At Bayer
Heritage, we have seen our compliance costs double in just the
last few years, and recently hired a new employee to help with
compliance at a cost of over $65,000. These increased costs
mean that we often are slower to offer services that our
members want, and there are just some services that are non-
starters for us, because of the compliance cost.'' Although
these costs may seem trivial to some, they have real effects on
the ability of credit unions to serve their members.
The increased cost of compliance can also have a
detrimental effect on the ability of credit unions to serve
their communities. In April of 2008, I was proud to join the
representatives of Star USA Federal Credit Union in Charleston,
West Virginia, for Kids Savings Day. The credit union took a
lot of time to educate the children, to help them with learning
how to balance a checkbook, what it means to save, and what it
means to deposit. While it may seem trivial in some folks'
mind, we know that financial literacy is a huge problem across
the country and we need to learn this skill early. And this
credit union was helping with that.
This is a program that was started 10 years ago and
continues today. But it could be just the kind of program that
if the compliance costs keep going up and up, will be cut.
Recently, Federal financial regulators have expressed concerns
about the difficulty in quantifying regulatory burden for
financial institutions. I understand it is difficult to
pinpoint specific rules and regulations that are especially
burdensome, but it is the cumulative effect of new regulations
being layered on top of old regulations.
The purpose of today's hearing is to take a closer look at
these issues to determine ways to allow credit unions to
operate in a modernized regulatory system that gives them the
flexibility they need to serve the unique needs of their
clients. I would like to thank our witnesses today for
providing the subcommittee with thoughtful proposals for
regulatory reform. And your testimony will help our Members as
we begin to work on bipartisan legislation to help our
community financial institutions operate more efficiently.
I would now like to yield to my ranking member, Mr. Meeks,
for the purpose of giving an opening statement.
Mr. Meeks. Thank you, Chairwoman Capito. This is a very
important hearing that we are holding today. And I want to
welcome all of the witnesses that we will hear from shortly.
But I need to give a special shout out, of course, to Melrose
Credit Union's general counsel, Mitch Reiver, for being here,
because both he and Melrose are from the great 5th
Congressional District of New York. But today's hearing, along
with next week's hearing on community banks, are probably one
of the most important topics that we can address.
Credit unions, along with community banks, are the
backbones of our communities. Their lending is often
countercyclical, meaning that when entrepreneurs have
difficulty obtaining capital from our other lending sources,
they can still find it through their local credit unions. Data
from 2009 clearly reinforces this notion. The statistics show
that while lending by megabanks declined by nearly double
digits, credit unions' lending remained flat, allowing
countless businesses and consumers to remain afloat and have
access to vital capital.
Melrose has been a perfect example of how credit unions can
benefit a local community. In 2009, and I will use this as an
example, my office was contacted by a Queens County nonprofit
organization about a problem with a megabank which no longer
found their account worthy of maintaining. They did everything
right, they were paying the loan back. But all of a sudden,
just arbitrarily, this megabank said they didn't want to
maintain them anymore. And without a line of credit from this
institution, the nonprofit may well have folded and, therefore,
been unable to provide services to several thousand of our
constituents.
Working with Congressman Joe Crowley, we asked Melrose to
consider a relationship with the organization, which they
gladly did. And I am happy to report that Melrose and the
nonprofit entered into a prosperous relationship as a result of
getting together. Credit unions have been able to provide
critical support without the advantages that other institutions
maintain. Their access to capital is limited and they cannot
simply issue more stock or float more debt to fund their
operations, and yet credit unions must compete.
Some in Congress recognized this, and have pushed for
regulatory changes that maintain safety and soundness, but
allow these local engines of economic growth to remain viable.
Examples of this include changes to member business lending
guidelines, and along with my friend, Congressman Ed Royce, I
have cosponsored legislation that will allow credit unions to
increase member business lending. And I look forward to hearing
from our witnesses on that subject today.
I want to close by noting that we are at a pivotal point in
our economic recovery. Economic data continues to be mixed.
While on the one hand, the stock market is booming and there is
a nascent housing recovery under way, which are clearly fueling
expansion, we also face headwinds such as the expiration of the
payroll tax cut which has undermined growth. I expect there to
be several proposals in this subcommittee and committee that
will, I hope on a bipartisan basis, address reforms that can
decisively move the economy in the right direction.
This will require credit unions and community banks to work
together. In the past, whenever we have had the opportunity to
advance common-sense reforms for one industry, the other gets
in the way. I hope both groups will put aside their differences
so that we can unlock the resources that businesses and
consumers need to fuel the entrepreneurial spirit that defines
America.
Thank you, and I look forward to hearing your testimony.
Chairwoman Capito. Thank you.
I would like to recognize Mr. Duffy, the vice chair of the
subcommittee, for 2 minutes.
Mr. Duffy. Thank you, Chairwoman Capito. I am pleased to
take part in this important hearing which examines the
regulatory burdens facing our Nation's credit unions. I
appreciate the witnesses coming in today, and I look forward to
your testimony and the answers to all of our respective
questions.
My home State of Wisconsin has a proud credit union
tradition. Though I don't have someone from from my district or
even from Wisconsin testifying on the panel, CUNA, the national
trade association, is based in the great State of Wisconsin.
So, we do have nice representation. Today, we have 186 credit
unions operating in Wisconsin. Now, that is impressive but,
sadly, it is down from 225 credit unions a little over 2 years
ago. This declining trend in the number of credit unions is
very concerning.
It is becoming clear that these institutions are suffering
from increased regulations and increased compliance costs,
which represent direct threats to their ability to lend and
operate. Instead of hiring or expanding, these institutions are
forced to use their members' money to cover compliance costs.
Our Nation's financial arteries flow directly through these
small financial institutions and credit unions. If we continue
to cut off and squeeze these arteries, we are certainly not
helping families and small businesses in central and northern
Wisconsin, or families and small businesses around America.
Many of my colleagues and I continue to highlight
differences between small institutions and large institutions,
yet we are frustrated and shocked that when rules come out,
they are written with the one-size-fits-all approach. It is not
right that our credit unions are being forced to service
regulators and not service our American families. I look
forward to a discussion today on how we can stop this
consolidation trend and how we can alleviate the burdens from
those small financial institutions and those who are
responsible for getting dollars out the door to fund Main
Street and help provide loans to our homeowners and families,
not just in central and northern Wisconsin, but across the
country as a whole.
I yield back.
Chairwoman Capito. Thank you.
I now recognize Mr. Scott for 2\1/2\ minutes.
Mr. Scott. Thank you very much, Madam Chairwoman, and
welcome. The credit unions play an extraordinary role in our
entire economy and, certainly, a central role in our financial
system. And so it is important that we have this hearing. We
have a chance to look at what your feelings are about the
effects of the regulations that we are putting in place and
have put in place in response to the financial crisis that we
have gone through.
And as I said, the credit unions are a major, major player
in our economy. You have over 7,000 federally-insured credit
unions in this country, with 92 million members and $961
billion in assets. That is a huge part and a very important
part of our economy. And we have to make sure that the
abilities of the credit unions to serve our underserved
populations across the Nation--this has been your core mission.
It is very important that we recognize that in the regulations
we have put forward.
This has to be at the center so that we do not suffocate
credit unions' ability to perform this core mission. And as the
country continues to recover from this economic crisis, it will
be imperative that underserved areas have access to affordable
financial services. The credit unions certainly provide that.
Now, there are many individuals who are considered to be
unbanked, unserved, and to band and help build wealth together.
And in credit unions and community banks, financially
vulnerable Americans find refuge from being preyed upon by loan
sharks and predatory lenders.
So we have to stop this talk about taxing credit unions and
move on to try to serve the underserved and build wealth
together. That is our mission. That is what we have to do. Your
testimony this afternoon will be very, very important in
establishing the right pattern and the right direction for this
committee to go as we hammer out these regulations in response
to the financial crisis.
Thank you.
Chairwoman Capito. Thank you.
Mr. Miller for 1\1/2\ minutes.
Mr. Miller. Thank you, Madam Chairwoman.
Credit unions have done a great job reaching middle-class
and underbanked families through credit. You serve a different
purpose than a lot of other financial institutions do. Your
earnings return to members in the form of lower rates, higher
rates on deposits, and lower fees. But even though the credit
unions were not the cause of the crisis we have gone through,
you are not immune from the regulations that have been placed
on everybody else. I believe credit unions now have over 5,000
pages of rules from the Consumer Financial Protection Bureau,
the CFPB, that you must understand, interpret, and comply with.
And it is amazing that there are 700 fewer credit unions
today than there were prior to Dodd-Frank implementation, which
was not that long ago. But I think we can help in a lot of ways
by streamlining various regulations credit unions have to face,
while ensuring the consumer protection-driven intent behind the
regulations are maintained. For example, Congress should enable
the credit unions and prudential regulators at the NCUA to step
in where appropriate and modify CFPB rules, so long as the
modified rule still meets the objective of the CFPB.
I think Congress should consider a risk-based capital
system for credit unions that more accurately reflects the
credit unions' risk that you take. You should require that the
CFPB and the NCUA look back on the cost-benefit analysis after
3 years to ensure regulations that have a true sense about the
cost of compliance of the new rule, and make sure they worked
appropriately. And I think we need to work to modernize the
credit unions' central liquidity facility, which we haven't
done.
And Congress should modernize investment options for credit
unions to give credit unions more investment options so they
can better their portfolios that have risk under. I am working
on legislation to address these areas and, hopefully, we can
enact those and make your job a little easier in the future.
I yield back. Thank you.
Chairwoman Capito. Thank you.
Mrs. Maloney for 2\1/2\ minutes.
Mrs. Maloney. Thank you, and thank you, Madam Chairwoman
and Ranking Member Meeks for calling this important hearing.
And I appreciate all of the witnesses who are here today. But I
want to particularly welcome Mr. Reiver, whose credit union
serves many of the constituents that I am honored to represent.
Credit unions play an extremely important role in our financial
services industry. Often, they provide services and products
that their members cannot find elsewhere.
And historically, they have served underserved areas, often
areas that other financial service institutions have chosen not
to serve. So they are a very important part of the fabric of
financial services that we provide in America. And I really am
pleased that we are taking time today to highlight their work,
giving them the opportunity to talk about their challenges and
also giving them an opportunity to talk about the regulatory
concerns and barriers that we face. We all have the goal of
getting capital out, resources out to good businesses.
And in the district that I represent, and I would say
throughout New York and New Jersey, which were devastated by
Hurricane Sandy, small businesses are having difficulty getting
those smaller loans and getting those loans below, say,
$250,000 and in that range, to help them rebuild. So I am
working on a bill that is narrowly focused, that would enable
credit unions who are lending to small businesses affected by
natural disasters such as we are suffering in 23 States from
Sandy, to keep those loans from counting against the cap for a
period of time--5 years--so that we get as much capital out as
quickly as possible to help these small businesses rebuild.
I know from the credit unions that I work with that they
are very, very proud of the relationships and bonds that they
build with the communities which they serve. And I feel that
this would be a way that would enable them to help in an area
where the capital is not really getting there. So I am
encouraged about this discussion today and I look forward to
your testimony. We don't want anyone to be deprived of a loan
because their credit union has hit a lending cap and they can
no longer loan in that area. I have heard that is a problem in
New York and New Jersey.
I thank the ranking member and the chairwoman very much for
calling this hearing. I look forward to the testimony.
Chairwoman Capito. Thank you.
Mr. Fitzpatrick for 1\1/2\ minutes.
Mr. Fitzpatrick. Thank you, Madam Chairwoman. Prior to
today's hearing, I reached out to several of the credit unions
that work in the communities that I serve in southeastern
Pennsylvania, around Philadelphia, about the importance of
today's hearing.
These community financial institutions are providing loans
for small businesses and for families. They provide important
financial services for their members. And as in the case of a
Ukrainian credit union near my district, they preserve the
culture of the community, as well. Credit unions are undeniably
important to our economy, so when the Chair announced this
hearing, I wanted to reach out to them to find out, firsthand
from them, how the regulations in the marketplace are affecting
them individually.
What I heard, and what I plan to discuss with the witnesses
today, was that it is, in fact, the case that Federal
regulations are negatively affecting consumers. I heard
particular concern about the CFPB and the recent rule regarding
Qualified Mortgages. There is a lot of anxiety out in our
communities about access to affordable credit. I heard that the
cost of compliance is growing, and that those costs are now
being passed on to consumers. So I look forward to following up
on some of these concerns during the questions and working with
the Chair on some possible regulatory relief legislation that
may result from these hearings.
So I appreciate the hearing today, and I yield back.
Chairwoman Capito. Thank you. Mr. Delaney for 1\1/2\
minutes.
Mr. Delaney. Thank you. I, like my colleagues, share in the
admiration of credit unions and the important role they play in
the community, the important role they play for their unique
stakeholders and their members, and the important role they
play in our economy.
I am supportive of efforts to allow additional capital, or
supplemental capital, to flow into credit unions so that they
can continue to grow and manage their business in a safe and
sound manner. And I also--like many of my colleagues--am
supportive of efforts to streamline the regulatory approach to
credit unions to reflect their business plan, which is unique
and is focused on their communities, so that they can
effectively and efficiently pursue their mission, which is
incredibly important to our economy and incredibly important to
their communities.
But I am mindful, as we think about expanding the mandate
of credit unions beyond the traditional mandate--tradition--
particularly around business lending, that we are mindful of
the role that community banks play in our country, as well.
Because community banks fulfill, often times, the same mission
as it relates to business lending. And they do it in a taxable
framework, which adds cost to their business. It is important
for me, as I hear about the efforts of community credit unions
to expand their mandates, to think about it in the context of
competitiveness with community banks. Because we wouldn't want
to do something that would hurt community banks' ability to
serve their mission, as well, by putting them at a significant
competitive disadvantage in community business lending.
Thank you. I yield back.
Chairwoman Capito. Thank you.
I think that concludes our opening statements. So, I want
to welcome our panel of distinguished witnesses. I will
introduce everybody, and then I will recognize Mr. Burrow at
the beginning. Mr. Burrow is a fellow West Virginian whose
business is located in West Virginia. Mr. Robert G. Burrow,
president and chief executive officer of Bayer Heritage Federal
Credit Union on behalf of the National Association of Federal
Credit Unions. I will introduce our next witness before she
begins to speak.
I now recognize Mr. Burrow for 5 minutes.
STATEMENT OF ROBERT D. BURROW, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, BAYER HERITAGE FEDERAL CREDIT UNION, ON BEHALF OF THE
NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS (NAFCU)
Mr. Burrow. Good afternoon, Chairwoman Capito, Ranking
Member Meeks, and members of the subcommittee. My name is
Robert Burrow, and I am testifying this afternoon on behalf of
NAFCU. I serve as the president and CEO of Bayer Heritage
Federal Credit Union in Proctor, West Virginia. Bayer Heritage
has more than 29,000 members, with assets totaling about $300
million. NAFCU and the entire credit union community appreciate
the opportunity to discuss much-needed regulatory relief for
credit unions. Finding ways to cut down on burdensome and
unnecessary regulatory compliance costs is a chief priority of
NAFCU and its members.
A 2011 NAFCU survey found that nearly 97 percent of
respondents were spending more time on regulatory compliance
issues than they did in 2009. A 2012 NAFCU survey found that 94
percent of respondents had seen their compliance burdens
increase since the passage of Dodd-Frank in 2010. At Bayer
Heritage, we have seen our compliance costs double in just the
last few years, and recently hired a new employee to help with
compliance. These increased costs mean that we are often slower
to offer services that our members want, and there are some
services that are non-starters for us because of the compliance
costs.
The ever-growing regulatory burden on credit unions stems
not just from one single onerous regulation, but from a
compounding of regulations stemming from a number of Federal
regulators. A number of these regulations may be worthwhile and
well-intentioned, but they are often issued with little
coordination between regulators and without removal of outdated
unnecessary regulations. In June 2012, NAFCU wrote to the
Financial Stability Oversight Council to urge it to focus on
its duty to facilitate regulatory coordination under the Dodd-
Frank Act. We hope the committee will continue to encourage the
NCUA, the CFPB and the FSOC in this regard.
NAFCU has prepared a five-point plan on where credit unions
need relief and assistance. The five areas covered in this plan
include: One, administrative improvements for the powers of the
NCUA. This includes provisions such as the ability to grant
parity to a Federal credit union on a State law, allowing the
NCUA to delay or modify implementation of a CFPB rule to tailor
it to the unique nature of credit unions, and requiring the
NCUA and the CFPB to do a look-back, cost-benefit analysis of
all new rules.
Two, capital reforms for credit unions, such as
establishing a risk-based capital system for credit unions or
allowing the NCUA to grant credit unions access to supplemental
capital as proposed in H.R. 719.
Three, structural improvements for credit unions, such as
updating a number of outdated governance and a few of the
membership restrictions that are in the Federal Credit Union
Act.
Four, operational improvements for credit unions. This
includes modifying the arbitrary credit union member business
lending cap, as proposed in H.R. 688, or in other ways outlined
in my written testimony.
Other improvements sought in this area include allowing
credit unions greater flexibility to manage their investments
and greater flexibility in their loan maturities. Furthermore,
credit unions should be given parity with FDIC-insured
institutions when it comes to interest on lawyers' trust
accounts.
Five, establishing 21st Century data security standards for
the safekeeping of financial and card data by those entities
not covered by the Gramm-Leach-Bliley Act. My written testimony
covers these and other areas where Congress should act to
provide relief for credit unions.
We hope that the committee will act on these issues. In
conclusion, it is not one single regulation that is creating
this ever-increasing burden, rather the tidal wave of new rules
and regulations such as the new mortgage rules, often coming
from multiple regulators with little or no coordination between
them. NAFCU expressed concerns about the potential of this
happening during the debate on Wall Street reform, and this was
a reason we did not support credit unions being subject to the
rulemaking of the CFPB.
This regulatory burden is compounded and outdated.
Regulations are not being removed or modernized at the same
pace. NAFCU could support a credit union regulatory relief
package being combined with regulatory relief for community
banks. It is important, however, that such a joint effort be
balanced between the top needs of both the credit union and the
banking industry. We look forward to working with the committee
in this regard.
Thank you for your time and for the opportunity to testify
before you here today, and I welcome any questions you may
have.
[The prepared statement of Mr. Burrow can be found on page
32 of the appendix.]
Chairwoman Capito. Thank you.
Our next witness is Ms. Pamela Stevens, president and chief
executive officer, Security One Federal Credit Union, on behalf
of the Credit Union National Association. Welcome.
STATEMENT OF PAMELA STEPHENS, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, SECURITY ONE FEDERAL CREDIT UNION, ON BEHALF OF THE
CREDIT UNION NATIONAL ASSOCIATION (CUNA)
Ms. Stevens. Thank you, Chairwoman Capito, and Ranking
Member Meeks. My name is Pamela Stevens and I am president and
CEO of Security One Federal Credit Union in Arlington, Texas,
here today on behalf of the Credit Union National Association.
We do appreciate the opportunity to testify on this topic:
ever-increasing, rarely decreasing regulatory burden. We look
forward to working with you for relief, as well.
We do appreciate the bipartisan legislation that Congress
passed last year on ATM signage and the bill recently passed on
privacy notifications, both of which were sponsored by
Representative Luetkemeyer. These bills are a step in the right
direction, and they offer a road map for future legislation. My
written testimony describes regulatory burdens that credit
unions face. It also lists steps the CFPB and the NCUA have
taken to reduce regulatory burden, and highlights ongoing
concerns with these agencies and FASB, as well. It also makes
recommendations for statutory changes to enhance service to
credit union members.
Since 2008, credit unions have been subjected to 157 rule
changes from over 15 agencies, most of which were written
before the CFPB issued its rule. That is almost one a week. So
regulatory burden isn't new. It is not a new problem for us,
but it is getting worse. We are overwhelmed by the impact of
these rules because we know that we didn't cause the financial
crisis and we know we don't abuse our members. Yet, we are
being forced to pay the price and comply with the very same
rules designed for those who did cause the crisis.
Congress authorized the CFPB to exempt credit unions from
some rules, and we wonder why it isn't fully utilizing this
authority. We believe more attention should be directed toward
the abusers, and we call on the subcommittee to ensure the CFPB
proactively uses its exemption authority. My written testimony
includes 35 recommendations aimed at reducing regulatory
burden. Because of these lights right here, though, I can't go
into all of them. So I will highlight a few for you.
Credit unions need Congress to permit them to accept
supplemental forms of capital consistent with their cooperative
principles. We also urge Congress to increase member business
lending caps. Both of these issues deserve the attention of
this subcommittee as soon as possible. And there are things
Congress can do immediately, as well. We ask you to consider
legislation that would change the treatment of non-owner-
occupied, one-to-four-family dwelling loans. Currently, if a
credit union makes such a loan, it is treated as a business
loan. If a bank makes the same loan, it is a residential loan.
This disparity should be fixed. Congress should enact
legislation that fully exempts government-guaranteed loans from
the MBL cap, not just the guaranteed portion. We have a number
of recommendations, such as clarifying share insurance coverage
for pass-through accounts, and increasing the maturity limit
for higher education loans. We also propose modernizing the
NCUA board by: expanding that board from three to five;
allowing more than one member to have credit union experience;
and reserving one seat on the board for a State credit union
supervisor.
We ask Congress to codify the CFPB's Credit Union Advisory
Council. This is an important tool for the Bureau to receive
feedback and input from credit unions. CFPB voluntarily formed
this group and we want to make sure it continues. In addition,
we urge Congress to address Regulation D. Today, there is a cap
of six transfers per month a customer can make from a savings
to a checking account. When my members ask me why this is,
frankly, no matter how many times I explain it no one seems to
understand. Further, eliminating the cap would save money for
consumers in overdraft fees.
Finally, we look forward to the reintroduction of the
Examination Fairness bill that Chairwoman Capito and
Representative Maloney introduced last year. Credit unions
deserve to know the legal authority that examiners are relying
on. We need independent ombudsmen to hear our concerns about
the process, and an independent appeals process to resolve
disputes Our proposals do not exhaust all the actions that
Congress should consider, but they do represent an important
first step.
We urge you to adopt these proposals, and we look forward
to working with you on these issues. Thank you for the
opportunity to testify.
[The prepared statement of Ms. Stephens can be found on
page 68 of the appendix.]
Chairwoman Capito. Our third witness is Mr. Mitchell
Reiver, general counsel, Melrose Credit Union. Welcome.
STATEMENT OF MITCHELL REIVER, GENERAL COUNSEL, MELROSE CREDIT
UNION
Mr. Reiver. Thank you. Chairwoman Capito, Ranking Member
Meeks, and members of the subcommittee, thank you for your
invitation to testify in front of the subcommittee today
regarding regulatory burdens on credit unions. My name is
Mitchell Reiver, and for the past 24 years, I have served as
general counsel and compliance officer for Melrose Credit Union
in Queens County, New York.
It is my general assessment that the increasing regulatory
burden on credit unions is both misguided and misplaced.
Although I certainly recognize the need for appropriate
regulation, too often credit unions end up paying the price for
abusive practices perpetrated by non-credit-union entities. We
continue to endure this reality every day, as the CFPB conducts
its rulemaking process with the intent of preventing another
financial meltdown, but also with the result of burdensome
regulations being issued on institutions that did not play a
role in causing the crisis.
A seemingly unending rulemaking process stemming from the
CFPB, coupled with outdated and duplicative regulations already
in statute, results in credit unions spending more resources on
compliance and less on other services that actually benefit our
members. Today, I would like to briefly touch on several topics
I believe highlight examples where common-sense regulatory
relief is needed. On the issue of the annual privacy notices, I
would like to thank Representatives Luetkemeyer and Sherman for
their work on H.R. 749, the Eliminate Privacy Notice Confusion
Act
Streamlining annual privacy notices by requiring them to be
sent to consumers only when a policy changes illustrates the
general premise that consumers can often benefit more from
less. Like all Americans, I, too, am concerned about the safety
and security of our country. While the Bank Secrecy Act is a
valuable tool, I have concerns about the effectiveness of its
goals relative to the cost and compliance burdens on credit
unions and other small institutions. Tens of thousands of
currency transaction reports and suspicious activity reports
are filed by financial institutions.
Identifying and fixing inefficiencies in these reports can
help to reduce these costs. For example, it would helpful to
understand more about how the government and law enforcement
are using reports, as well as what types of reports are useful
and which are not. BSA compliance disproportionately burdens
smaller financial institutions, including approximately 3,000
credit unions that have 5 or fewer employees, but must comply
with BSA compliance. I fear the credit unions will spend
significant time and cost if the proposed customer due
diligence proposal is finalized.
The proposal requires expanded due diligence regardless of
risk. It should be the other way around. More focus should be
placed on strengthening rules that apply to other types of
institutions that are not subject to these strict requirements.
Examination fairness is another area of concern for all credit
unions. Melrose is a New York State-chartered credit union,
supervised by our State Department of Financial Services.
The NCUA examples the credit union in its role as the
insurer of our shares. It has long been the case that our
primary regulatory is superseded by the NCUA during what are
typically joint exams. It does appear that the quality and
competence of the NCUA examiners has improved over the years.
However, as a State-chartered credit union, if the system of
dual chartering is to mean anything, the NCUA should defer to
our State regulator and not the other way around.
On the issue of examinations, I would like to thank
Chairwoman Capito and Representative Maloney for their hard
work on examination fairness legislation. Establishing a
process for credit unions to share their examination
experiences without fear of retaliation is extremely important,
as well as giving credit unions an opportunity to appeal an
examination decision through an independent process.
Credit unions are also now faced with virtually impossible
new requirements for conducting international remittances. The
CFPB's new disclosure requirements for remittances will clearly
create a burden on our operations both in cost and compliance.
These new rules would require credit unions to disclose real-
time foreign taxes and fees imposed by financial institutions
overseas, information that may not always be readily available
or guaranteed at the time of the initial transaction. These
rules will most certainly cause many, if not all, smaller
credit unions which offer remittances to end those services.
Remittances are an essential service required in areas
across the country with large numbers of foreign-born citizens
and temporary and permanent residents. They provide a vital
monetary lifeline between an individual residing here and his
or her family in another country. Although the CFPB did revise
its exemption threshold from 25 remittances per year to 100,
this threshold is still much too low to offer any measurable
relief for participating credit unions. Instead of credit
unions being required to provide information on taxes and fees
that are subject to change without their knowledge, they should
instead be given the flexibility to provide disclosure of the
highest possible fees and maximum possible taxes the member
might incur.
Credit unions strive to provide only the best services to
their members. The more time and resources we spend on
complying with the conveyor belt of new and existing rules, the
less time we can spend on providing quality services to our
members.
Chairwoman Capito, Ranking Member Meeks, I would like to
again thank you for inviting me here today and affording me the
opportunity to testify. I am happy to answer any questions you
may have.
[The prepared statement of Mr. Reiver can be found on page
64 of the appendix.]
Chairwoman Capito. Thank you all. That concludes our
testimony, and begins the questioning phase. I will begin, and
I will yield myself 5 minutes for questioning.
Very quickly, do all three of your credit unions write
mortgages? Mr. Burrow?
Mr. Burrow. Yes, we do.
Chairwoman Capito. Ms. Stevens? No. Mr. Reiver, yes.
Mr. Reiver. Yes, ma'am.
Chairwoman Capito. Okay. So to the two gentleman, with the
QM rule that has just been put out by the CFPB, have you had a
chance to digest what effect this will have on your ability to
write mortgages, and what do you see down the road in that
area? Mr. Burrow?
Mr. Burrow. Okay. Yes, we have given that some thought.
Right now, probably most of our mortgages would, in fact, be
within the purview of that regulation. However, in some cases,
where in our rural areas I have the occasion where there are a
lot of folks who--I will just stick to debt ratio requirement,
for example. They may not be able to comply in that particular
area. Their debt ratio may be over the 43 percent, but yet they
have had long-standing credit with the credit union, and they
have been in the same employment for quite some time.
They are actually what I could consider a gold-plated loan,
but because of this, it would fall outside the QM. Unless that
is addressed, I would--personally, I would be making exceptions
and probably getting written up for them because--
Chairwoman Capito. So you would continue to try to write--
probably--
Mr. Burrow. I would continue going--and probably my
examiner--
Chairwoman Capito. At your own peril.
Mr. Burrow. Yes, because--
Chairwoman Capito. And it is interesting to note, too, that
particular customer is not going to fall within the Qualified
Mortgage definition in any financial institution.
Mr. Burrow. Right. But in my opinion, because it is a good
loan, it is a good asset for the credit union.
Chairwoman Capito. Right.
Mr. Burrow. But because of a regulation, I am not going to
let it walk away.
Chairwoman Capito. Okay.
Mr. Reiver?
Mr. Reiver. Yes. At Melrose, we portfolio all of our loans.
So we are the ones who are taking the risk, and we are
certainly the ones who are in the best position to assess that
risk. It seems that the QM changes are designed to prevent
loans being granted to people who, at some point down the line,
might not be able to repay them, and to give them some type of
protection, come the foreclosure process. Credit unions were
never making those kinds of loans, and were never really
involved in that problem to begin with.
To place that burden on credit unions, in essence, to take
the underwriting out of the hands of the experts and put it in
the hands of regulators, when you have credit unions which had
done this successfully for years and years and years, it
doesn't seem to make a lot of sense. And if anything, will
impact the ability of the credit unions to make these loans to
their members.
Chairwoman Capito. Okay. Thank you for that.
Another question, we had a session with the regulators,
talking about they quantify the cost of regulations. And the
basic message there was it is difficult to quantify. And it is
difficult to quantify, I think Mr. Burrow said in his
statement, because it is not just one single regulation; it is
the accumulation of a lot of different regulations that burden
down an institution. How can you help us help them to be able
to quantify this?
Because I think it is important not only in terms of your
business model, but access to credit for your particular
constituency. And it also eliminates your flexibility. So if
you were sitting in our seat, to say to them--and we keep
asking, quantify the regulatory burden here, and they are sort
of, well, we can't really quite get there. What would be some
of the ways you might suggest? We will start with Ms. Stevens
just because she is in the middle.
Ms. Stevens. Thank you for that question. Part of the issue
is, small institutions have the same burden as a billion-dollar
institution. And really, credit unions are all small
institutions. But we start adding up things like staff time,
the expense to train, the expense to reproduce forms,
disclosures.
At Security One, we don't have any one person who is
dedicated to that. We are too small to hire someone to handle
compliance, so my vice presidents and I do that work. We do the
research. I am the one who sits up at night reading regulations
and trying to understand them. I think the answer is, Security
One maybe doesn't need to be regulated along the same lines as
a Bank of America, for instance. I can't envision their
president sitting up at night reading the regulations. So
something that fits. Not a one-size-fits-all--
Chairwoman Capito. Right.
Ms. Stevens. --but an appropriate type of regulation.
Chairwoman Capito. Okay. Thank you. My time has expired. I
would say, too, what you are asking basically is to keep the
exemptive powers available to these regulators to be able to
look at that. But you have also mentioned some things like cost
of training, cost of hiring, time costs that you are diverting
from loaning or whatever else you might be doing--
Ms. Stevens. Right.
Chairwoman Capito. --in your normal business day.
Mr. Meeks?
Mr. Meeks. Thank you. Let me ask a few questions. Because
small businesses I know in New York, some, I think, that is why
Mrs. Maloney's bill that she has talked about is really good.
Small businesses, getting them back where they are tremendously
important because they create jobs. And so with the fact that
small businesses now are in more need of reliable sources of
capital, if the credit union member business lending cap was
increased, do you think that would have an impact on job
creation?
Because we are talking about creating jobs, and I want to
get people back to work who were victimized by Sandy. So by
increasing it, do you think it would have an impact on job
creation, Mr. Burrow?
Mr. Burrow. Absolutely. I really believe that if the cap is
increased, there is going to be a lot more motivation. For
example, in our credit union, right now, we have a long way to
go before we hit the cap. But we are very interested in
investing more money in our member business lending. And that
means hiring a qualified loan officer, spending a lot of money
for software, and so forth. And today, we might be well below
it, but if we do the job right, it won't be long before we hit
that cap.
So I have to think about the long-term investment. If I am
going to bump into that ceiling fairly quickly, it is going to
make me step back and think, should I do that or not. And if we
have the ability to get that money out into the hands of the
community--I am turning away folks right now who would like to
have somewhere between $50,000 and $200,000 and we are not
equipped to do it. And in our neck of the woods, the chairman
knows very well that employment opportunities are rare.
But the small businessman and woman are key drivers of
that. And if we can help do that, it is certainly going to
spike it.
Mr. Meeks. Ms. Stevens, in your testimony, you proposed
raising the de minimis amount of credit union small business
loans to $500,000 and instructing that amount for inflation.
The current de minimis level is--I think it is $50,000, and the
average credit union business loan, if I am not mistaken is
$219,000. Can you tell us why are you proposing such a
significant increase?
Ms. Stevens. This limit has not been looked at in a number
of years. And $200,000 being an average does not allow enough
room, perhaps in the future, for some institutions to make
larger loans. There are credit unions who have done business
lending since the day they opened their doors. I have a friend
in Houston, the Milk Producers Credit Union. That is their
basic line of business. And business lending doesn't have
anything to do with taxation, as someone suggested earlier.
We know that we could contribute roughly $14 billion to the
economy. And CUNA estimates we could create 140,000 jobs, I
believe is the latest number.
Mr. Meeks. So let me also then ask, Ms. Stevens, in your
testimony you also recommended exempting government-guaranteed
loans from the MBL cap. And right now, only the guaranteed
portion of the loan is exempt. Do you believe by exempting the
entire portion of the loan, we will encourage greater credit
union participation in SBA programs?
Ms. Stevens. Absolutely. And if I may add to that, we don't
currently offer business loans. And the reason is because our
cap would be $6.5 million, and it doesn't make sense for
Security One to go out and hire the expertise to put such a
small amount of loans on the books that you might have to turn
away in the future.
Mr. Meeks. So let me ask, and Mr. Reiver, you can answer
this or any one of you. Because as you heard Mr. Delaney say,
and I said it even in my remarks, we are looking forward to
trying to have community banks and credit unions work together,
et cetera. And in recent months, we have had success here in
passing an ATM fee disclosure bill and a privacy notification
bill out of the House, with the cooperation and support of both
credit unions and community banks.
And I was wondering, are there other types of regulatory
relief measures that maybe your could get together with
community banks on so that there can be something--so there is
a voice of both segments that I think are very important to our
communities. Is there something else you think that--and I am
going to ask the same question of them when we have their
hearing next week--where there are opportunities to work
together?
Mr. Burrow. If we are still--if you want to still continue
to talk about business lending, as far as I am concerned and
our credit union is concerned we just want our members to have
options. And if they can also have options with the community
banks that would benefit them, that is great. In my opinion, it
doesn't have to be an either/or type of thing. And if it works
to the benefit of the community banks getting money into the
hands of their community customers, who happen to also be our
members, that is fine.
I think we can coexist that way. It is going to be--we are
all going to win.
Mr. Meeks. I am out of time.
Chairwoman Capito. We have been called for votes. I am
going to call on Mr. Duffy to do 5 minutes of questions, then I
am going to put the committee in recess. And we will reconvene
in an hour. We have a lengthy series of votes.
So, Mr. Duffy, 5 minutes?
Mr. Duffy. Wonderful. We have kind of been plugging
different bills that have come up, so I will plug my own. I
introduced a bill last cycle that dealt with the standard of
review for CFPB bills, when they go to FSOC, giving our credit
unions and small banks a louder and bigger voice to have those
rules reviewed. You all supported that, and we are going to
hopefully get some support behind that bill again. So, that is
my shameless plug.
I know you all agree that our credit unions are burdened by
regulation, right? But can you come to us today and say,
listen, yes there is new burdensome regulation, but our
institutions are far safer and sounder because of this new
burdensome regulation? Is that the case?
Mr. Burrow. I can't honestly say yes to that. I don't--
Mr. Duffy. You are safer, or you are not safer?
Mr. Burrow. I can't say that I am any safer.
Mr. Duffy. Okay. But that aside, are your families and your
small businesses treated in a much fairer way now that you have
these new rules and regulations and hoops to jump through?
Mr. Burrow. That--
Mr. Duffy. No?
Mr. Burrow. Go ahead.
Mr. Duffy. You were treating them fair from the start,
right?
Mr. Burrow. We were fair before, I guess was my point.
Mr. Duffy. Right.
Mr. Reiver. We are credit unions. That has never been an
issue.
Ms. Stevens. I might say that they are treated less fairly
because we are spending more time on regulations than we are
helping them.
Mr. Burrow. Good point.
Mr. Duffy. Sure.
Ms. Stevens. And working with them directly. Resources are
diverted, that sort of thing.
Mr. Duffy. I think that is an important point, that we
really have to focus on new rules and regulations which haven't
made you any safer, any sounder, and haven't helped the clients
and the families and the small businesses which you serve. It
has actually made it more difficult for you to serve them.
I mentioned in my opening statement that I was concerned
about consolidation. I see that in Wisconsin, but I don't know
if you have seen that around the country. Do you see that
coming? If you are seeing that, do you see it coming from the
new regulatory burden, or is something else happening that is
causing this consolidation, Mr. Burrow?
Mr. Burrow. I have an example I think might fit what you
are talking about. About a year or so ago, the National Credit
Union Administration came to us and said that there was a very
small credit union in Glendale, Reynolds Memorial Hospital. The
chairman is very familiar with that credit union, I am sure.
And they were not in financial trouble. They had good capital,
they did everything right, playing by the rules. But you are
talking about a staff of one, maybe one-and-a-half.
And they basically said, we can't keep up anymore. We can't
do it anymore. We have to find a merge partner. And so NCUA
came to us and asked if we would be willing to do that.
Geographically, it worked out very well for us. But they didn't
quit being the credit union because they--it wanted to or they
weren't doing a good job. They just couldn't keep up anymore.
And so to me there is an example of one less credit union out
there simply because of the regulatory environment we are in.
The one-size-fits-all doesn't work.
Ms. Stevens. If I may add, my colleague referred to it as a
conveyor regulatory burden. I think of it more as a treadmill.
I am constantly running trying to keep up. And I live in fear
that perhaps we are not in compliance because there are not
enough of us to handle that.
Mr. Duffy. And I think in my district, the average is 10
employees. We are small, and that one person can even
specialize in the compliance part.
Mr. Reiver. At our credit union, we have 50 employees. And
I would say that every one of them spends at least a portion of
their work day complying. It is a tremendous, tremendous
burden. And the members, by and large, are not deriving a lot
of benefit from it.
Mr. Duffy. If I can just ask one question, I only have a
minute left. If you could pull a bit of fairy dust, bipartisan
fairy dust, out of your pocket, and get people to work together
in Congress--House and Senate--I know you have all indicated
several things that you would like to have happen, you have
given us a list. It is hard to get people to agree to move
anything. But if you were to give us one message to go--if you
guys could do one thing, move this one bill, it would give us
the greatest mileage. And I know you have said this, and it is
a pile-on effect, it is all the different rules.
It is hard to identify one. But you are not going to see--
and I hope you would see a lot of bipartisanship, but if you
could say, hey, get this done for us, get this one thing. This
is the greatest mileage we would get. If you guys would all
give me one thing that could happen--
Ms. Stevens. I am ready.
Mr. Duffy. Oh, go. I can tell you are ready.
Ms. Stevens. Supplemental capital would be very, very
helpful for us. We have one way to raise capital, and that is
the retained earnings. In a month's time, a big change can
happen in an institution. For instance, our General Motors
employees received profit-sharing checks to the tune of about
$7,000 last month. Our assets rose $2 million, and we dropped
almost 70 basis points in net worth.
We have no way to raise supplemental capital, and NCUA is
not very--they don't have a lot of--they are--there is no
flexibility with PCA requirements.
Mr. Duffy. And I am over time, but can I just get a quick
answer from everyone before we go?
Chairwoman Capito. Yes.
Mr. Duffy. Mr. Burrow?
Mr. Burrow. Exempt credit unions from CFPB regs.
Mr. Duffy. Good.
Mr. Reiver. Sure, I agree with that.
Mr. Duffy. Okay. I yield back. Thank you.
Chairwoman Capito. Thank you.
With that, the committee will stand in recess. I apologize
for this, but it is the hazards of Capitol Hill. We will
return, the intention is, at 3:45.
Yes?
Mrs. Maloney. It is so hard to move around. Can I continue
questioning them, or not?
Chairwoman Capito. We only have--what?
Mrs. Maloney. Three minutes left?
Chairwoman Capito. Three minutes left to go.
[recess].
Chairwoman Capito. Let me--okay. I am going to call the
committee back into order, and I am going to yield to Mr. Scott
5 minutes for questioning. Thank you, and thank you for your
patience. I apologize. But I wasn't too far off about when I
thought we would be finished.
Mr. Scott. Thank you very much, Madam Chairwoman.
As I said in my opening statement, credit unions are a very
important part of our financial structure and so are community
banks. And so I think it is important for us to try to find
areas where the two can work together. And let us use as our
point of reference here two bills, and let me get your reaction
to one bill which is H.R. 719. Are you familiar with that?
Are you all familiar with that one, H.R. 719? As I
understand it, H.R. 719 would shift the credit unions' reliance
on retained earnings and would allow capital from outside
investors to be included in the regulatory net worth
requirements, correct? So let me ask you whether H.R. 719 would
make credit unions beholden to outside investors without ceding
your tax subsidy as a community-based nonprofit institution?
Ms. Stevens. Could you repeat that last part of the
question, please?
Mr. Scott. Would this bill, H.R. 719, which would shift the
credit unions', your reliance, on retained earnings, and would
allow capital from outside investors to be included in your
regulatory net worth requirement, would--whether or not that
would make credit unions beholden to outside investors without
ceding your tax subsidy as a community-based institution?
Ms. Stevens. Yes, we definitely support supplemental
capital within the correct framework that would allow us to
maintain our cooperative structure. We envision this as being
something perhaps members would supply. But we don't believe it
changes our structure in terms of our tax status, either.
Mr. Scott. What I am getting at here is, credit unions feel
that in some measure you all threaten them. That it is a
competitive situation here. And so what I want to give an
opportunity for you to respond to is just simply to answer:
Where is this threat? Will that be a threat? And that segues
into the other question I wanted to ask relative to House
Resolution 688. Which, really, these two issues are the meat of
the matter.
Because you all have a tax exemption. You have a charter.
You have certain situations for your benefit that the community
banks don't. They see that as maybe some sort of competitive
edge. And so that is what this question was for, to use that
tax policy. And then on H.R. 688, you want to raise your member
business cap for loans for small businesses from 12.25 percent
to 27 percent of assets. Do you see this as giving you some
competitive edge over community banks?
We are faced with that. Now, personally, I love credit
unions and I love the banks. And many of us on this committee
feel the same way. We have to juggle this love affair and try
to treat everybody fairly. So I wanted to respond to that. And
if you could, explain to me why you would move from 12.25
percent to 27.5 percent, which is a 100 percent increase. So if
you could just--
Mr. Burrow. I would like to respond to that, if I could.
First of all, if I could go back to your original question
about supplemental capital. I believe that just gives the NCUA
the ability to allow credit unions, with some parameters, the
access. It doesn't automatically give them supplemental
capital, it just gives them the ability, in good times and bad.
And we went through the bad times. And the only way we can
build capital is basically through retained earnings, basically
the spread between what we earn and what we pay.
And that is the only way we can get capital. It just gives
credit unions the ability to have another outlet. And to say
that we are beholden to the investor, well, if the investor
wants to invest in the credit union if it is a poor investment
by investing in the capital--their capital in the credit union,
the investor will be the one who will be paying the price for
that.
Mr. Scott. And--very quickly, if I may, Madam Chairwoman.
Could you give me a response to this differential? You are at
12.23 percent of your asset, and you want to go to 27 percent.
Mr. Burrow. Yes.
Mr. Scott. I am sure you didn't just pluck that out of the
air. There has to be some rationale. And if you would move down
that road in any way, would 18 points or 20, somewhere in the
middle, be helpful?
Ms. Stevens. If I could give a little bit of history on
that, there didn't used to be any limit. Currently, credit
unions represent roughly 5 percent of the small business loans
in the community area. And even if we were to all exhaust all
of our limits, we would still only, in that small community
field across the country, account for 10 percent of the
business. So it is not like we are taking a great deal of
business away.
We don't have a fight with our community banking brethren.
In fact, I think we have a lot in common. There are a number of
regulations--Reg D, some of these other things we are looking
at--exam fairness, the way FASB accounts for loan losses that
we can agree on. There is room for agreement on some things.
But some of the things we want don't impact them at all,
either.
Mr. Scott. Thank you for your generosity, Madam Chairwoman.
Chairwoman Capito. Certainly.
Mr. Miller for 5 minutes.
Mr. Miller. Thank you, Madam Chairwoman. I really enjoyed
the testimony today. But as I see it, credit unions kind of
serve a different purpose, to some degree, have a different
clientele and have different structures than banks in many
fashions. So the problem I am having is, I look at the CFPB and
the regulations that are being imposed, and I recognize the
consumer-driven intent behind the CFPB regulations. But I
guess, for Mr. Burrow, I have a question. Do you think the
regulations coming out of the CFPB have been written in such a
way that they fit credit unions, number one?
Mr. Burrow. No, sir, I don't. The reason is that any time
you try to have one-size-fits-all--and I know it is well-
intentioned and everyone was trying to do the right thing--but
when you do something in haste and it is sort of one-size-fits-
all, it never really works. And as a credit union, we look at
ourselves as being Main Street. We are not Wall Street, but yet
because of some of the things that Wall Street did, we are
still paying the price on Main Street. So to answer your
question, absolutely not.
Mr. Miller. And further acceding to this coordination
between the NCUA and the CFPB, as it--to ensure credit unions
can comply with rural requirements?
Mr. Burrow. My impression is, there really probably isn't
much coordination there. And I am just speaking as one credit
union, and my interaction is solely with my NCUA examiners. But
I find them often times to be just as confused about what their
role is, and the regs and what they can do, as maybe we are. So
I would guess from that there is not a whole lot of
coordination between the two.
Mr. Miller. Now, your risk-based capital standards, Basel
III cap standards, they don't directly impact credit unions.
But current capital requirements for credit unions are not
related to the level of risk within each individual portfolio.
But what implication does this have on your portfolio--
Mr. Burrow. I really believe that--I am sorry, I didn't
mean to interrupt you.
Mr. Miller. No, you didn't.
Mr. Burrow. I just really believe that risk-based capital
is appropriate for credit unions because we are simply held to
a percentage and that is that. The current system doesn't
really evaluate the riskiness of our assets. And I do believe
that our peers in the banking industry have that benefit and
they can build their capital based on the riskiness of their
portfolio business. And I just think it is appropriate for us
to do the same.
One of the examples that is given all the time is, in the
credit union world, a 30-year fixed-rate mortgage with 1 year
left to pay on it is held at the same risk as an unsecured
loan. You and I both know that 30-year mortgage with only 1
year left to go is a lot less risky than an unsecured loan. But
there is no modification for that.
Mr. Miller. I briefly touched on it, but you mentioned in
your testimony that there should be a look-back cost analysis
for all new regulations after 3 years. Can you give us an
example where the CFPB estimates of compliance costs have been
totally off base?
Mr. Burrow. One of the areas that is in front of us right
now is the issue of remittances. I know that this is a part of
the regulation that may seem like it only hits the East and
West Coast maybe. But here in West Virginia, at our particular
credit union, we have a lot of members who are Germans from
Bayer Corporation. They are engineers, and they spent their
time here in the States and now they are going back home.
Or we have engineers from the States who are spending their
time in Germany. To make a long story short, there is money
that moves back and forth all the time. And this is a situation
where, right now, we don't even know if we comply and we have
no idea what the change in the value between a dollar and a
euro is going to be and all that kind of stuff. And it is going
to get to the point where we may not even be able to offer that
service.
So, I think even though the intention is good, there are
unintended consequences and costs related to what the CFPB is
trying to do, and it is innocent, I realize. But they--it is
just not known, and sometimes when you go ahead and do
something like this, it is a lot more costly than you realize.
Mr. Miller. And on that, the Federal Credit Act restriction
investment options for credit unions, what does this mean for
your ability to manage portfolio and risk?
Mr. Burrow. There should be some flexibility, I believe.
And I think--
Mr. Miller. That could be for anybody who wants to answer.
Mr. Burrow. Oh, I didn't mean--
Mr. Miller. It doesn't matter.
Mr. Burrow. Sorry.
Mr. Miller. No, you are doing fine, unless somebody else
wants to deal with that one.
Mr. Burrow. One of the areas I think where we were talking
about investment flexibility is investment options. And it
would be nice if credit unions could invest--I think it is
recommended in some--and by the way, thank you for even
considering legislation for regulatory relief. We really
appreciate that.
Mr. Miller. We are going to introduce it, so yes.
Mr. Burrow. But, if we could invest, say, 10 percent of our
assets in investment grade securities, that would be a very
nice option for us.
Mr. Miller. But you are restricted from doing that.
Mr. Burrow. Correct, right now, we can't do that.
Mr. Miller. Yes, okay, thank you.
I yield back.
Chairwoman Capito. Thank you.
Mr. Heck for 5 minutes.
Mr. Heck. Thank you, Madam Chairwoman.
Question one relates to supplemental capital, your request
for increased access. Anybody can answer. I am wondering if you
are aware of any other kind of entity which is also nonprofit
and regulated directly or indirectly by Federal or State
Government--an example would be a mutual insurance company--
which is similarly prohibited from having access to
supplemental capital? And if not, why are you being singled
out? Does anybody know the answer to that question?
Ms. Stevens. I am not aware of any other institutions who
have been singled out like this, and--
Mr. Heck. The others do have access to--
Ms. Stevens. They do have access to other forms of capital,
and we are not sure why we shouldn't have that same option.
Mr. Heck. Question two: I represent an area of the country
that is region five, or zone five. The data seem to indicate
that we are being written up, via examination, for a 10 percent
higher number of infractions. The data also seem to indicate
that we are as safe and sound, and have no greater measure of
risk for default, than other regions. Obviously, that is kind
of a frustrating circumstance. What do you suggest we do to
bring more consistency into this thing so different areas
aren't effectively being held to different standards in that
kind of a fashion? What can we do?
Mr. Burrow. I think it has been discussed, and I think it
has merit, to have a--separate and apart review process, where
it is not--for example, if we have an issue with our NCUA
examination the only thing I can do right now is basically
write a letter to the regional director. And I don't want to
say that it is not objective, but I have--I just don't have a
trust factor there, when my letter goes out. Am I going to--I
feel like that I am going to be subject, possibly, to some
blowback later.
Mr. Heck. You want an independent appealable body.
Mr. Burrow. Yes, sir, I do.
Mr. Heck. So how would that exempt you from blowback?
Because even if they ruled in your favor, it is the same
examiner who is coming back next year.
Mr. Burrow. No. There is no perfect world, I guess. But I
think that would be a step in the right direction. Right now, I
just don't think it is--honestly, real-life--
Mr. Heck. I would hope all your comments have been honest
today, Mr. Burrow.
[laughter].
I trust they are.
Mr. Burrow. Yes, poor choice of words. Sorry about that.
Anyway, real-life example. I will be brief. We had an issue
with our examiner in the examination in September. We didn't
get our report. It was February, and we still hadn't gotten our
report. My board was chomping at the bit--why haven't you
received it? We talked about it in the board meeting. I said, I
can send a letter if the board authorizes me to. After a lot of
discussion, I had the letter written. Everybody said, well, you
know what? It is probably not going to go anywhere anyway, so
forget it.
Then, later on, the examiners were in. They read the board
minutes, they see that that was even discussed. My examiner
came to me--now, I have known her for years--and she was really
upset that was even discussed. And I talk to her like I would
another staff member, basically. I said, that is the board's
right. They wanted to know what is the examination's finding.
But you can see what I am talking about.
Mr. Heck. Yes.
Mr. Burrow. They are not always professional. They take it
personally, and that is a concern.
Ms. Stevens. Three words--exam fairness legislation.
Mr. Heck. Thank you. I will follow up on that, to be sure.
Last question. Interestingly enough, one of the things I hear
most often about from credit unions in my district is this
little arcane remittance issue. As I understand it, the CFPB
proposed an absolute limit of 100 per year. Is that not true?
Ms. Stevens. Oh, yes. It is true.
Mr. Burrow. Yes, it is true.
Mr. Heck. And as I understand it, you all had indicated
that there might be a better way to skin that cat. Namely, not
counting any more than once the same person from the same point
of origin to the same destination. What has been the feedback
to you from that otherwise seemingly common sensical idea from
the CFPB as they are reevaluating the impact of their
arbitrary--
Mr. Burrow. I have not received anything back so I can't--
Mr. Heck. You don't know?
Mr. Burrow. No.
Ms. Stevens. I have not heard of that particular solution,
but I can say that 100 per month is--or, excuse me, 100 per
year--
Mr. Heck. Per year.
Ms. Stevens. --is absolutely too low. We are trying to get
into that business. Our first foray into that business, the
provider we contracted with totally went out of the business
because it is so difficult, if not impossible, to comply. We
are serving a Hispanic community in our area who has a great
number of these remittances they need to do, and our estimates
are that--what is that, two a week? Is that right? And if I
have 1,300 members, and 50 percent of them are trying to do a
remittance transfer--and they get a week--every week, 100 in no
way addresses where we need to be.
Mr. Heck. Thank you.
My time has expired. I thank you for your indulgence, Madam
Chairwoman.
Chairwoman Capito. Thank you. Without objection, I would
like to enter two statements into the record: one from the
American Mutual Share Insurance Corporation; and one from the
Coalition for Credit Union Access.
Hearing no objections, it is so ordered.
Mr. Posey for 5 minutes.
Mr. Posey. Thank you, Madam Chairwoman. I was wondering if
the three of you, or any of the three of you, are aware of any
financial regulatory issues that the credit unions and the
community banks agree should be changed.
Mr. Reiver. One would be the Reg D.
Mr. Posey. I am sorry?
Mr. Reiver. Reg D--
Mr. Posey. Reg D.
Mr. Reiver. --would be one, which is--limits the number of
transfers to six per month. Which is a very, very small number,
given the way we transact business now.
Mr. Posey. Okay.
Mr. Reiver. So that would be one, for sure. I think the
CFPB, while the agency itself is doing a wonderful job in
trying to work to protect consumers, there are some regulations
that adversely impact not only the credit unions but the
community banks, as well. This remittance rule being the
largest of them, I am sure, that there would be complete
agreement between both the credit unions and the community
banks on that issue.
Mr. Posey. Okay.
Ms. Stevens. I would add, the exam fairness legislation
that--I am really on the heels of that one. And the way FASB
proposes to account for--requires to account for our loan
losses. That would be another one that I think we could all get
on board with that.
Mr. Burrow. And I had a couple.
Mr. Posey. Please.
Mr. Burrow. Privacy notices--notices.
Ms. Stevens. Yes.
Mr. Burrow. I think we could agree upon that, and getting
rid of all the redundancy there. And a big one, I think, for
both of us would be the Durbin Amendment. It has done nothing
but hurt interchange and make card programs less viable. And we
are seeing it month by month. Or even though we are supposed to
be exempt, our per transaction return is dropping as we speak.
So that would be two areas.
Mr. Posey. I have heard both types of institutions also
tell me that no two fill out a Reg Z, as in ``zero,'' the same.
Have you heard that?
Mr. Burrow. I can't speak to that, I am sorry.
Ms. Stevens. I can't answer that, but we can--
Mr. Burrow. We can get back to you on it.
Ms. Stevens. Yes.
Mr. Posey. Okay. Non-accrual loans. Do you think the
current evaluation of non-accrual loans--that the opinion of
the examiner, the guy shouldn't be able to make a payment--is
appropriate?
Mr. Burrow. Could you repeat that for me, please?
Mr. Posey. One of the examples we have had in some other
hearings was regulators who came in and told bankers--the
bankers were the first ones to mention it--that the regulator
said a customer should not be able to make a payment on a loan
so they put it on non-accrual. Now, it had been an 11-year-old
loan and the customer had never been late one second, but the
regulator, in his opinion, thought he shouldn't be able to make
the payment. So it became a non-accrual loan. Do you ever
encounter those type of problems?
Ms. Stevens. Not exactly like that.
Mr. Reiver. Yes, we have encountered that type of
overreaching suggestion by a regulator. We have not encountered
that one, thankfully. But clearly, that is a--that type of
practice would be something that would clearly be counter to
our interests as credit unions or as bankers in serving our
members and customers.
Mr. Posey. Have you had any problems with regulators that
you are aware of that said any time you modify a loan it is
going to go on non-accrual?
Mr. Burrow. That has--no, I--no. Are you talking about
troubled debt restructuring, those types of loans?
Mr. Posey. It could be that. It could be--
Mr. Burrow. Yes, we do.
Mr. Posey. --just a mutual agreement to meet a common
ground on an 11-year-old loan, when you were getting 12
percent? You would be glad to get 6 percent now, and you split
the difference?
Mr. Burrow. Yes, that is--
Mr. Posey. That is non-accrual.
Mr. Burrow. We are talking about TDRs?
Ms. Stevens. Yes.
Mr. Posey. Yes.
Mr. Burrow. Then I would absolutely, because that is an
issue that has been kind of recent, and so yes. If that is what
we are talking about.
Ms. Stevens. I think it is terminology, difference between
non-accrual, and troubled and restructured.
Mr. Burrow. Troubled debt restructuring, yes.
Ms. Stevens. We do--
Mr. Posey. Did you ever know of anyone who got stuck with
an eternal non-accrual loan because, for example, a couple was
laid off from work and their parents made the payments for 2
months before they got new jobs. Never was a payment a second
late, nothing was missed. They are making more money now than
they did before. But the institution is stuck with a non-
accrual loan for the life of the loan, basically. Have you ever
heard anything like that?
Mr. Burrow. Yes.
Ms. Stevens. Yes.
Mr. Burrow. Yes, I know there are instances where either
through your exam process--or sometimes if you have a private
CPA firm--they will try to push you in that direction.
Mr. Posey. Okay. I have never asked the question when I
talk to the Chamber of Commerce about credit unions. I do,
usually, about banks. I said how many people in here think your
banker doesn't love you anymore? And everybody in the room
except the bankers raised their hand. I will include you all
next time I do that.
Thank you, Madam Chairwoman.
[laughter].
Chairwoman Capito. I would like to recognize Mr. Pittenger.
No questions? Okay.
Mr. Barr for 5 minutes for questions.
Mr. Barr. Thank you, Madam Chairwoman. For all the
witnesses, can each of you all describe--each of you all have
already testified that the regulatory burden is very
challenging for credit unions today. Can each of you describe
the regulatory environment prior to enactment of the Dodd-Frank
law and the CFPB for credit unions?
Ms. Stevens. I will take that one on behalf of a small
institution. We were able to concentrate on serving our
members. Regulations that came forth seemed to make sense, were
easier to comply with. These days, it is very difficult to even
understand what some of the regulatory changes require. It
takes hours and hours of time to comply with them. Our members
don't read the disclosures, they don't understand why. We get
blamed, often times, for making things more difficult for our
members to do.
And, frankly, they don't produce any benefit. Truth in
savings is an example of a regulation that did provide some
benefit. Our members could look at APR versus APY and
understand it. That was helpful. But not many things coming
down the pipe are helpful to consumers now.
Mr. Reiver. We are dealing with RESPA, as an example and
the recent RESPA reform and the pending RESPA reform. I--
amongst my other duties at Melrose Credit Union--am the agent
who closes all of the real estate loans for them. And I have
sat there closing hundreds, if not thousands, of loans. And
invariably, what I am hearing from the members when they are
given a stack of disclosures is something along the lines of
how many trees did you kill, this is horrible, and can't this
all be automated, isn't there a better way?
I am not asking for them to say that. I am just there to
help close the loan for my credit union. Those are unsolicited
reactions from the members who are supposed to be the
beneficiaries of these disclosures. I think they would much
rather see our time, resources, and money spent on offering
better or less expensive products than on paperwork that they
just don't care to read. It is counterproductive.
Mr. Barr. Mr. Burrow, you testified that the number of
credit unions had declined. And you attributed the decline of
700 or so credit unions and the consolidation in the credit
union industry to the increasing complexity and volume of
compliance costs. What impact do you see for the consumer? What
impact do you see as a result of the compliance-induced
consolidation in the industry?
Mr. Burrow. Probably on a couple of fronts. First of all,
when you have fewer credit unions out there for choice, that
hurts the consumer. Reynolds Memorial did a fine job for many,
many years. Now, they are gone. We are going to try to continue
to do a fine job for their members, but the fact remains that
those who wanted to continue to deal with Reynolds Memorial
can't do that anymore. So, there is a choice taken away.
Also, when compliance becomes too burdensome, a cost-
benefit analysis by the credit union has to be done. And if the
compliance costs are so great to adding that service or keeping
that service, decisions have to be made, do we add a new
service that our members want, or worse than that, do we take
away one they got used to? And to that point specifically, the
availability of certain financial products for consumers
specifically--and what I am hearing from credit unions in
Kentucky is the open-ended lending rules are restricting access
to certain products.
Mr. Barr. Can you speak to that?
Mr. Burrow. Do you want to jump in, or--I can speak to
that. Open-ended lending, for many, many years, was a very
viable way for members just to access credit that they have
already established at the credit union with a lot of ease, and
little paperwork. Call up, you already have the open-end plan
approved. I need some money dumped in my checking account.
Sure, Joe, I will go ahead and get that done, sign the note, we
are done.
But now, because we want to protect the member from bad
lenders, we are going to go back in time to when I first
started 30 years ago, where you have a piece of paper for
everything. And members hate it.
Mr. Barr. One final quick question for Mr. Reiver. You
testified about establishing a process for credit unions to
share their example experience without fear of retaliation. Can
you give me an example of concern about retaliation?
Mr. Reiver. Again, our NCUA examiners are very thorough.
But while we haven't had any direct--that we can directly
attribute to making complaints, to reaching out, clearly we had
occasions where, from one year to the next, especially when we
have the same examiner, where there is a change, a very
noticeable change in attitude, a very noticeable change in
approach. And it is not positive.
Mr. Barr. Thank you.
Chairwoman Capito. Thank you. The gentleman's time has
expired.
Mr. Stutzman for 5 minutes.
Mr. Stutzman. Thank you, Madam Chairwoman. And I thank the
witnesses for your testimony and comments today.
Ms. Stevens, I would like to follow up a little bit on Mr.
Heck and Mr. Duffy's questioning and comments regarding
supplemental capital. Could you give us just a little bit of
history behind that, and why--when did that law come into
effect? What is the history behind that, to kind of help us
understand better why you are the one institution that doesn't
have access to supplemental capital?
Ms. Stevens. I really, again, don't understand why we
don't. We have limits that were statutory net worth
requirements that were put into place with the enactment of
H.R. 1151 years ago. And, again, the only way we can respond to
our needs for net worth is to raise that money through retained
earnings. I mentioned earlier that we are in a situation; we
are trying to reach out to a Hispanic community in our field of
membership.
And it is very difficult. There is resources required for
that, and today our margins are compressed. We are spending
more and more time on regulatory burden and other issues. And
the ability to raise capital is difficult, particularly in
times of economic stress. It would be great to be able to reach
out, to have other sources for capital to shore up, and move
into the future and provide services for our members.
Mr. Stutzman. Okay, thank you. This is a question for any
of the three of you. Last week, it was reported that the White
House is encouraging lenders to use more subjective judgment in
determining whether to offer a loan. Could you talk a little
bit about maybe how this contradicts Dodd-Frank, potentially?
Does this seem to be a mixed message sent to you all? Would
anyone like to comment regarding that?
Mr. Reiver. Yes, I would be happy to address that. We had
talked earlier about Qualified Mortgages. As credit unions, we
do know our members. And that gives us a unique ability, as a
financial institution, to really evaluate each loan, taking
into account factors that we only know by virtue of our
relationship with our member. I guess that is what we would
refer to as ``subjective standards,'' something other than debt
to income, cash flow ratios, credit score.
So clearly, there is a direct conflict between the message
from the White House: Be subjective, serve your members, and
legislation that requires you to go down a checklist and the
loan is approved or not approved based on a checklist that is
created by somebody who might not, in fact, have any expertise
whatsoever in making loans.
Mr. Stutzman. Because to me, it seems like you would be
conflicted. What is a regulator going to expect, on one hand,
because you do want to meet the needs and provide the services
for your customers. But at the same time, you don't want to put
yourself in a position where you are potentially whacked for
doing the wrong thing. Mr. Burrow?
Mr. Burrow. Yes, I am just agreeing with you now.
Mr. Stutzman. Okay.
Mr. Burrow. If I could say ``amen,'' I would say ``amen.''
But the truth is, I agree with the White House's idea on this.
Because, really, that is what we have been dealing with for
years and it is only getting worse. I was told a long time ago
if you are running the credit union to please the examiners,
you are not going to be pleasing the members in the long run.
Now, that doesn't mean we just throw caution to the wind. But
lending is not an exact science.
It can't be one plus one always equals two. To be a loan
officer, you have to have some intuition, you have to know the
people, you have to talk to people. If it was just a formula
and no matter how hard we try we want to take the risk out of
it. We are not in the risk elimination business. No, we are in
the risk minimizing business. We want to manage that as best we
can. But we will never eliminate it. And I have a lot of
charge-offs I could show you where, if I took you back, every
statistic, every ratio you would use--you would say, that has
to be a good loan. And it turned out to be a charge-off.
Mr. Stutzman. So have you seen an increase or decrease in
mortgages lately over the last, let's say, 6 months?
Mr. Burrow. We have had very good mortgage--
Mr. Stutzman. Increase? An increase in mortgage
applications?
Mr. Burrow. Yes.
Mr. Stutzman. How about the other two?
Mr. Reiver. Yes.
Mr. Stutzman. Same?
Mr. Reiver. Things seem to be moving in a positive
direction.
Mr. Stutzman. I am sorry?
Mr. Reiver. Things seem to be moving in a position
direction in terms of number of applications.
Mr. Stutzman. Moving better? Good, good, good.
Thank you, Madam Chairwoman. I yield back.
Chairwoman Capito. Thank you.
Mr. Pittenger?
Mr. Pittenger. Thank you, Madam Chairwoman. I would like to
ask one question just for clarity. Have you seen consolidation
in your industry like is taking place in the community banks? I
don't know that I heard that clearly. They have gone through a
tremendous amount of consolidation. I served on one for many
years. And just the compliance costs, the regulatory
environment. Has that impacted all of you the same?
Ms. Stevens. Absolutely. I would say we are losing--I have
heard this statistic that we are losing about one credit union
per day. Consolidation, there are a number of reasons for it.
But in our area, a huge piece of it has to do with being able
to comply with the regulatory burden that we face. It is just
too much. One of my best friends retired last week. She loves
credit unions, but she can't deal with the regulatory burden
anymore.
If there is not someone who is going to step to the plate
and take care of that, consolidation seems to be the answer.
Mr. Pittenger. Thank you.
I yield back my time.
Chairwoman Capito. Thank you.
Mr. Royce for 5 minutes.
Mr. Royce. Thank you, Madam Chairwoman. Getting to this
member business lending cap, our legislation right now has 90
House cosponsors. And I--for my constituents, I will just tell
you what I have heard. And that is the stories about the jobs
created or maintained in California through the access to
credit unions because such a high percentage of small
businesses get their loan request turned down when they are
attempting to extend their credit.
And we are in an environment today where, for many of these
small businesses, the credit crunch is leading to a situation
where they either have to downsize or go out of business if
they don't have access to that extension of the line of credit,
or a new loan when their loan rolls over. So what is the market
you see out there when you talk to people in the credit union
line or when you talk to entrepreneurs who are trying to get
access to credit?
Are these same loans going to be offered if credit unions
can't step up to the plate and do more small business lending?
Or are those small businesses out there today going to be in a
position where they have to contract? And do you see other
businesses that could benefit from this increase in the member
business lending cap? Let me just hear your thoughts on that.
Mr. Burrow. Okay, could I respond to that? I think that
there are a lot of opportunities being missed. I know in our
credit union, for example, anything that is over $50,000 is
considered to be a business loan in terms of compliance issues.
And I have had a number of individuals who are employed in some
type of secular employment--whether it be at the chemical
plant, or wherever they might be--but they may also have their
own, let's say, a contracting business on the side.
A guy comes in, he wants a $100,000 loan for a backhoe. I
don't have any way of getting that to him, because it is over
$50,000. I don't have the loan officer in place, I don't have
everything in place to comply with the regulations as they sit
now, so I have to turn him away. And a $100,000 loan is really
not that big of a loan. Most banks aren't interested in it, so
he may be going without.
Mr. Royce. What I see, when I talk to owners of small
businesses--gas stations, hair salons, small manufacturing,
light manufacturing--I very much hear this concern. And you
look at some of the success stories. We had two firefighters in
their credit union. They were able to get a loan. They didn't
like the coffee at the fire hall so they started their own
little operation. Firemen's Brew I think is what they call it
in L.A. It is now a full-time brewery, it is a coffee importer,
it is a restaurant.
And there are so many examples like that, when you have the
smallest start-ups. And that is where most of the employment
comes from is when you create those start-ups. Those are the
ones that 85 percent of the time are turned down when they go,
normally, for a loan. Yet this is the area of expertise for
these credit unions. But with that cap, you are not able to--
and many credit unions aren't even able to go into that line of
work. Because how do you sustain something when you are capped
at 12.5 percent?
But there is another issue here, and that is how examiners
currently treat your business loan portfolio compared to other
financial institutions as it relates to non-owner-occupied
properties. Could you discuss that for a moment?
Ms. Stevens. Yes. In fact, in my testimony, this is
something we talked about earlier. Currently, if a bank issues
this type of loan, it is considered a residential loan. If a
credit union does it, it is considered a business loan. And we
think that disparity should be fixed.
Mr. Royce. One more example of a change we could make with
this legislation which would really open up the market, we are
talking about trying to have the market recover in terms of
apartments. And here, you have a difference in treatment that
prevents access to capital coming into the market.
Madam Chairwoman, let me yield back.
Chairwoman Capito. The gentleman yields back.
With that, I see we have completed the questions. I want to
thank the witnesses for their testimony and for their patience.
We have learned a lot.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
Without objection, this hearing is adjourned. Thank you.
[Whereupon, at 4:35 p.m., the hearing was adjourned.]
A P P E N D I X
April 10, 2013
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