[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
LEGISLATIVE PROPOSALS FOR
A MORE EFFICIENT FEDERAL
FINANCIAL REGULATORY REGIME
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 7, 2017
__________
Printed for the use of the Committee on Financial Services
Serial No. 115-38
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
STEVAN PEARCE, New Mexico GREGORY W. MEEKS, New York
BILL POSEY, Florida MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin DAVID SCOTT, Georgia
STEVE STIVERS, Ohio AL GREEN, Texas
RANDY HULTGREN, Illinois EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina KEITH ELLISON, Minnesota
ANN WAGNER, Missouri ED PERLMUTTER, Colorado
ANDY BARR, Kentucky JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois
LUKE MESSER, Indiana DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine JOYCE BEATTY, Ohio
MIA LOVE, Utah DENNY HECK, Washington
FRENCH HILL, Arkansas JUAN VARGAS, California
TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana
Kirsten Sutton Mork, Staff Director
Subcommittee on Financial Institutions and Consumer Credit
BLAINE LUETKEMEYER, Missouri, Chairman
KEITH J. ROTHFUS, Pennsylvania, WM. LACY CLAY, Missouri, Ranking
Vice Chairman Member
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York
BILL POSEY, Florida DAVID SCOTT, Georgia
DENNIS A. ROSS, Florida NYDIA M. VELAZQUEZ, New York
ROBERT PITTENGER, North Carolina AL GREEN, Texas
ANDY BARR, Kentucky KEITH ELLISON, Minnesota
SCOTT TIPTON, Colorado MICHAEL E. CAPUANO, Massachusetts
ROGER WILLIAMS, Texas DENNY HECK, Washington
MIA LOVE, Utah GWEN MOORE, Wisconsin
DAVID A. TROTT, Michigan CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
C O N T E N T S
----------
Page
Hearing held on:
September 7, 2017............................................ 1
Appendix:
September 7, 2017............................................ 43
WITNESSES
Thursday, September 7, 2017
Fortney, Anne P., Partner Emerita, Hudson Cook, LLP.............. 5
Quaadman, Thomas, Executive Vice President, Center for Capital
Markets Competitiveness, U.S. Chamber of Commerce.............. 8
Tuggle, Charles T., Jr., Executive Vice President and General
Counsel, First Horizon National Corporation, on behalf of the
American Bankers Association................................... 6
Wu, Chi Chi, Staff Attorney, National Consumer Law Center........ 10
APPENDIX
Prepared statements:
Fortney, Anne P.............................................. 44
Quaadman, Thomas............................................. 78
Tuggle, Charles T., Jr....................................... 91
Wu, Chi Chi.................................................. 100
Additional Material Submitted for the Record
Luetkemeyer, Hon. Blaine:
Written statement of the American Land Title Association..... 132
Written statement of the Credit Union National Association... 140
Written statement of the National Creditors Bar Association.. 142
Written statement of the Texas Land Title Association........ 145
Clay, Hon. William Lacy:
Written statement of Americans for Financial Reform.......... 147
Written statement of Better Markets.......................... 151
Written statement of the National Consumer Law Center........ 157
Written statement of U.S. PIRG............................... 162
Written statement of the National Association of Consumer
Advocates.................................................. 166
Written statement of various undersigned public interest
organizations.............................................. 167
Ellison, Hon. Keith:
Written statement of the National Association of Independent
Land Title Agents.......................................... 169
Article entitled, ``Are Title Company Kickbacks Harming Your
Clients?''................................................. 175
Article entitled, ``Wells Fargo now accused of unfair home
mortgage rate hikes''...................................... 183
Article entitled, ``Seriously, Equifax? This is a Breach No
One Should Get Away With''................................. 185
Waters, Hon. Maxine:
Written responses to questions for the record submitted to
Chi Chi Wu................................................. 188
Hill, Hon. French:
Chart entitled, ``Arkansas, The Rule vs. Reality''........... 195
Loudermilk, Hon. Barry:
Letter of support from the Credit Union National Association. 196
Written statement of the Electronic Transactions Association. 197
Written statement of the National Association of Professional
Background Screeners....................................... 198
Written statement of various undersigned organizations....... 201
Trott, Hon. David:
``ABA Supports H.R. 1849, the Practice of Law Technical
Clarification Act of 2017''................................ 203
LEGISLATIVE PROPOSALS FOR
A MORE EFFICIENT FEDERAL
FINANCIAL REGULATORY REGIME
----------
Thursday, September 7, 2017
U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2128, Rayburn House Office Building, Hon. Blaine
Luetkemeyer [chairman of the subcommittee] presiding.
Members present: Representatives Luetkemeyer, Rothfus,
Royce, Lucas, Posey, Pittenger, Barr, Tipton, Williams, Love,
Trott, Loudermilk, Kustoff, Tenney; Clay, Maloney, Scott,
Velazquez, Green, Ellison, and Crist.
Also present: Representatives Hill and Sinema.
Chairman Luetkemeyer. The Subcommittee on Financial
Institutions and Consumer Credit will come to order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time.
Today's hearing is entitled, ``Legislative Proposals for a
More Efficient Federal Financial Regulatory Regime.''
Before we begin today, I would like to thank the witnesses
for appearing. We appreciate your participation and look
forward to a productive discussion. Some of you have been here
before, so we thank you for your return engagement. I guess you
didn't get scared off or get intimidated by us, so you are
ready to come forward. Thank you.
I now recognize myself for 3 minutes for an opening
statement. Today, our subcommittee will continue in its quest
to bring about a more reasonable Federal financial regulatory
system. We will have the opportunity to examine six bills
authored by Representatives Loudermilk, Trott, Royce, Hill,
Tenney, and me that will better allow financial companies to
serve their customers.
From banks and credit unions to credit reporting agencies
and attorneys, we have seen an impeded ability for businesses
across the Nation to offer financial services and guidance.
Collectively, these bills will streamline regulatory
requirements and eliminate inefficiencies that ultimately have
the greatest impact on the American consumer.
Included in today's hearing is H.R. 3312, my Systemic Risk
Designation Improvement Act. This legislation, introduced with
five Republicans and five Democrats from this committee, aims
to improve the manner in which financial institutions are
regulated by more closely tying the designation of systemically
important financial institutions, or SIFIs, to actual risk in
the financial system. My legislation replaces the inflexible,
arbitrary $50 billion threshold for designation with a series
of well-established standards that more accurately measure
systemic importance. Specifically, this legislation requires
the Federal Reserve to review an institution's size,
interconnectedness, suitability, substitutability, global
cross-jurisdictional activity, and complexity.
An inefficient regulatory system based exclusively on
arbitrary thresholds can have real economic consequences. The
current SIFI standard has led to marketplace disruption and
penalized companies for size alone, rather than business
activities and other important factors that actually impact
risk.
As I said before, it is past time to demand a reasonable
regulatory structure that fosters opportunity. The American
people deserve economic freedom and the ability to control
their own financial future. They shouldn't continue to suffer
from Washington, D.C.'s top-down approach and micromanagement.
I want to thank my colleagues for participating in today's
hearing and for introducing legislative proposals that will
help revitalize the financial system. We have a distinguished
panel, and I look forward to your testimony.
The Chair now recognizes another gentleman from Missouri,
the ranking member of the subcommittee, Mr. Clay, for 5 minutes
for an opening statement.
Mr. Clay. Thank you, Mr. Chairman, especially for holding
this hearing to review legislative proposals intended to
improve our Federal financial regulatory regime.
And thank you to each of the witnesses here today for
providing insight on these proposals.
While the 2008 financial crisis may seem like a long time
ago for many, I was here when it happened, and I will never
forgot that we crafted the Dodd-Frank Act to ensure that this
country never faces anything like that again. The financial
crisis should have taught Congress to proceed very cautiously
before rushing to roll back regulations.
While improvements can always be made, an efficient Federal
financial regulatory system should not just mean less or no
regulation. An efficient system is one that actually works. And
by that, I mean laws and regulations should support a strong
financial services sector, but they should also protect
consumers and promote stable economic growth. Consumers who are
harmed by wrongdoers deserve adequate compensation. Consumers
making large purchases, like buying a home, deserve to be given
accurate, timely, and easy-to-understand disclosures. Consumers
should not be duped by misleading materials about future
financial obligations or about outstanding debts.
That being said, I am concerned that many of the proposals
that will be discussed today would modify or otherwise gut some
key existing consumer protections in Federal financial
services, laws like the Fair Debt Collection Practices Act, the
Fair Credit Reporting Act, and the Truth in Lending Act. So, as
we evaluate these proposals, I encourage my colleagues to be
mindful that any efficient regulatory regime must minimize harm
to consumers, and that any policies that we enact should not
come at the expense of the consumers that we serve. The
policies should also strengthen, not weaken, financial
stability so we don't have another costly financial crisis
because, in the end, I believe that strong regulatory
enforcement, standards, and consumer protection laws help to
maintain the safety and soundness our Nation's financial
institutions as well as create economic opportunity for
businesses and consumers.
Thank you again to each of today witnesses. And I yield
back the balance of my time.
Chairman Luetkemeyer. The gentleman yields back.
I now recognize the gentleman from California, Mr. Royce,
for 1 minute.
Mr. Royce. Thank you very much, Mr. Chairman.
One of the bills before us today is my draft legislation,
the Credit Services Protection Act, which will improve consumer
access to credit monitoring and credit education services. The
Credit Repair Organizations Act (CROA) was first enacted in
1996 to combat the predatory practices of credit clinics who
promised consumers they could clean up their credit, often with
very exorbitant fees attached to that. Preventing fraudulent
credit repairs should remain the focus of this important Act.
The law, however, outgrew its original Congressional intent.
Judicial interpretation brought credit bureaus and others
offering monitoring or education services under CROA's strict
liability regime additional obstacles that have frustrated
consumers, including the mandated 3-business-day waiting period
which precedes access to education and credit scores and credit
reports.
So the draft bill before us today addresses the unintended
consequences of CROA, allowing the provision of credit
education and identity protection services in a consumer-
friendly manner with close oversight and enforcements by the
FTC. We should be promoting financial literacy and financial
success, not hindering its delivery.
Thank you, Mr. Chairman.
Chairman Luetkemeyer. The gentleman's time has expired.
I now recognize the gentleman from Michigan, Mr. Trott.
Mr. Trott. Thank you, Mr. Chairman, for holding this
important hearing on a series of bills, specifically H.R. 1849,
the Practice of Law Technical Clarification Act. This limited,
targeted, and commonsense bill clarifies that attorneys engaged
in litigation should not be subject to interference by Federal
agencies.
Americans should be very proud of our independent
judiciary. In the United States, attorneys are held accountable
by presiding judges, State bars, and opposing counsel. This
delicate balance has served our country well for centuries. It
ensures that all Americans, no matter who they are, can receive
justice. We must protect this system against any attempts to
tilt the scales of justice by interference with our independent
judiciary.
When the lawyer exclusion was eliminated in 1985, the
bill's sponsor, a Democrat, noted the intent was not to
regulate lawyers in the courtroom but to do so in the backroom.
My legislation clarifies this intent. The American Bar
Association has endorsed H.R. 1849, calling it narrowly
tailored, and confirms it will only exempt creditors' lawyers
engaged in litigation activities. I ask unanimous consent that
their letter be made a part of the record.
Chairman Luetkemeyer. Without objection, it is so ordered.
Mr. Trott. Thank you, Mr. Chairman.
I look forward to a robust and constructive discussion
about this bill and how we can reform the Fair Debt Act to
serve its original intent.
I yield back my time.
Chairman Luetkemeyer. The gentleman's time has expired.
With that, opening statements are finished, and we would
like to welcome our guests today: Ms. Anne Fortney, partner
emerita, Hudson Cook, LLP; Mr. Charles Tuggle, executive vice
president and general counsel, First Horizon National
Corporation, on behalf of the American Bankers Association; Mr.
Thomas Quaadman, executive vice president, Center for Capital
Markets Competitiveness, U.S. Chamber of Commerce; and Ms. Chi
Chi Wu, staff attorney for the National Consumer Law Center.
Thank you.
And before we get started here, I would like to recognize
the gentleman from Tennessee, Mr. Kustoff, for the purpose of
making a brief introduction of one of our distinguished guests
today.
Mr. Kustoff. Mr. Chairman, thank you.
It is my honor and privilege to introduce Mr. Charles
Tuggle, who is joining us here to testify on behalf of the
American Bankers Association. Since 2008, Charles Tuggle has
served as executive vice president and general counsel of First
Horizon National Corporation, which is the parent company of
First Tennessee Bank and FTN Financial, which is headquartered
in my district in Memphis, Tennessee.
In his current role, Mr. Tuggle is responsible for
overseeing all legal matters for the company, which includes
compliance with securities, corporate, and banking laws. Mr.
Tuggle first joined FTN Financial as chief risk officer in
2003. He has spent his entire career in the Memphis area,
beginning for 30 years with the Baker Donelson law firm as a
chairman and chief executive officer, one of the most prominent
law firms in our region and in the country.
I have to tell you that I've known Mr. Tuggle for many
years, and I am pleased to have him join us today to discuss
these important matters that he will be testifying about. I can
think of no one more qualified as a chief legal officer for the
bank than Charles Tuggle and First Tennessee Bank as the
largest asset base in the State of Tennessee. It is very
important to Memphis and very important to Tennessee.
Mr. Tuggle, thank you so much for being here today. I look
forward to your testimony.
Mr. Chairman, I yield back the remainder of my time.
Chairman Luetkemeyer. The gentleman yields back.
With that, I want to thank each of the witnesses again for
being here today. You will each be recognized for 5 minutes to
give your oral presentation of your testimony. And without
objection, each of your written statements will be made a part
of the record.
Just to give you a little tutorial on our lighting system
here: green means go; you have 4 minutes to speak at the end of
that. The yellow light means you have 1 minute to sort of wrap
up, finish up. And red means I have the gavel, and we may have
to stop the proceedings. But hopefully everybody will be within
the timeframes and keep it to that, and we will be glad to
extend it, if needed.
Ms. Fortney, you are recognized for 5 minutes.
Welcome.
STATEMENT OF ANNE P. FORTNEY, PARTNER EMERITA, HUDSON COOK, LLP
Ms. Fortney. Thank you very much. I am very pleased to be
here before this subcommittee and have the opportunity to
testify on these bills. I have more than 40 years of experience
as a lawyer in the consumer financial services field, including
8 years of service with the Federal Trade Commission. I have
worked as in-house counsel at a retail creditor and later in
counseling clients on compliance with consumer protection laws.
My experience includes testifying before this committee on
behalf of the Federal Trade Commission on the Fair Debt
Collection Practices Act. I have testified in Federal courts
and before this committee on the Fair Credit Reporting Act. And
I have worked with the FTC and Congressional staff on the scope
and operation of the Credit Repair Organizations Act (CROA).
Thus, I have witnessed firsthand the consumer benefits and
compliance challenges of each of these laws. I will discuss
three bills which relate to my background and experience: the
Credit Services Protection Act draft bill; H.R. 1849, the
Practice of Law Clarification Act of 2017; and H.R. 2359, the
FCRA Liability Harmonization Act. Each of these bills involved
laws that were enacted to address industry practices that cause
substantial injury to consumers in the consumer financial
services field.
Industry representatives supported the enactment of each of
these bills. In fact, CROA was enacted at the urging of the
consumer credit industry. There is still universal support for
these laws and for their essential protections for consumers.
By and large, these laws have accomplished the purposes for
which they were enacted. So what is the problem?
Over the years, some courts have interpreted the laws in a
manner that is inconsistent with the Congressional intent and
sometimes even with commonsense. Let's take CROA first. It is
designed to deal with credit repair. But some courts,
especially the Court of Appeals for the Ninth Circuit, have
said that credit repair includes any product or service that
possibly helps consumers improve their credit or prevent
deterioration. This would include services that millions of
consumers already use, such as credit monitoring and identity
protection. Not surprisingly, such a peculiar definition of
credit repair has hurt the development and delivery of new and
innovative products even when studies have shown that consumers
want and benefit from these services. Congressman Royce's draft
would solve this problem by creating a regulatory framework for
authorized credit service providers to offer personalized
credit education and identity theft protection services under
the watch of the Federal Trade Commission. Despite rhetoric to
the contrary, the bill leaves intact CROA's protections against
credit repair.
Next, we have the courts saying the practice of law by a
licensed attorney filing a lawsuit on behalf of a client is
debt collection and subject to the Fair Debt Collection
Practices Act. No. Debt collection and the practice of law are
two different things, and this is especially true when an
attorney who is filing a lawsuit on behalf of a client is
engaged in litigation.
Preparing documents for litigation and communicating in
connection with the litigation are very different activities
from sending dunning letters and calling debtors. In addition,
attorneys in litigation are subject to standards of conduct
overseen by local courts and any State bar, while a debt
collector is not. For these reasons, the Fair Debt Collection
Practices Act originally exempted attorneys from its coverage.
However, a few attorneys abused that exemption in debt
collection practices, not in the practice of law.
Testifying on behalf of the FTC in 1985, I urged Congress
to clarify the scope of the attorney exemption. Instead,
Congress eliminated it.
H.R. 1849 would do what the FTC suggested 32 years ago:
create a narrow exemption for attorneys to the extent that they
are practicing law and litigating on behalf of a client.
Finally, H.R. 2359 would bring the FCRA in line with other
titles of the Federal Consumer Protection Act by placing a cap
on class action awards and eliminating punitive damages. The
FCRA was amended to provide for statutory damages for
violations of the Act. The problem is that some courts,
particularly the ninth circuit, have read willful out of the
statute and allowed claims to proceed against small and large
companies alike for mere technical violations, violations where
there are no damages.
Time does not permit me to detail the problems that these
three bills would address or the ways in which these bills
would bring common sense and fairness into the law. For this
reason, I hope your questions will enable me to provide a more
complete picture of why I believe Congress should enact each of
these bills. Thank you.
[The prepared statement of Ms. Fortney can be found on page
44 of the appendix.]
Chairman Luetkemeyer. The gentlelady yields back.
With that, we recognize Mr. Tuggle. He has a very high bar
to attest to here as a result of that glowing introduction from
Mr. Kustoff.
So we look forward to your testimony, Mr. Tuggle.
STATEMENT OF CHARLES T. TUGGLE, JR., EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL, FIRST HORIZON NATIONAL CORPORATION, ON
BEHALF OF THE AMERICAN BANKERS ASSOCIATION
Mr. Tuggle. Thank you. Chairman Luetkemeyer, Ranking Member
Clay, and members of the subcommittee, I am Charles Tuggle, and
I am the executive vice president and general counsel of First
Horizon National Corporation. First Horizon is a $30 billion
institution, 153 years old, headquartered in Memphis. We have
170 bank branches in 8 States in the southeast, and we offer a
full range of banking services. Our fixed income business
operates nationwide, serving banks and other financial
institutions. Later this year, following receipt of regulatory
approvals, we plan to merge with another southeastern bank,
increasing our assets to $40 billion and doubling our branches.
I appreciate the opportunity to present the views of the
ABA on several important bills. Our industry and its regulators
both acknowledge that regulations have overshot their mark,
imposing unintended costs on consumers, businesses, and the
economy. We support Congressional efforts to make common-sense
adjustments without compromising systemic stability.
The three bills I will discuss today will help us meet the
needs of our customers. The ABA is very supportive of H.R.
3312. It would eliminate the arbitrary dollar threshold for
designation as a SIFI and instead would establish a process for
identifying and regulating systemic institutions based on the
nature of their business, not simply their size.
Under current law, institutions over $50 billion are
subject to much higher levels of regulation, regardless of the
real risk they might pose to the financial system. This
arbitrary size threshold has needlessly trapped many banks
without any risk to the system, handcuffing their abilities to
provide needed credit and other services to their communities.
For a bank like mine, soon to have $40 billion in assets,
the prospect of crossing the $50 billion threshold is very
troubling. It will trigger much greater expense and will be a
significant drain on existing resources. The fact that we are
growing means that we are successfully meeting the needs of our
customers. Good business decisions should not be hijacked by
arbitrary cutoffs that bear no relationship with danger to the
financial system.
H.R. 3312 takes an important step forward to benefit our
economy. It helps tailor and focus supervisory oversight to
promote safe and sound banking and to protect against systemic
risk. We urge support of this legislation.
ABA also supports the Community Institution Mortgage Relief
Act, introduced by Representative Tenney. This bill would
provide relief for smaller lenders and servicers with regard to
escrow practices. Smaller institutions have an excellent track
record providing high-quality mortgage services, even with
limited staff and resources. The small scale combined with high
compliance cost makes it more expensive for smaller lenders to
offer escrow services. Existing regulatory efforts to provide
relief from escrow mandates have resulted in a complicated and
confusing hodgepodge of requirements, which makes compliance
difficult. This legislation seeks to simplify and provide some
relief, goals we support.
The bill could be improved to enable regulators to adjust
the rules to address changing market conditions through
regulation rather than hardwiring limitations and thresholds.
The ABA appreciates the efforts by Representative Hill to
address the many unanswered questions about liability and
compliance under TRID. The complexity of the regulations, the
intricacy of the TRID disclosure forms, and the infinite number
of scenarios involved in mortgage finance create a situation
where inadvertent mistakes in compliance are unavoidable.
Without clarity on liability, lenders and investors will avoid
exposure, which will reduce product choice and increase costs
for borrowers. Ultimately, it is the home buyer who bears the
added cost and inconvenience of a cumbersome and confusing
process with slower times to closing.
The TRID improvement legislation is an important first
step, but there are many more steps needed to provide clarity
under the rules. We stand ready to work with the committee in
developing further legislation.
In conclusion, the ABA believes that common-sense proposals
are desperately needed. It will make our regulatory system more
efficient and effective. Doing so would free up scarce
resources for banks and help regulators focus on where TRID
risks truly lie.
The three bills we will discuss today make significant
advances. More can and needs to be done, and ABA stands ready
to assist in this process.
[The prepared statement of Mr. Tuggle can be found on page
91 of the appendix.]
Chairman Luetkemeyer. Thank you.
The gentleman yields back.
Mr. Quaadman, you are now recognized for 5 minutes.
Welcome.
STATEMENT OF THOMAS QUAADMAN, EXECUTIVE VICE PRESIDENT, CENTER
FOR CAPITAL MARKETS COMPETITIVENESS, U.S. CHAMBER OF COMMERCE
Mr. Quaadman. Thank you, Mr. Chairman, Ranking Member Clay,
and members of the subcommittee, and thank you for holding this
hearing today.
In order for Main Street businesses to start and thrive,
firms need access to a vibrant banking system, including fair
and efficient consumer credit markets. Unfortunately, policies
have moved away from that time-tested combination. Through an
arbitrary threshold, regional banks and large community banks
are under an enhanced regulatory scheme even though those banks
don't pose a contagion threat or risk or danger to U.S.
financial stability.
As a result, midsized and regional banks, which provide
direct and indirect services to Main Street businesses, are
faced with risk-based capital liquidity requirements,
resolution plans, and enhanced stress tests. Rather than
loaning money based on merit, decisions are made for regulatory
compliance. A recent Harvard Business School study has linked
the bank stress test to decreased small business lending.
In trying to resolve global issues, Main Street businesses
were hit with the adverse consequences. Small business
liquidity has dried up. The cost of capital has risen. And
regulatory initiatives have created disincentives to helping
the firms that drive growth.
A 2016 U.S. Chamber survey of over 300 corporate financial
professionals found that almost four in five were affected by
changes in financial markets; 50 percent identified increased
capital charges as an obstacle to financing and raising costs;
one-third of businesses see the situation worsening over the
next 3 years; and compared with a similar 2013 study,
businesses have severely contracted the number of banks that
they are using.
A survey of 500 small businesses we released earlier this
year in conjunction with Morning Consult found that a majority
felt that access to capital has not improved over the past
year; 50 percent of small businesses believe regulations are
inhibiting lending; and 68 percent of businesses with less than
10 employees do not expect to take out another loan or line of
credit in the next 4 years.
Studies by the Federal Reserve and the FDIC, and Community
Reinvestment Act analysis found that small business lending in
demand has not rebounded from the 2008 financial crisis. Loans
at the $100,000 level have been particularly hit hard. Outdated
laws or overbroad regulations have harmed consumer credit and
reduced the effectiveness of consumer protections. This hurts a
firm's customers, but also remember that startups use consumer
financial products, credit cards, mortgages, and home equity
lines of credit as the first means of financing a new business.
All of this has added up to depressed business creation and
economic growth rates that are persistently 30 percent below
the historic norm.
Accordingly, last year, the U.S. Chamber and 120 State and
local chambers from over 30 States sent a letter to Congress
asking that small, medium, and regional bank reform be a
priority. This subcommittee can make that a reality.
The Systemic Risk Designation Improvement Act, introduced
by Chairman Luetkemeyer, would regulate regional and large
community banks according to their risk profile. This bill uses
existing Federal Reserve standards on interconnectedness,
substitutability, complexity, and cross-jurisdictional
activity. Creditworthiness, rather than compliance cost and
stress test model, will determine if a business is eligible for
a loan.
Those banks will be regulated, but in a smart and
appropriate manner. Regulations will be aligned with a bank's
activities and allow regional and large community banks to
again deploy capital to Main Street in a responsible manner.
The Facilitating Access to Credit Act, drafted by
Representative Royce, will bring CROA into alignment with the
needs of a 21st Century consumer. This will allow a consumer to
engage in credit monitoring and help them to combat identity
theft.
The FCRA Liability Harmonization Act, introduced by
Representative Loudermilk, will harmonize liability standards
with other statutes such as the Electronic Fund Transfer Act,
the Fair Debt Collection Act, the Equal Credit Opportunity Act,
and the Truth in Lending Act. This will help ensure that
consumers will be compensated for any violations and not enrich
class-action lawyers.
The CFPB's TRID rule has caused uncertainty in mortgage
markets, creating liability concerns, thus making it harder to
issue mortgages to deserving customers. The TRID Improvement
Act, introduced by Congressman Hill, will allow minor errors to
be corrected and will create a cooling-off period. This will
create certainty in the marketplace, making secondary markets
and the overall mortgage markets much more efficient.
These three bills will help improve consumer protections
and will assist startups to get the capital they need. The
bills before us today provide a path forward that balances
stability and growth. Access to capital will be restored to
Main Street businesses, and protections would be aligned with
consumer needs.
Thank you, and I am happy to answer any questions you may
have.
[The prepared statement of Mr. Quaadman can be found on
page 78 of the appendix.]
Chairman Luetkemeyer. The gentleman yields back.
With that, we recognize Ms. Wu for 5 minutes.
Welcome.
STATEMENT OF CHI CHI WU, STAFF ATTORNEY, NATIONAL CONSUMER LAW
CENTER
Mr. Wu. Thank you, Mr. Chairman, Ranking Member Clay, and
members of the subcommittee. I appreciate you inviting me to
testify today regarding the six bills being considered at this
hearing. I am testifying on behalf the low-income clients of
the National Consumer Law Center. We oppose each of these bills
because they will harm the interests of American consumers.
With respect to H.R. 2359, we are opposed because it would
drastically reduce accountability for violations of the Fair
Credit Reporting Act, a statute that is critical for protecting
the financial reputations of ordinary Americans.
To explain our opposition, I want to talk about some of the
folks who have had their reputations shredded by false
information in their credit reports or background checks and
whose legal recoveries would be limited by this bill. People
like Angela Williams of Florida who spent 13 years fighting
with Equifax to fix her credit report, which contained at least
25 negative accounts that didn't belong to her. She was
wrongfully pursued by creditors and debt collectors and
repeatedly denied credit due to Equifax's systemic failures to
fix the errors in her credit report. Everyday workers like
Richard Williams, who was repeatedly falsely labeled a criminal
by First Advantage Background Services, costing him two jobs
with the result that he was unemployed for most of a year and a
half. And innocent Americans, like Sergio Ramirez, who, along
with 8,000 other consumers in 49 out of 50 States, were
misidentified as terrorists or drug dealers in their credit
reports because TransUnion confused them with similarly named
individuals from a government watch list.
Can you imagine the horrors that these consumers lived
through, falsely accused of a being a criminal, a terrorist, a
drug dealer, or a deadbeat? To paraphrase Shakespeare: Who
steals my purse steals trash, but he that filches from me my
good name makes me poor indeed.
Supporters of this bill have suggested that the FCRA
violations are merely technical. There is nothing technical
about being wrongfully labeled a criminal, a terrorist, or a
deadbeat. That alone causes significant trauma and harm, but
the consequences go beyond that. Inaccurate credit report or
criminal history information deprives consumers of the ability
to get credit, employment, rental housing, and more. H.R. 2359
would deny consumers, such as Angela Williams, Richard
Williams, and Sergio Ramirez, the ability to seek full
accountability for the outrageous violations of the Fair Credit
Reporting Act that affected their lives. It would eliminate the
ability to seek punitive damages, which has been a feature of
the FCRA since its original enactment in 1970.
In cases such as Sergio Ramirez, where consumers have
banded together in a class action to seek relief, H.R. 2359
would limit their recovery for both statutory damages and
actual damages to $500,000, no matter how many thousands or
millions of consumers were harmed or the extent of the losses
created by the illegal conduct.
Eliminating the consequences for wrongdoers under FCRA
would enable credit bureaus and background check agencies to
blithely disregard protections meant to ensure accurate
reporting. And notably the three major credit bureaus, Equifax,
Experian, and TransUnion are often among the three top most-
complained about companies to the CFPB every month, with the
vast majority of complaints involving incorrect information on
credit reports.
We also oppose the Credit Services Protection Act of 2017,
which would exempt these big three credit bureaus from CROA.
The exemption is unnecessary and harmful and would remove
consumer protections when credit bureaus sell credit
monitoring, identity theft prevention, and other products of
questionable value.
Frankly, it is pretty nervy to propose this exemption,
given that these products were the subject of enforcement
action just this year by the CFPB for deceptive marketing
practices, in which Equifax and TransUnion were ordered to pay
refunds of $17.6 million, plus fines of $5.5 million. And
Experian was ordered to pay a fine of $3 million. Instead of
being covered by CROA, the bill substitutes weaker and less
enforceable provisions governing authorized credit services
providers. Unlike CROA, it doesn't include prohibitions against
advanced fees; it also fails to require the full disclosure of
the 3-day right to cancel, cannot be privately enforced,
preempts State law and State attorney general enforcement, and
could limit the CFPB's authority over credit bureaus. It could
also allow illegitimate credit repair organizations to escape
from CROA because approval is automatic after 60 days if the
FTC doesn't act.
Finally, we oppose the four other bills that are the
subject of the hearing, for the reasons stated in my written
testimony. I thank you for the opportunity to testify and look
forward to your questions.
[The prepared statement of Ms. Wu can be found on page 100
of the appendix.]
Mr. Lucus [presiding]. The gentlelady's time has expired.
Without objection, the gentleman from Arkansas, Mr. Hill,
and the gentlelady from Arizona, Ms. Sinema, are permitted to
participate in today's subcommittee hearing. While not members
of this subcommittee, Mr. Hill and Ms. Sinema are members of
the full Financial Services Committee, and we appreciate their
interest and participation today.
With that, the Chair now recognizes Mr. Pittenger for 5
minutes.
Mr. Pittenger. Thank you, Mr. Chairman.
Mr. Quaadman, the CFPB claims that it wants to help lower-
and middle-income consumers, yet the Bureau's own study on
class-action lawsuit waivers shows that on average, consumers
win more in arbitration versus class action lawsuits.
Mr. Quaadman, can you please relay to the committee what
the CFPB found when they looked at the average dollar amount
that consumers won in arbitration versus class action lawsuits?
Mr. Quaadman. Thank you for that question, Mr. Pittenger.
I am probably going to be off on the numbers just slightly,
but I believe that the CFPB's own study found that, with
individual lawsuits, with individual complaints, consumers were
reimbursed to the tune of over $5,000; if it was a class
action, it was somewhere around $30. We have actually asked the
CFPB in trying to move forward with this arbitration rule that
they have recently finalized that that is actually the exact
reason why you have a cost-benefit analysis because that shows
that arbitration--I am sorry--arbitration, the number is the
other way--arbitration, people get $5,000 compensation, and the
other way around, $30 with class action. So arbitration is
actually a very firm way of making sure the consumer complaints
are resolved.
Mr. Pittenger. Yes, sir.
What other benefits do you see for arbitration over class
action lawsuits for consumers? And why will the CFPB's
arbitration rule be so harmful?
Mr. Quaadman. First, the costs of arbitration are borne by
the company. The consumer does not face any of the costs with
that. And, second, the time with getting the consumer complaint
resolved through arbitration is much quicker than going into
court. So it provides the benefit of giving consumers the
benefit of getting their situation resolved and quickly. It
also provides benefits to the taxpayer without having to clog
up the court system.
Mr. Pittenger. Yes, sir, thank you.
Ms. Fortney, a person's credit score is so critical to
their quality of life, as you well know. Even a 20-point boost
can mean a cheaper car loan or a mortgage. We should do
everything we can, I am sure that you would agree, to protect
access to services and products that help people improve their
creditworthiness. I would like to say parenthetically that
Representative Keith Ellison and I have a bill that will help
consumers to reestablish their credit, by utilizing their
mortgage payments, car payments, and utility payments to help
build their credit score.
But, Ms. Fortney, I would agree with you that the Credit
Repair Organization Act protects consumers from the claims of
certain bad actors who falsely say that they can fix your
credit overnight. With that said, you testified that the
Facilitating Access to Credit Act does not jeopardize these
protections. How well can consumers benefit from this
legislation? What is going to be the impact on folks who need
some education on getting their score to a better place?
Ms. Fortney. First of all, there is nothing in the draft
bill that would interfere with CROA as it stands today. CROA
will still remain intact to protect consumers from credit
repair organizations and the false and deceptive claims they
make. Secondly, contrary to what the NCLC has said, amending
CROA in the way we have discussed will not in any way
jeopardize the ability of the Consumer Financial Protection
Bureau or the Federal Trade Commission to pursue companies that
engage in unfair or deceptive acts or practices in the offering
of any products or services. The cases that Ms. Wu mentioned
were all brought under UDAAP statutes, not under CROA.
What this bill would do is create a new framework, under
which companies could offer individualized consumer education
services and other types of identity theft protection services
to consumers without the fear that a court, particularly in the
ninth circuit would say, oh, that is credit repair.
I have to say, I am just astonished that the courts have
reached that conclusion. Because to me, there is a real
difference between repairing something and helping consumers
deal with the credit now and in the future. You take your car
into the shop when it is broken, to be fixed, to be repaired.
But you take your car to the dealer or to a gas station to be
maintained. Those are two different things. One is retroactive;
the other is prospective. So the courts have really strained to
find that consumer education products and services and credit
monitoring are repair, and actually what they are doing is
helping consumers maintain and improve their credit.
And the reason we need this is today more than ever there
are opportunities for consumers to see their credit scores and
to know what is in their credit reports. The problem there
though is the consumers say: ``Yes, I now know I have a low
credit score. How can I fix it? How can I improve it?''
Right now, as interpreted by the courts, CROA prevents
these companies from offering this service. What this bill
would do is create a framework under the close supervision--
Chairman Luetkemeyer. The gentlewoman's time has expired.
Mr. Pittenger. Thank you, Ms. Fortney. I appreciate your
great input.
Chairman Luetkemeyer. The Chair now recognizes the
gentleman from Missouri, Mr. Clay, for 5 minutes.
Mr. Clay. Thank you, Mr. Chairman.
While Ms. Wu's written testimony provides a few examples of
innocent consumers harmed by violations of the FCRA who would
be adversely impacted if H.R. 2359 were enacted, another
consumer advocate shared a troubling story with the committee
that I would like to get each of your reactions to. One of the
major consumer reporting agencies was alerted at least 8 times
over 2 years that it had mixed up a consumer's credit file with
a different person who had the same name and a similar Social
Security number, but who lived in a different State and had a
bad credit record. Despite this, the CRA failed to correct the
mistake, causing this person to be rejected for loans. The
consumer eventually sued the CRA and a jury awarded her
compensatory and punitive damages. The judge in the case said,
``For 2 years Ms. Miller was frustrated, overwhelmed, angry,
depressed, humiliated, fearful about misuse of her identity,
and concerned for her damaged reputation. Equifax engaged in
reprehensible conduct that caused real harm to Ms. Miller.
Equifax should be punished financially for that wrongful
conduct. The punitive damages award should be enough to deter
Equifax from repeating this type of conduct in the future.''
For each of you--I will start with Ms. Fortney--do you
think punitive damages were appropriate in this case and can
you please explain why innocent consumers should not be
entitled to receive punitive damages from wrongdoers who
willfully or recklessly fail to comply with Federal law?
Ms. Fortney. I was actually an expert witness on behalf of
Equifax in this case. I am intimately familiar with the facts
of that case. And I think, as you would see if you actually
looked at all the testimony in that case, there were two sides
of the story. Obviously, the court and the jury took the side
of the plaintiff. There were very, very unusual circumstances
in that case. And I agree; this individual was entitled to
actual damages, if she could show and to the extent she could
show, and she did show actual harm.
What I am concerned about is the attitude that you now need
to send a message to a company that is doing everything it can
to comply with the law and makes mistakes. We all make
mistakes. And the whole question is, if you have the risk of
punitive damages hanging over your head, you are not going to
be as effective in delivering the products and services--
Mr. Clay. But the damage was to the consumer.
Ms. Fortney. Yes.
Mr. Clay. It hurt that person, Ms. Fortney, not Equifax
because of their inaction.
Let me go on to Mr. Tuggle. Can you respond to this case?
Are you familiar with it?
Mr. Tuggle. I am not familiar with the case, Ranking Member
Clay. I will have to tell you that my experience as a lawyer,
and I have been doing this for 40 years now, is that you need
to know all the facts before you can evaluate a situation.
Mr. Clay. All right. That is fair enough.
Mr. Quaadman?
Mr. Quaadman. Thank you, Mr. Clay.
I am not aware of the facts of the case. However, just a
couple of points to note: There are government agencies, such
as the IRS, that have also misidentified consumers, and those
people cannot, or it is very difficult for them to sue the
government. So I think we need to take that into account.
I think you also make a larger point in favor of the bill,
which is that it was an individual harm. This bill is looking
to harmonize FCRA with all the other different credit reporting
and consumer statutes that there are to put caps on liability
and class action. So I don't think that--the consumer can still
sue. The consumer can still recover damages and be made whole,
even under the harmonization bill.
Mr. Clay. All right.
Ms. Wu, do you have a response?
Mr. Wu. Yes. Julie Miller absolutely was entitled to
punitive damages. Equifax's errors caused her great trauma. She
wasn't able to help her disabled brother get credit. The judge
and the jury all agreed. And this bill, H.R. 2359, would snuff
out her ability to get punitive damages. She would not have
been able to get the recovery she did if this bill were in
effect; neither would the other consumers I mentioned.
Mr. Clay. Thank you. My time has expired.
Chairman Luetkemeyer. The gentleman's time has expired.
With that, I recognize myself for 5 minutes.
I appreciate the comments so far, and I--it is interesting.
I think we have a great group of bills here today that actually
address a lot of issues that are of concern. I know the ranking
member made a comment about rushing to change the system. And I
don't think we are rushing here after 7 years of Dodd-Frank.
Any bill that we have out there needs to be fixed, tweaked.
Some things go too far; some things don't go far enough. So I
think it is important that we stop, take a look at a lot of
these things, and try and fix some problems and inequities in
our system.
I appreciate Ms. Fortney's comment a minute ago with
regards to rules interpretation and enforcement with regards to
inconsistent with the intent and common sense of what has been
going on. So hopefully that is where these bills go.
I want to discuss a little bit with regard to my bill, the
Systemic Risk Designation Improvement Act.
Mr. Tuggle, you know your bank is one of those banks that
is getting ready to, as it grows, hit the threshold within
which it is going to cost you a whole lot more money to be able
to comply, to stay in business with all the extra restrictions
and regulations. Can you address an issue, such as are you
going to continue to try and grow and then hit that threshold
and comply, or is this a deterrent to your growth and,
therefore, a deterrent to continue to address the needs of your
community?
Mr. Tuggle. Thank you, Mr. Chairman. It will be a
significant issue for us, considering future growth. We will
soon be $40 billion. If our organic growth rates continue as
they have been for the last few years, we will be looking at
the $50 billion threshold well within 3 years. And if we saw
another merger opportunity, it could accelerate from that
point.
Here is the challenge: The decision that a bank like ours
faces is, is it better for us to be a $49 billion bank or a $51
billion bank? And the answer is pretty clear: It is better to
be a $49 billion bank from the perspective of expense
regulation and effect on our company from an organizational
perspective.
Chairman Luetkemeyer. Okay. So the question is, when you
tip over the threshold, do you become a different bank? Does
your business model change? Does your risk model change? The
only thing you have done is grow $2 billion more, from $49
billion to $51 billion.
Mr. Tuggle. Correct
Chairman Luetkemeyer. The point of my bill is that we take
the systemic risk calculation of the Fed and use that to
determine where we go with this rather than an arbitrary figure
of $50 billion. While a $50 billion bank is a nice sized bank,
it is not systemically important. Would you agree then?
Mr. Tuggle. I totally agree with that. I can tell you that
is a fact. The issue--let me say this about our bank, and I
think we are representative of many banks across the country.
We are $30 billion, soon to be $40 billion, but we are
essentially a community bank. A community bank in our mind is a
bank that takes deposits and extends credit to people in its
marketplace, is its predominant line of business. That is what
we do. We are not complex. I would like to think we are
sophisticated, but we are not complex.
And we talked about this, Mr. Chairman. I can tell you
that, if we were approaching $50 billion but we were only going
to go slightly over it, I don't think we would do that. And
there are consequences that are adverse to our communities for
doing that. If we don't continue to grow organically, in
particular based on the fact that customers want to do business
with us, then we are not going to be able to extend the levels
of credit that our communities--
Chairman Luetkemeyer. So, basically, when you look at risk,
which is what we should be looking at here, if you analyze the
five different sets of criteria--and size is one of them--that
determine whether you are systemically important and whether
the risk that you are taking, your business model that you
take--that you have, is something that can bring down the
economy, and that is the definition of a systemically important
institution.
Mr. Quaadman, before we get too far here, I really
appreciate some of the data that you had with some of the
surveys: 50 percent of small businesses have difficulty with
access to capital. And we saw a dramatic decrease in small
business lending as a result of the SIFI situation. Banks--or
the midsized regional guys, which I addressed, basically they
lend to midsized regional businesses, are having trouble,
though those businesses are having trouble getting access to
capital. Can you explain that a little bit more, go into more
detail?
Mr. Quaadman. Sure. So the regional midsized and large
community banks provide a lot of the small business lending.
And what they also do is they are also liquidity providers to
other smaller community banks that also are Main Street lenders
as well. So what happens is, as First Horizon or other banks
who are going to cross that $50 billion threshold, suddenly all
the enhanced regulations and the Federal Reserve regulations
that come upon them suddenly make those small business loans
unattractive because they are a little riskier according to the
regulator or whatever.
What is often forgotten is that that regional bank is going
to know that customer, is going to have a much better idea as
to who is worthy of getting a loan and who isn't. And, instead,
we are seeing that it is more the compliance people, once you
go over that $50 billion mark, instead of loan officers, who
start deciding who gets loans.
Chairman Luetkemeyer. So, instead of allowing the bank to
decide its own risks, you have the regulators there deciding
what risks to take. Is that what you are saying?
Mr. Quaadman. That is correct.
Chairman Luetkemeyer. Thank you very much.
My time has expired. With that, we go to the distinguished
gentleman from Georgia, Mr. Scott, is recognized for 5 minutes.
Mr. Scott. Mr. Chairman, thank you.
First of all, I want to talk about the frivolous lawsuit
situation. And let's be clear of the great value that class
action lawsuits provide because there are--every day in the
newspapers, we hear stories about abuses by our financial
institutions.
But Mr. Loudermilk's bill seeks to strike a delicate
balance here. I think, by the same token, our business
community suffers from so many frivolous lawsuits that we must
do something about that. And I think if there is one way of
phrasing what Mr. Loudermilk's bill is doing--it is not taking
away anybody's rights to class action--it is trying to come up
with a balance that is fair to our financial community and our
businesses, to be able to maintain class action but to be able
to put a fair balance of a $500,000 cap, which is standard
procedure that we have with other agencies in our Federal
Government. And so I think that, as we look at this, we need to
look at it with a jaundiced eye and make sure that we are doing
both things: maintaining that class action right but, at the
same token, being fair to those in the business area who have
to work with this.
Now, before my time goes out, I do want to comment on Mr.
Luetkemeyer's and my bill. I am proud to be a cosponsor of this
bill. I have worked with him and my staff has worked with Mr.
Luetkemeyer's staff to come up with this--$50 billion threshold
in assets, which is something people picked up, and that is not
the proper way of being able to determine what is a SIFI. These
regional community banks and others should not be fed out of
the same spoon as Goldman Sachs, as these other banks.
They should be judged, and this is what we are doing with
our bill. We have a five-point criteria: Suitability, the
competitiveness. What kind of risky behaviors are you in? Do
you deal with derivatives? Do you deal with those complexities?
And when you look at what the bank is doing, rather than
arbitrarily taking a $50 billion threshold and laying it out
there--that is not the right thing to do. And it is our job as
the Financial Services Committee to put out laws and
legislation that are fair and that are right. And our regional
banks should not be put into the same class as Goldman Sachs.
Goldman Sachs is a wonderful bank. Bank of America is a
wonderful bank. But they deal in cross border. They deal in so
many complex issues that they have a global impact. We should
not apply that same standard to our regional banks and to those
banks.
So I would like to ask two questions: First, if Mr.
Loudermilk's bill became law, panelists, how could consumers
take action if they allege a violation of the law?
Ms. Fortney. I would like to respond to that, please.
Mr. Clay. Sure.
Ms. Fortney. I think they would still be able to take
action. Under the Fair Credit Reporting Act, they could sue for
actual damages. And as you indicated, they could also
participate in class actions.
What would happen, though, is you would not have these
ridiculous awards or settlements for statutory damages for
highly technical and sometimes really dubiously technical
violations of the Fair Credit Reporting Act. The other thing
you would not have would be the ability of courts to assess
punitive damages when I think the facts do not warrant it.
Ms. Wu mentioned the Ramirez case. Nobody at TransUnion or
anyplace else said that any of the individual members of that
class were terrorists. What they did was provide a copy of
information from the OFAC list, which is produced by the United
States Department of the Treasury to deal with terrorists and
money launderers. All that list says is your name happens to be
the same. It doesn't say you are a terrorist; it just says you
as a creditor, including an auto dealer, must inquire further.
This is a list--this is information provided by the Federal
Government. And TransUnion was providing this as a service to
the auto dealer. They weren't saying anything about the
character of any of the 8,000 members of this class. There were
no actual damages.
Chairman Luetkemeyer. The gentleman's time has expired.
Mr. Scott. Thank you, Ms. Fortney.
Chairman Luetkemeyer. I now recognize the gentleman from
Pennsylvania, Mr. Rothfus, for 5 minutes.
Mr. Rothfus. Thank you, Mr. Chairman.
Mr. Tuggle, I want to follow up on a couple of the points
that the chairman was making about the $50 billion threshold
and taking a look at the proposed legislation. Now your bank, I
understand, is approaching the $50 billion threshold or can be
very soon.
Mr. Tuggle. We will be $40 billion by year end.
Mr. Rothfus. If the Systemic Risk Designation Improvement
Act is not enacted, that will mean that your bank will be a
SIFI.
Mr. Tuggle. Not at $40 billion, but we are on the way.
Mr. Rothfus. At $50 billion.
Mr. Tuggle. At $50 billion, we will.
Mr. Rothfus. Does your bank pose a real risk to the
stability of the financial system?
Mr. Tuggle. In no way.
Mr. Rothfus. In your testimony, you talked about how, when
you cross the $50 billion threshold, there is going to be more
expense, a significant drain on resources. Have you tried to
quantify that in terms of actual cost or personnel?
Mr. Tuggle. We have not put specific numbers on that. Quick
history, we had been working to grow for a number of years and
had been installing systems to accommodate growth. But let me
say to you that I have recently seen some work done by RBC
Capital--I don't believe this would be our expense level, but
RBC Capital says that, based on some peer studies it has done,
it estimates that the one-time cost of just crossing from $50
billion to $51 billion are from $60 million to $80 million. And
they estimate that the annual additional compliance cost for
being a SIFI versus not being a SIFI is $40 million to $60
million. And then something we did look at is, if you are a
SIFI, you are subject to the LCR rules. In our case, in looking
at just that one additional rule, we believe we would lose $15
million to $20 million a year of net interest income to comply
with that rule, which frankly--
Mr. Rothfus. Just to comply with all this added burden,
rather than being a $50 billion bank, you might need to be a
bank with much higher assets than that.
Mr. Tuggle. Clearly, much higher assets than that.
Mr. Rothfus. Which raises the question that we have been
seeing going on and rolling through the industry for the last
5, 6, 7, years about the consolidation going on. And that is
why banks that are growing are, frankly, incentivized to merge
and be acquired by other institutions. And we are losing a
community bank or a credit union a day.
If you hit that threshold or got near that threshold, would
that increase the likelihood or decrease the likelihood that
you would be looking for some kind of transaction to be able to
accommodate those expenses?
Mr. Tuggle. It would mean that we would not look at,
frankly, a small acquisition that might make sense for us to
add assets and opportunities in markets because, if we were at
$49 billion, adding a $2 billion bank debt makes no sense at
all. If we had an opportunity to add a merger of equals, then
we would be serious about that. But the consequence is, if we
are at $49 billion--and as I say, we are a community bank. We
are focused on the customers in our markets and business in our
markets, and we do a good job of that. That is why we have been
around for 153 years. Now, if we can go from $49 billion to $55
billion, then we can do more for our customers. We can extend
more credit. We will have more resources available to help
them. But if the cost of that is so great that growing means we
actually will have less money to spend in the form of credit
and investment in technology and investment in new people, then
it makes no sense at all.
Mr. Rothfus. And it doesn't let your customers and clients
grow with their businesses.
Mr. Tuggle. It does not.
Mr. Rothfus. If I could switch to Mr. Quaadman, you spoke
favorably in your testimony about H.R. 2359, the Fair Credit
Reporting Liability Harmonization Act. Can you explain why you
feel that there is a need to bring the FCRA in line with other
financial consumer protection statutes?
Mr. Quaadman. Thank you very much, Mr. Rothfus. If we take
a look at it, we have a collection of consumer credit bills
there or legislation and the FCRA is the one outlier. So this
is going to make sure that the liability regime for all of
these is going to be the same. I think it is also important to
note as well that, when the FCRA was passed in 1970, the class
action borrower was not the problem that it was later on and
that Congress consciously decided to put in these liability
caps moving forward. So I think, as we have heard here, it is
creating a balance where the consumer can be made whole if
there is a violation or if there is a problem and that there
can also be ways that businesses can have some certainty as
well. So we believe it makes logical sense to pass the bill.
Mr. Rothfus. I thank the chairman, and I yield back.
Chairman Luetkemeyer. The gentleman's time has expired.
The gentlelady from New York, Mrs. Maloney, is recognized
for 5 minutes.
Mrs. Maloney. Thank you. First of all, I want to thank the
chairman and the ranking member for this hearing, and thank all
of the panelists. And I just want to put this in perspective.
The reason we passed Dodd-Frank was that we had a financial
crisis that resulted in the loss of $15 trillion in wealth for
families--people lost their jobs, their homes, their pensions--
and that the root of this crisis was abuse of consumers. The
Bureau of Labor Statistics and other economists came out and
said this was the first financial crisis that was totally
caused by mismanagement.
Yet, since we passed Dodd-Frank, under the Obama
Administration and continuing now under the Trump
Administration, this country's economy has created more than 16
million private sector jobs. That is absolutely great news. And
business lending has increased 75 percent since Dodd-Frank was
enacted into law. And our banks, both large and small, are
continuing to post record profits and are--at least in my
district, my credit unions are expanding their membership.
So this is good news about the American economy. We bounced
back. And I question any attempts to reduce protections for
consumers. And I would say that--and, if I may quote Chair
Yellen, whom I hope President Trump will reappoint, ``Although
many small banks failed because of the weak regulatory system,
Dodd-Frank was designed to combat the problems that triggered
the financial crisis, and methodically implemented in a tiered
and tailored manner so that only the largest financial firms
have to comply with the bulk of new regulations. As such, the
law has helped to level the playing field for smaller sized
firms, including consumer banks and regional banks, while
better protecting consumers and the broader economy.''
So I did want to mention that since--that the economy has
bounced back, and our banks are doing well, thank God,
employing people and getting loans out.
But I have a series of questions. And I would like, first,
to ask Ms. Wu. You said in your testimony that the Credit
Services Protection Act would eliminate some of the CFPB's
authority over credit bureaus. I would like you to elaborate on
this. And, specifically, it was my understanding that the CFPB
doesn't currently enforce the Credit Repair Organizations Act.
Does this bill change this in any way?
Ms. Wu. Thank you for the question, Congresswoman Maloney.
What the bill says is that the FTC is the only entity that can
enforce CROA with respect to authorized credit service
providers, including credit bureaus. And so it could be
interpreted to limit the CFPB's authority, even under its UDAAP
authority, when it goes after the credit bureaus for products
that are covered under the authorized credit services
designation. It also says the authorized credit services
provisions are only enforceable by the FTC, not by the
consumer, not by the CFPB.
Also, just really quickly on the systemic risk bill, I am
in complete agreement with what you said. And we would just
like to point out that this legislation not only reverses Dodd-
Frank; it goes further by putting unprecedented constraints on
the Federal Reserve and that some of the banks that this
legislation would have affected were similar to the ones that
caused the financial crisis, such as Countrywide, Washington
Mutual, Wachovia, and IndyMac.
Mrs. Maloney. Okay. Also--my time is running out--but you
said in your testimony that security freezes mandated by State
law for identity theft are actually more effective than
identity theft prevention products sold by credit bureaus. Why
is this? And are security freezes all that we need to prevent
identity from being stolen from our constituents and our
residents?
Ms. Wu. Thank you, Congresswoman Maloney, for the question.
Absolutely. Security freezes are the best identity theft
prevention measure. It locks down the report so the thief can't
apply for new credit using the consumer's credit report. Credit
monitoring closes the barn door after the horse has left. It
detects the fraud after it happens. And so we have always said
the best thing to prevent identity theft should be freezes and
that these subscription credit monitoring products are not a
great value.
Mrs. Maloney. My time has expired. I have other questions
that I will submit for the record.
Thank you, again, all of you, for your service.
And I would particularly like to hear from Ms. Fortney, but
my time is up, as to whether or not you agree with Ms. Wu on
the interpretation of the Credit Services Protection Act?
Ms. Fortney. I do not, but our time is up.
Mrs. Maloney. Okay.
Chairman Luetkemeyer. The gentlelady's time has expired.
With that, we go to the gentleman from California, Mr.
Royce. You are recognized for 5 minutes.
Mr. Royce. Thank you, Mr. Chairman.
I think Congresswoman Maloney made a point there. Perhaps I
could ask on my time.
Ms. Fortney, would you respond to the Congresswoman's
question?
Ms. Fortney. I would be glad to. The Consumer Financial
Protection Bureau has brought actions under its authority to
deal with unfair or deceptive acts or practices. There is
nothing in the Royce bill that addresses that at all, that
would interfere with that in any way.
What the bill would do is simply let the FTC and consumers
pursue the rights of consumers' protections for consumers,
under the Credit Repair Organizations Act. It does not in any
way interfere with the ability of the CFPB to enforce the law.
Mrs. Maloney. Thank you.
And thank you, Mr. Chairman.
Mr. Royce. Thank you.
And I will continue with another point here. CROA is a law
that protects consumers from the predatory practices of credit
repair organizations. It does this by requiring written
contracts, statutory disclosures, a cooling-off period, and a
prohibition on prepayment. Under what we are doing here with
the Credit Services Protection Act, what we propose is leaving
CROA in place for credit repair while changing the regulatory
regime for what? For credit education. That is the point. We
have tried to strike the right balance, on one hand, offering a
clear path to better financial literacy for consumers while
maintaining the strong consumer protection by the FTC, by the
CFPB, and by the State attorneys general.
So how would consumers continue to be protected under this
provision? Can the bad actors that offer predatory forms of
credit repair simply use this law to escape CROA liability? No.
But I will ask Ms. Fortney if she wanted to--
Ms. Fortney. I would be glad to.
Mr. Royce. --opine.
Ms. Fortney. Because that is one of the misconceptions
about this bill, that somehow companies that actually engage in
credit repair could use this framework, this regulatory
framework within the Federal Trade Commission to evade
compliance with CROA. Actually, in order to be certified--
registered as an authorized credit services provider, there has
to be a determination by the Federal Trade Commission that you
don't engage in credit repair.
And I can say that there is no agency or entity in America
that is better qualified to determine whether somebody is
engaging in credit repair or not. The FTC has successfully and
vigorously enforced CROA for the last 20 years.
What this bill does is create a separate regime, a separate
framework, under the supervision of the Federal Trade
Commission. And one of the objections was that somehow credit
repair organizations would apply en masse. I think it would
take the FTC 5 minutes to determine if somebody is, in fact, a
credit repair organization or if somebody is an entity that
actually wants to provide individualized consumer education
products and services and identity theft protection services.
The FTC would very carefully review the qualifications and the
business of each of these entities. It would be require a 3-day
cancellation period. It would require a notice. And I think
there is concern also about whether this notice would be clear
and conspicuous.
The FTC has developed the standards for what is clear and
conspicuous. They are going to know if the notice is clear and
conspicuous. These companies that want to be authorized service
providers would, in fact, subject themselves to very close
scrutiny by the FTC. I think this would enhance the protections
for consumers with respect to credit education and identity
theft protection products.
Mr. Royce. And I will throw another point out here for Mr.
Quaadman because your members provide credit to millions of
Americans who want to buy a house or a car or finance education
and so forth. So, in previous testimony, we heard from the
Economic Research Council that personalized credit education
materially benefits consumers, and 23 percent of consumers
improved and moved up score bands, such as from subprime to
near prime or to prime, after receiving personalized credit
education from a national credit bureau. What, then, does
access to credit education mean for consumers from your
standpoint here?
Mr. Quaadman. Mr. Royce, I think you are exactly along the
right lines that consumers are much more savvy and understand
that they need to stay on top of their credit scores and be
much more aware of what is impacting their financial situation.
So, to the extent that we can help educate consumers to be
better informed and to better use tools to protect their credit
scores, they are going to be not only better consumers, they
are going to be better entrants into the financial--
Mr. Royce. Thank you, Mr. Chairman.
Mr. Chairman, if I could ask unanimous consent to submit
for the record nine letters of support for my draft
legislation, including from the Coalition to Improve Credit
Education, the National Black Caucus of State Legislators, the
National Bankers Association, the Policy and Economic Research
Council, the U.S. Chamber of Commerce, and the U.S. Hispanic
Chamber of Commerce.
Chairman Luetkemeyer. Without objection, it is so ordered.
Mr. Royce. Thank you.
Chairman Luetkemeyer. The gentleman's time has expired.
The Chair now recognizes the gentlelady from New York, Ms.
Velazquez, for 5 minutes.
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Tuggle, the Systemic Risk Designation Improvement Act
removes Dodd-Frank's $50 billion asset threshold to designate a
firm a SIFI and replaces it with an indicator-based approach.
There are a number of important factors to consider before
making such a critical change. But, as you know, regional banks
are the primary lenders to small and medium-sized businesses.
And as the ranking member on the House Small Business
Committee, I am always concerned about access to capital for
small businesses. You claim--or your argument in support of
this change is that the cost of compliance hinders the ability
of your banks to lend and to increase access to capital for
small businesses and consumers. So I would like to know what
specific, tangible steps will you be taking to increase access
to capital? You just stated in one of your answers that it cost
your bank between $40 million to $60 million to be designated a
SIFI. I see here that, in 2014, you made 2,337 loans to small
and medium-sized businesses in the amount of $5 million. If we
make this change, how will that amount change?
Mr. Tuggle. Thank you.
One point of clarification, Congresswoman. What I said was
that RBC Capital had done a study, and that is what they
thought the numbers would be.
Ms. Velazquez. Okay.
Mr. Tuggle. That is not the number that we have identified.
Let me say--
Ms. Velazquez. But when you cited the story, it is to
basically back up your argument of the cost of compliance.
Mr. Tuggle. That is correct.
Ms. Velazquez. Yes.
Mr. Tuggle. Yes. So we do lend to small businesses. I am
not familiar with the number that you just talked about. I can
tell you that--
Ms. Velazquez. I got it from your website.
Mr. Tuggle. That is fine. I am not questioning it. I am
just not familiar with it.
I will say that we received our CRA lending rating from the
Fed for the years 2010 to 2013 recently. And we were rated high
satisfactory on our lending component. So I think we really do
work hard to identify opportunities and make loans.
Let me say that we have significantly expanded our focus on
CRA lending, which often includes small businesses. And we have
submitted plans to show that we are going to lend more, that we
are going to invest more in our communities. So I am very
comfortable with our real commitment to small businesses and
the communities where we bank.
Ms. Velazquez. For the bank that is--you have in assets $40
billion?
Mr. Tuggle. Thirty today.
Ms. Velazquez. Yes. And $5 million to small businesses,
that is just--I just would like to know how that figure will
change dramatically if such a change will happen.
Mr. Tuggle. I can't give you a number today. Again, I can
tell you that we have really focused in the last 2 years on
CRA. And CRA does expect significant lending to low- to
moderate-income people and small businesses. And we have made a
significant increase--
Ms. Velazquez. I hear you about CRA. But I also hear small
and medium-sized banks or regional banks making the argument
that you are the one to lend to small businesses, right?
Mr. Tuggle. Yes.
Ms. Velazquez. So I just want to make sure that if such a
change happens, how would you specifically take the kind of
steps that would increase access to worthy small businesses?
And then we may--we heard Carolyn Maloney stating the fact that
lending to small businesses has increased by 75 percent.
Ms. Fortney, regarding the discussion draft of the Credit
Services Protection Act, I am concerned that consumers may be
subject to abusive marketing and business practices by
providers of these services. How can we be assured that the FTC
will have full authority to protect these consumers?
Ms. Fortney. Thank you. They will have full--the FTC does
have authority to protect consumers from unfair or deceptive
acts or practices. And, as I said, I think what is really
significant here is the companies that would subject themselves
to this framework, this regulatory framework, and continued
oversight by the Federal Trade Commission are companies that
recognize that the FTC will be watching what they do in terms
of advertising and, if they happen to engage in any practices
that the FTC finds to be in violation of the registration or
unfair or deceptive acts or practices, the FTC can and will
enforce them, enforce the law.
Chairman Luetkemeyer. The gentlelady's time has expired.
With that, we go to the gentleman from Colorado, Mr.
Tipton, who is recognized for 5 minutes.
Mr. Tipton. Thank you, Mr. Chairman.
And I would like to thank the panel for taking the time to
be here and for your testimony. I would like to note that I
appreciated Mr. Scott's comments in regards to H.R. 2359 when
he did note the frivolous lawsuits and the need to be able to
seek fair balance, and I certainly appreciate the work of our
colleague, Mr. Loudermilk, in regards to this legislation.
Ms. Fortney and Mr. Quaadman, I would like you to expand on
maybe a little broader sense in regards to FCRA. A criticism
that we have heard of this bill is that it would reduce
accountability for credit bureaus and labeling innocent
consumers wrongfully. However, large class action lawsuits have
also been targeting not just the credit reporting agencies but
have also expanded to a number of other businesses as well. If
you could expand on, perhaps, for, how does the broad range of
businesses that are subject to FCRA, including medical record
agencies, check verification companies, as an example, broaden
the statutes, governance, just beyond credit bureaus, and what
the impacts are?
Ms. Fortney. Thank you. I think we first need to understand
two things about the Fair Credit Reporting Act. First, the
scope. As you indicated, it applies not just to credit bureaus
but to other companies that are consumer reporting agencies. It
also applies to users of consumer reports, creditors,
retailers, employers. And so it is a statute that is very broad
in its scope.
It is also a very, very detailed and complex statute. I
worked with that statute for 40 years. And I can tell you it is
what the United States Supreme Court characterized it to be,
which is less than pellucid. This is a situation where
reasonable people can disagree as to the interpretation of the
statute. And then we have the situation now where there are
these class actions based on hyper technical violations of the
Act where the company, let's say an employer, actually provides
the notice that is required to a consumer, to an applicant or
an employee, that they are going to obtain a credit report.
They provide it to them on a piece of paper. Unfortunately, the
courts have said, well, that piece of paper had something else
on it. Not that that piece of paper, or what was on the piece
of paper, detracted in any way from the notice. So, again, a
very, very technical violation of the Act, no actual damages.
And that is the problem: so many of these lawsuits involve no
actual damages. And they are brought in order to obtain these
unlimited statutory damages in class actions. And the range of
this Act, the complexity of the Act, is the reason why we need
relief in this area.
Mr. Quaadman. Mr. Tipton, thank you for the question. As
you noted, employers do use consumer reports in doing
background checks in the hiring process. So, if there is a
violation there, it is--generally it is a very technical
violation, and it is an individual issue. However, what we have
seen is FCRA class actions filed against businesses ranging
from fast food restaurants, grocers, retailers, universities,
and transportation companies. So, if we were looking at highly
technical individual problems, they could still be addressed
under the harmonization bill. But what we are talking about
here is not a class, but an individual problem. And this bill
addresses that.
Mr. Tipton. I think it is important to note: Everyone wants
to make sure that consumers do have access to recourse if they
have actually been harmed. But I think what is going to be
important for us in this piece of legislation is whether this
is going to impair the ability of consumers to be able to
protect themselves from false or inaccurate information. Are
they going to be impaired? Do they have access?
Ms. Fortney. I do not believe they will be impaired in any
way. The Act already provides for a lot of mechanisms that
consumers have to protect themselves. They can see information
in their credit reports. They can have that information
verified. They can have the information removed if it can't be
verified or it is inaccurate. And they can do all that for
free. The Act has many, many protections for consumers. So I
don't think that will be--that the protections of the Act will
be impaired.
As you note, there will continue to be the right of
consumers to sue for violations of the Act. What there will not
be will be the risk of draconian civil penalties--I'm sorry--
statutory penalties for technical violations of the act or for
violations of the act that were not willful where the court
decides: Well, I disagreed with the interpretation; therefore,
it is willful. That is reading willful out of the statute. But,
unfortunately, courts, and particularly the ninth circuit, have
done that.
Mr. Tipton. Thank you, Mr. Chairman. My time has expired.
I appreciate it, panel.
Chairman Luetkemeyer. The gentleman's time has expired.
The gentleman from Texas, Mr. Williams, is recognized for 5
minutes.
Mr. Williams. Thank you, Mr. Chairman, and to all of the
witnesses for your important testimony this morning.
As a small business owner--and, in full disclosure, a car
dealer--for 47 years in Texas, I understand the importance of
credit and the impact it can have on everyday life. And I am
still in the business. In fact, some of the most important
milestones in one's life can be dictated by their credit.
Whether it is buying the first family home or finally
purchasing the car they want, individual credit is a key
difference maker. And it is for all the supply chain.
Now, Dodd-Frank is a disaster. And for this reason, amongst
many others, I am concerned that unnecessary regulations
threaten to harm the endeavors of hard-working Americans on
their path to fulfilling their dreams. And this idea of hiring
more compliance officers and loan officers, we need to probably
stop that. I am encouraged by this committee's continuous work
to improve the financial health of consumers across the country
through deregulation and relief from unnecessary government
encroachment. So last Congress I was proud to cosponsor the
Facilitating Fair Access to Credit Act that would exempt
certain credit reporting agencies (CRAs) from the requirements
of the Credit Repair Organizations Act (CROA). One of the
largest barriers under CROA is the 3-business-day waiting
period for consumers to utilize credit education services.
So, Mr. Quaadman, can you speak on the importance of credit
education services--you have done that earlier--and how lifting
the 3-day waiting period could assist consumers in making
better informed decisions?
Mr. Quaadman. I thank you, Mr. Williams, for that question.
And, also, to reiterate on the point that Mr. Royce was making
earlier, that the CROA protections are going to remain in place
against predatory organizations. The reason why the 3-day--I
think we have to look at it in this way, when CROA was passed
in 1996, we didn't have iPhones. So it is much easier and
quicker for consumers to access information and to stay on top
of their credit history, et cetera. So I think the 3-day
cooling-off period actually inhibits communications that can be
beneficial to consumers in terms of receiving education and
other communications that can help them. So I think we need to
adjust the legislation to reflect the realities of the consumer
needs as well as the delivery of devices that currently exist.
Mr. Williams. Thank you.
Ms. Fortney, regarding the Credit Services Protection Act,
I was a cosponsor in the last Congress of the earlier iteration
because I think it is important that consumers are able to
obtain individualized credit education from responsible
entities. Is there evidence consumers would benefit from
innovative credit education products?
Ms. Fortney. Yes, there is. There are studies that are
cited and linked to in my written testimony which show that
consumers want and benefit from these services, that they are,
in fact, able to improve their credit. They are able to
understand much better what is in their credit score, how to
improve their credit score, how to deal with their credit
histories. So, actually, what these companies want to do is
offer services that help consumers improve their credit. The
problem is the interpretation of CROA prevents them from doing
that. So what we have here is a framework, under the
supervision of the FTC, that would enable consumers to get what
they want. And the studies show this is what they want and
need.
Mr. Williams. Thank you.
Mr. Tuggle, any relation to the Tuggle in Killeen, Texas,
who is a banker?
Mr. Tuggle. Not that I know of.
Mr. Williams. Okay. In the closing of your testimony, you
stated ABA believes that common-sense proposals are desperately
needed that will make our regulatory system more efficient and
effective. I wholeheartedly agree with this assessment. Plain
and simple, is the Federal Government, to include the CFPB,
acting in a commonsense way? And what specifically do you
believe requires immediate action?
Mr. Tuggle. This may surprise you a little bit, but we are
regulated by the OCC and the Fed, primarily. We have only had
the CFPB in one time, in our bank. And that was uneventful. So
that is not something with which we have real experience.
I would say that, candidly, I think the regulators--and
this is my opinion, just my opinion--have been under a lot of
pressure to be pretty tough. And I am not sure that in all
occasions the approach was consistent with what the topic and
issue was. And so I will also say that I have seen, literally
have seen, what we believe is a healthier relationship with our
regulators recently. And that is important. Our regulators
assure safety and soundness. But we need to be able to do
business. So I am not--I don't want to really go too far here
about the regulators. But I will say that--that when I look at
what candidly the law requires of us post-Dodd-Frank, there are
places where it makes no sense at all. And the question is, is
that overreaching? It clearly is.
Mr. Williams. Thank you for your testimony.
I yield back.
Chairman Luetkemeyer. The gentleman's time has expired.
The gentleman from Minnesota, Mr. Ellison, is recognized
for 5 minutes.
Mr. Ellison. Thank you, Mr. Chairman, and Ranking Member
Clay.
Ms. Wu, allow me to ask you about a bill called the TRID
Improvement Act. Are you familiar with it?
Ms. Wu. Yes. It is one of the bills before the committee on
this hearing.
Mr. Ellison. Do you know of examples of home buyers paying
strange and unexpected fees as part of their closing costs?
Ms. Wu. Absolutely. We have even seen examples of a fee to
email documents.
Mr. Ellison. And do you know of examples of home buyers
being referred by a retailer to a title agent, a lender, a home
warranty service, et cetera, that provides a kickback and
affiliation or some kind of financial benefit for the referral?
Ms. Wu. Kickbacks are certainly an issue. And I don't have
case citations, but I believe the CFPB--and before that, HUD--
had taken action against settlement service providers for
kickbacks.
Mr. Ellison. How likely is it that a home buyer will find
out about these overcharges, referral fees, kickbacks?
Ms. Wu. It is probably very hard for the ordinary home
buyer to figure that out.
Mr. Ellison. So it is pretty rare?
Ms. Wu. Rare, yes.
Mr. Ellison. Hard to discover and then rare to be
discovered?
Ms. Wu. Yes.
Mr. Ellison. So let's say someone gets a mortgage and finds
out later that the lender also charged them for property
insurance or life insurance or opened up a bank account or
credit card in their name without their permission. What would
happen under current law?
Ms. Wu. It depends on the type of charge. In some cases,
they might be entitled to a refund, and in some cases, actual
damages. In other cases, statutory damages. And in other cases,
no remedies.
Mr. Ellison. And what would happen if there was an
accounting mistake in the closing disclosure form?
Ms. Wu. Right now, the situation is that, once the error is
discovered by the creditor or the regulator, they have 60 days
to fix it. And if they fix it in 60 days, there is actually no
liability.
Mr. Ellison. Okay. And under current law, how would the
error get discovered? By the buyer or the regulator? Through a
lawsuit?
Ms. Wu. It could be any of those.
Mr. Ellison. Most likely avenue?
Ms. Wu. Just any of them.
Mr. Ellison. It could vary?
Ms. Wu. Yes.
Mr. Ellison. And if a lender found an error, what penalties
would they pay? Out-of-pocket costs to the buyer or a fine?
What would be their hit?
Ms. Wu. If they fix it within 60 days, there is none of
that. After the 60 days, then, yes, there could be refunds or
penalties.
Mr. Ellison. Right. So, under the proposed TRID Improvement
Act before us today, the error correction timeframe is expanded
from 60 days from discovery, 2 months, to 210 days, 7 months.
Am I reading the bill right?
Ms. Wu. Yes. That is our reading of the bill, too, and it
is a significant extension of that time period.
Mr. Ellison. So, if a lender makes a mistake or an error,
under the bill before us today, lenders will have 7 months to
correct it without any liability. Is that right?
Ms. Wu. Seven months. Yes.
Mr. Ellison. In my read of the text of the bill, the
language is designed to prevent any administrative action by
the Consumer Financial Protection Bureau. This bill gives the
creditor the ability to simply say, ``Oops,'' after being
caught or not having any penalty for making that mistake.
Is that right?
Ms. Wu. Yes.
Mr. Ellison. And am I right that, under this bill, any
penalty assessed for errors is limited to out-of-pocket costs
for the borrower?
Ms. Wu. Yes.
Mr. Ellison. And so, in other words, if you get caught
fleecing a consumer, you could get away with it, essentially?
Ms. Wu. It certainly gives less incentive for the lender to
fix things and to fix it quickly.
Mr. Ellison. So let me ask you how this 7-month review time
interacts with a 1-year oversight period for the Real Estate
Resettlement Procedures Act, or RESPA. Does giving the
creditors or assignees 210 days instead of 60 days to run out
the clock on the 365-days to pursue RESPA violations?
Ms. Wu. I am assuming you are talking about the statute of
limitations. And yes. What would happen is, there would be 7
months for the lender to fix the error and then a much shorter
time period of 5 months between the end of that and the running
of the statute of limitations after when you couldn't file a
lawsuit.
Mr. Ellison. Right. So, in light of what you shared about
overcharges, kickbacks, and things like that, should we keep
the pressure on lenders to regularly review their work for
errors?
Ms. Wu. Oh, absolutely.
Mr. Ellison. Should we reduce the pressure on them to be
excellent and honest in the work that they do?
Ms. Wu. No. Incentives, as we have learned from being a
consumer advocate for 15 years, are very important. And that is
why things like the penalties, statutory and actual damages,
are important both in RESPA as well as the Fair Credit
Reporting Act. You reduce punitive damages, you reduce
statutory damages, you increase these periods for cure, and you
reduce incentives to get it right.
Mr. Ellison. I am not in favor of the bill because I think
it is bad for consumers. And I think the power and authority
and the reason to know how to get it right is really on the
lender. So I plan to oppose it.
Thank you for your testimony. I think I am over my time.
Ms. Wu. Thank you.
Chairman Luetkemeyer. The gentleman yields back.
The gentleman from Michigan, Mr. Trott, is now recognized
for 5 minutes.
Mr. Trott. Thank you, Mr. Chairman.
I want to thank the panel for being here today.
Ms. Fortney, I want to talk about H.R. 1849. Ms. Wu, in her
written testimony, said that H.R. 1849 would eradicate
essential protections against abusive and deceptive debt
collection practices by collection attorneys. So let's use a
hypothetical to try and illustrate what 1849 does and doesn't
do. And I want to start with two assumptions. Let's assume 1849
is signed into law. And let's assume Visa has hired you to
collect on a $1,000 unsecured debt. So you start by sending
some demand letters and calling the debtor, Mrs. Smith. Would
you be subject to the Fair Debt Act?
Ms. Fortney. Absolutely. I would be engaging in collecting
a debt on behalf of the creditor.
Mr. Trott. Let's say you started contacting Mrs. Smith
before you sent out the 1692(g) letter. Would you be subject to
liability under Fair Debt?
Ms. Fortney. Yes, I would.
Mr. Trott. Let's assume that your 1692(g) letter didn't
contain the mini Miranda warning. Would you be subject to
liability?
Ms. Fortney. Yes, I could be.
Mr. Trott. Let's assume when you sent out the 1692(g)
letter, Ms. Smith called up and contested the debt, but you
continued to call her. Would you be subject to liability under
Fair Debt even if 1849 was enacted?
Ms. Fortney. Yes.
Mr. Trott. Let's assume you are one of those bad collection
attorneys, and you call up Mrs. Smith at 2 in the morning and
you say, ``I have Toto, your dog, and you are never going to
see him again unless you pay Visa the money you owe them.''
Would you be subject to a lawsuit under the Fair Debt
Collection Practices Act?
Ms. Fortney. Yes, and you should be.
Mr. Trott. You could be sued?
Ms. Fortney. Yes.
Mr. Trott. Let's assume that Mrs. Smith never responds,
never pays; you file a complaint and summons. And you file the
complaint, and Mrs. Smith contests the debt by filing an answer
saying it is not correct. And let's say the judge or the client
says to you: We don't want to try this case as a now contested
matter; contact Mrs. Smith and say we will take 300 bucks to
settle this. Could you do that with certainty, knowing that,
without 1849, that you wouldn't be sued under Fair Debt?
Ms. Fortney. That is the problem. The problem is you would
not know with certainty you would not be sued. And the reason
is you would be communicating with the consumer to collect a
debt. However, you would be doing so in the context of
litigation.
Mr. Trott. And isn't that why Justice Kennedy, in the
Jerman case, said that that interpretation of the Fair Debt Act
distorts the legal process, basically subjecting the lawyer
to--putting them in a position where their own personal
financial interests and their bar license undermines the
attorney-client relationship? Isn't that the problem we are
trying to address here with a technical correction?
Ms. Fortney. That is exactly the problem. And it is a
technical correction that is very, very narrowly tailored to
deal with the practice of law and only the practice of law in
litigation.
Mr. Trott. Let's assume your complaint misstated the debt.
Without 1849, couldn't you be sued under Fair Debt for filing a
complaint that misstated the debt, maybe misstated the late
charges, because an argument can be made that that is
misleading to the least sophisticated consumer?
Ms. Fortney. And that is a problem, yes.
Mr. Trott. And that has created a cottage industry for
plaintiff's lawyers, hasn't it?
Ms. Fortney. Unfortunately, it has.
Mr. Trott. What would happen if you are that same bad
lawyer, and you are in court now, and you called up and said,
``We have Toto, the dog.'' What would the judge do? What would
the State grievance commission do? What would opposing counsel
do?
Ms. Fortney. I think all three of them would take action to
be sure that you would be sanctioned in some way for such an
egregious act.
Mr. Trott. You could be disbarred, couldn't you?
Ms. Fortney. Yes, you could be.
Mr. Trott. So, Ms. Wu, in her testimony, says that 1849
will hurt consumers, especially people who have recently lost
jobs, had a death in the family, or suffered another type of
devastating personal loss. And to support this conclusion, she
argues that, prior to 1986, that lawyers could circumvent the
Fair Debt Act by hiding behind their bar licenses, and to enact
1849, this would turn back the clock on these important
protections. Isn't that a total misunderstanding of what this
bill does?
Ms. Fortney. It is a complete misunderstanding, and it also
mischaracterizes what the Federal Trade Commission was saying
in the testimony I delivered on behalf of the Commission in
1985.
Mr. Trott. Thank you.
I yield back my time.
Chairman Luetkemeyer. The gentleman yields back.
The gentleman from Georgia, Mr. Loudermilk, is recognized
for 5 minutes.
Mr. Loudermilk. Thank you, Mr. Chairman. I appreciate you
having this hearing, and especially your leadership on the
subcommittee and bringing forward bills that I believe are
common sense and actually seek to open up and pave the path of
prosperity for all Americans, not just a selected class of
Americans. And that is what we have--my staff has been working
on since I have been here, is what are the things that we can
do that fairly benefit everybody?
I especially want to address my bill. And I appreciate my
friend and colleague from Georgia, Mr. Scott, in his comments.
Because what the Fair Credit Reporting Act Liability
Harmonization Act seeks to do is strike a fair balance that is
just like every other financial services consumer protection
act that we already have on the books. And so I think it is
important that we parse out facts from fiction because we have
heard a lot of stories in here and a lot of heart-tweaking
testimony, but we need to parse out what is fact and what is
fiction.
And I appreciate Ms. Wu's testimony, especially; you can
tell she is very passionate in there.
But, Mr. Chairman, the instances that she brought up in
here, there is absolutely no way that this bill, if it would
pass, would have restricted any of those from receiving
damages. It would not restrict any of those from receiving
actual damages because they were individual lawsuits. And my
bill does not address individual lawsuits whatsoever. It
addresses the class action lawsuit. And they would have had the
ability to receive full compensation for damages and the legal
expenses that were involved. So we need to make sure that that
is understood. And it also, if they would have been purposely
violated, they would have been able to receive all of the
damages that they received.
Let's also look at some other issues. The CFPB complaints.
Yes, the CFPB complaints against the credit bureaus are larger.
Why? Because the pure volume of people that the credit bureaus
work for. It is basically every American. That is why you are
going to see a higher volume, simply because of the number of
people that they support. It has also been presented that this
is a credit bureau protection act. And this is false.
Mr. Chairman, I have three letters here I would like to
present for the record, one from the National Association of
Professional Background Screeners, one from the Credit Union
National Association, and one from the U.S. Chamber of
Commerce, which is also supported by the American Financial
Services Association, the Community Bankers Association, the
Consumer Data Industry Association, the Electronic Transactions
Association, the National Association of Professional
Background Screeners, the Retail Industry Leaders Association,
the Society for Human Resource Management, the Software and
Information Industry Association, the U.S. Chamber Institute
for Legal Reforms, and the U.S. Chamber of Commerce.
Chairman Luetkemeyer. Let's take a breath. Without
objection, it is so ordered.
Mr. Loudermilk. This is to illustrate the vast support that
this has. The other thing is that this is a draconian measure.
This only aligns it with other acts that are already in place.
And the final thing is we have--trying to build this that we
have to protect the consumer against the evil corporation out
there that seeks to build its profit on the backs of the
consumer.
Let me tell two quick stories here. One is we have a
business in my district that I met with last week. And they
also have an operation in Corpus Christi, Texas. They are
writing a $100,000 check to every employee to rebuild their
homes. I have another business in my district called Home
Depot. I have worked in search and recovery for years. We have
a devastating hurricane coming up toward Georgia right now.
Home Depot is the go-to organization that provides tarps and
emergency supplies for free to help people who are damaged.
Now, how does this hurt? Let's talk about a real instance.
Home Depot was sued in a class action lawsuit because of a
technical violation of the Fair Credit Reporting Act. Now, they
settled out of court for $3 million. And even the plaintiff
said, had this gone to court, they would have had a very
difficult time even proving that there were damages because
there weren't any damages. The consumers, who didn't even know
that there was a violation, received about $15 apiece. But
guess who got a million dollars out of it? The trial attorneys
who filed the class action lawsuit.
Who does that hurt? That is $3 million that Home Depot does
not have now to send tarps and plywood and emergency supplies
to those who are devastated by natural disasters or help their
employees or keep prices to their consumers low.
Mr. Chairman, I know I have used up my time here. But I
thank you for bringing this bill forward. This is to protect
consumers and all Americans. Thank you.
And I yield back the balance of my time.
Chairman Luetkemeyer. We thank the gentleman for his
passion. And he yields back his time.
With that, we recognize the ranking member for a unanimous
consent request.
Mr. Clay. Thank you, Mr. Chairman. I ask unanimous consent
that statements we have from AFR, Better Markets, NCLC, NACA,
U.S. PIRG, and other organizations providing valuable comments
on the bills we are discussing today be made a part of the
hearing record.
Chairman Luetkemeyer. Without objection, it is so ordered.
Mr. Clay. Thank you.
Chairman Luetkemeyer. I now recognize the gentleman from
Tennessee, Mr. Kustoff, for 5 minutes.
Mr. Kustoff. Thank you, Mr. Chairman.
And we do appreciate the witnesses appearing this morning.
Mr. Quaadman, in your testimony, and in your written
statement, you cite statistics for the lack of loan growth
going back to the time of the start of the end of the financial
crisis, 2008 to 2015, or ending in 2015. Some of the statistics
are really troublesome, the loan growth, or the lack of loan
growth, from that period for loans of all sizes. Is that
because the economy is growing or not growing? And what are
some of the reasons that you would cite for the decline in loan
growth for those types of loans?
Mr. Quaadman. Let me take the second part first. Part of
the reason why you don't see the loan growth--and this is why I
actually cited the $100,000 number, because we not only have
seen that with some of the studies, but in all the travel I
have done around the country and talking with bankers and
talking with small businesses, what you hear consistently is
that the regulatory cost in burdens for writing a $100,000 loan
are the same as a million dollar loan. So, if you are a small
bank, you are going to write a million dollar loan and not that
smaller loan. So then, when you start to drill down and you
look at those firms with 10 employees and less, they are the
ones who are saying: We know we are not getting a loan.
So, while there might be demand there, they know they are
not going to get it because of these regulatory problems. So
they are not even going to ask for the loan.
The reason why--now to get to your first point, it is a
little bit of a ``chicken-or-egg'' thing. Those smaller
businesses are the ones that drive growth, because if you are
the startup in the garage, you are that firm with less than 10
employees, and you are sort of looking at how you can get
money. So, if we are going to shut down--right, if you can't--
with some of the issues with TRID, you can't get a mortgage or
whatever, you can't get started, or you can't get that bank
loan, you are not going to start that firm. And when you take a
look at the Census Bureau statistics and some of the other
studies we cited, business creation is at historic lows, and we
have not seen the ratio pop back in the way that it was where
you have business creation and business destruction. And that
has an add-on effect because that creates a drag on economic
growth.
Mr. Kustoff. And as far as the financial institution's
ability to make those loans?
Mr. Quaadman. Correct. Right. And the problem that, when
you hit that SIFI threshold, you have all the enhanced
requirements. We are seeing that--business lending, track
stress tests. We have heard that from companies, not only from
that Harvard Business School study that I mentioned. And you
also have situations, too, when you see that banks are getting
close to that $50 billion number, they start making decisions
that they are not growing anymore, that they are going to be
lending less. I heard what Mrs. Maloney said. But New York
Community Bank in New York wasn't able to make a merger. So
they are trying to stay below that $50 billion number. And
then, if you do get over that number with LCR, as Mr. Tuggle
raised, suddenly business cash deposits, which are why banking
started in the Western world in the Renaissance, they are now
counted against your LCR. So businesses--banks are
disincentivized from even wanting to take business cash
deposits.
Mr. Kustoff. Thank you, very much, Mr. Quaadman.
Mr. Tuggle, in relation to the questions that Chairman
Luetkemeyer asked of you about the SIFI proposed legislation,
and I mentioned in my remarks when I introduced you that you
are the largest bank in Tennessee by asset size and certainly
in my district. If you look at Tennessee, you have a number of
metropolitan areas. But you have a lot of rural areas across
the State and certainly the western part of Tennessee where
First Tennessee is based. As First Tennessee or First Horizon
now seeks to expand with your merger and go from $30 billion to
$40 billion, and, hopefully, through growth, you would like to
get to $50 billion or more, can you describe, from the bank's
standpoint, the impact that that SIFI designation, if you hit
it, would affect those consumers in more rural areas of
Tennessee that the bank serves?
Mr. Tuggle. Sure. It is pretty straightforward,
Congressman. It is simply a matter of, with the levels of
increased expense that we will incur, there is simply going to
be less available credit for us. With the increased levels of
expense we incur, there will be less investment in products and
services and technology that allow us to deliver credit and
other services to people wherever they are located.
Technology is an absolutely critical, critical issue for
banks like ours. And we need to invest in technology to remain
competitive.
It is my understanding that JPMorgan has an annual budget
of $9 billion to invest in technology. We obviously can't fund
those sorts of things. But we have to fund a level of
technology that allows us to be competitive. And that does go
to our ability to deliver services outside the metropolitan
areas.
Mr. Kustoff. Thank you, Mr. Tuggle.
I yield back my time.
Chairman Luetkemeyer. The gentleman's time has expired.
The gentlelady from Utah, Mrs. Love, is recognized for 5
minutes.
Mrs. Love. Thank you, Mr. Chairman.
And I thank everyone for being here.
I very much appreciate the opportunity to talk about the
chairman's bill, H.R. 3312, regarding the appropriate
circumstances for systemic risk designation, which, of course,
is an important issue that we have been trying to address for
some time.
Salt Lake City, Utah, is home to one of the smallest
institutions that has fallen into the SIFI designation, Zions
Bancorporation, a $65 billion bank holding company. Zions
Bancorporation operates banks primarily throughout 11 Western
States and is focused on traditional banking models, taking
deposits, making loans, providing a high level of customer
service. Zions Bank's CEO, Harris Simmons, has testified before
this committee and the Senate committee about the costs and the
challenges that have been imposed on this institution as a
result of the SIFI designation. According to Mr. Simmons, as a
result of the enhanced prudential standards requirements of
Dodd-Frank, Zions has had to divert resources to add nearly 500
additional full-time-equivalent staff who deal with just
compliance, internal audit, credit administration, and
enterprise risk management. Mr. Simmons went on to testify that
Zions had to move resources away from lending and consumer
services because of those regulations.
So I just want to make a quick comment about what we are
talking about when we remove these services. We are talking
about people not being able to have access to the services that
they need. We are talking about people who live in Sanpete or
Juab County that are trying to run their farms and can't get
the equipment that they need to be able to do that. They can't
get the loan or the services because all of those funds and the
resources have been diverted to something else. Let's be clear
about what we are talking about. When we add costs, those costs
are always given to the consumer. When it costs more for a
turkey farmer to raise their turkeys, to be able to provide the
food, the food that they provide costs more. That means a
family has to pay more out of their pocket in order for them to
eat. This is absolute reality.
And all of this because of one issue: SIFI designations are
based on size, not on actual evaluation of the institution's
activities or level of systemic risk that might be posed by its
complexity and interconnectedness.
So my question for you, Mr. Tuggle, regarding the
Luetkemeyer bill, is you find your bank perhaps going down that
similar path. You describe in your testimony a little bit about
your bank's operations and your soon-to-be $40 billion bank.
Could you tell us a little bit more about what you do? For
example, do you have an international presence? Do you engage
in complex trading? Tell me about what your services--what you
focus on.
Mr. Tuggle. We do not have an international business. As
you described, we are a bread-and-butter lender. We take
deposits from our customers, and we turn around and we deploy
those deposits back into our communities, the communities where
we live, work, and operate, in the form of loans and credit and
various services.
In terms of risk, we are ultimately really not different
than a $10 billion bank or a $5 billion bank in the sense of
the products and the services and the approach that we take. It
seems to me, to make the point very clearly, that having a $50
billion threshold says that a bank that is $49 billion, 900
million is not systemically important, but a bank that is $50
billion and a dollar is systemically important, without any
difference in what the $49-plus-billion bank does and the $50
billion bank does. It is an irrational way to think about risks
to our system, and it is impeding the growth of really fine
banks like ours. And it has hurt very fine banking--
Mrs. Love. So it sounds like you primarily are a bank that
offers traditional banking products, retail, commercial
lending. Is it correct to say that the products and the
services that you offer carry risks that are well understood by
your regulators?
Mr. Tuggle. It is absolutely the case. It is the same risks
they have been regulating forever.
Mrs. Love. I have run out of time. But, again, I just want
to reiterate that this is not about trying to save banks. This
is trying to give people access to the products that they
deserve. We talk about when people are harmed when they don't
receive--when a banking institution or lending institutions
harm, but we don't talk about the opposite side of that. We
don't talk about the people who do not receive opportunities
because they do not receive--the services that were available
to them are no longer available to them.
Thank you.
Chairman Luetkemeyer. The gentlelady's time has expired.
The gentlelady from New York, Ms. Tenney, is recognized for
5 minutes.
Ms. Tenney. Thank you, Mr. Chairman.
And I just want to thank the excellent panel for being here
today. This is very helpful and very enlightening.
I just want to highlight a few things. Over the last 10
years, the community financial institution industry has
undergone dramatic transformation, as you have heard. Since
2006, more than 1,500 banks have failed, been acquired, or
merged due to economic factors and the overwhelming expensive
regulation brought forth by the passage of Dodd-Frank. During
that same period, there has been a drought in de novo banks or
new banks. In fact, only 5 new bank charters and 16 new credit
union charters have been granted.
Today, for the first time in over 125 years, there are
fewer than 6,000 banks and roughly 6,000 credit unions serving
the consumers in the United States. This is proof that a
community financial institution needs smart, common-sense
regulatory relief so they can properly serve local communities
by assisting with small business startup and consumer credit.
I am working on a bill called the Community Institution
Mortgage Relief Act that would offer real relief for small
institutions that are barely staying alive in this regulatory
environment we currently have. This bill would exempt small
community institutions from mandatory escrow requirements and
would provide relief from new regulations that has
approximately doubled over the cost of servicing with a direct
impact on the consumer cost of mortgage credit.
I know that certain institutions wish to provide escrow
services to their customers, and they are welcome to do so
under this act. This is about autonomy and the choice for
smaller institutions. However, for the smaller institutions
like the ones in my district, they rely on relationship
banking, something that has seemed to have disappeared in this
day and age, and this could help them greatly.
I first wanted to address this with Mr. Tuggle since he so
kindly addressed positively my proposed regulation or my
proposed bill to minimize regulations. You referenced in your
testimony that you supported the bill but that you would have
some suggestions in regulatory changes of how we could make
this bill more effective or better. And if you could highlight
those, I would appreciate that.
Mr. Tuggle. Thank you. It is fairly simple. I think that
what you want to do is--if I understand the bill; I believe I
do--one of the exemptions is tied back to the $50 billion
number.
Ms. Tenney. Okay.
Mr. Tuggle. And I just have a problem with that. It is an
arbitrary number that doesn't reflect reality. Let me say, our
company, worth $30 billion, we had a large mortgage business we
sold it in 2008 and basically got out of the business. At $30
billion, we don't provide escrow services today. And it is, in
part, because of the expense of it relative to the fairly lower
number of mortgage loans that we make. So I don't know that $50
billion is necessarily--
Ms. Tenney. Let me ask, what would you use as a determining
factor? If not an arbitrary number like $50 billion, what would
you say in looking at it in a regulatory framework? How would I
change the law to amend it to make it more flexible so we
really address a lot of the community banks who are looking for
flexibility, who have suffered under a lot of the regulations,
who can't comply, who want to continue their character lending
or their small--their relationships with their customers whom
they see usually on a daily basis, especially in small areas,
like rural areas that comprise most of my district.
Mr. Tuggle. I would think that--I think there is another
proposal, the number of loans. The number of loans like this
that are made would make a lot of sense.
Ms. Tenney. Right. Okay.
Mr. Tuggle. Because that proves that this is a small lender
that shouldn't be suffering these expenses.
And I completely agree--and I think what you said goes
across a lot of different areas, and that is when you put a lot
of expense on a small lender or a product or a small loan, you
make it less accessible to people. There is less of it. And I
would think that what we should be about are laws and
regulations that expand the availability of credit. And these
small servicers--I think you said it correctly--know their
customers, know who they are dealing with, and have the ability
to--
Ms. Tenney. We did propose, as you indicated in the second
half, on the RESPA, the real estate settlement procurement
act--or whatever that is. I have done thousands of real estate
closings, and I just call it the RESPA statement, which is
probably filed somewhere and nobody ever sees it again. But I
wanted to--so we had a limit on there of changing that to banks
that do 30,000 or less loans. Do you think that is something
that would be acceptable?
Mr. Tuggle. I am not an expert on these smaller lenders,
but it sounds reasonable to me. I would also add that perhaps
there would be an opportunity to craft a little broader
legislation and to give some opportunity for regulators to
address problems with direction to make the credit more
accessible--
Ms. Tenney. Thank you. I appreciate that, and I think my
time has expired.
I yield back.
Chairman Luetkemeyer. The gentlelady's time has expired.
We recognize the gentleman from Arkansas, Mr. Hill, who is
an addition to our subcommittee today. He is one of our
important members of the full Financial Services Committee, but
he has also sponsored one of the bills that we are considering
today, and we look forward to his discussion.
Mr. Hill, you are recognized for 5 minutes.
Mr. Hill. Thank you, Mr. Chairman. I appreciate you and the
ranking member holding this hearing. Thanks for letting an
interloper from the full committee come and be a part of your
hearing today.
And thanks for your work on the SIFI designation. I think
so many people have simply tried to move the number from $50
billion to a higher number, particularly over in the Senate.
And I think if I were a regulatory policymaker, I would want a
much more substantive activities-based approach. So thank you
for your leadership on that.
We are back talking about TRID today. We have talked about
that a number of times in this committee. Since the rule was
finalized back in 2013, the origin was of course under Dodd-
Frank to ask the CFPB to consider merging the truth-in-lending
disclosures with the real estate settlement disclosures. The
intent was a streamlined, simpler, better form for consumers.
That is sort of like the guy who wants a thoroughbred and goes
into breeding and produces a camel. We really didn't get that.
And in 2015, when the rule went final, it had so many problems
with it that the House overwhelming passed my bill, the
Homebuyers Assistance Act, 303 to 121, which was to try to
delay problems with liability associated with trying to
implement this rule.
Again, the CFPB recognized that they had trouble with their
rule, and they re-proposed it and asked for more comments. And
those comments poured in. And then in April, Director Cordray
testified before us, and I discussed with him the problems I
had with the lack of clear, legally binding guidance coming out
of the CFPB generally and on TILA-RESPA in particular.
So, today, we tackle one of those small challenges. And I
appreciate Mr. Tuggle's and Mr. Quaadman's comments on this
bill. This bill does two things: Number one, it tries to make
sure that we provide accurate information in a very confusing
part of the rule, which is disclosing what is the title cost to
the consumer. And you can see on your screen: The rule attempts
to make a marginal cost analysis. It is on the left. That is
what the CFPB currently describes or prescribes for title
companies to disclose on that closing statement. But it doesn't
really, in my view, do a very good job of it.
So part one of this bill simply says we think that the
accurate actually charged amount for the owner's title policy,
that is that the seller typically pays to cover their reps and
warranties on, that they have good title to the property that
they are selling, and the lender's policy typically paid for by
the borrower that is covering liability on closing the loan.
Mr. Quaadman, that's pretty confusing. What are your
thoughts on this part of the bill's change?
Mr. Quaadman. I think it is very welcome. I am laughing a
little bit because in a prior life, I didn't do as many real
estate closings as Ms. Tenney did, but as a recovering lawyer,
I did my fair share. And I think you point out the problem that
the rule itself doesn't convey appropriate information to
consumers, nor--with the passage of the Dodd-Frank Act, we were
supposed to help consolidate and streamline closing documents,
and clearly we still have a lot more work to do. I think it
bill is an important first step to trying to do that.
Mr. Hill. I appreciate that. The other portion of the bill
that was referenced by my friend from Minnesota is trying to
align the errors in the bill from 60 days to 210 days. The
logic here was to align it with what Dodd-Frank's rulemaking
prescribed in the qualified mortgage rule of 210 days. It is
not a number pulled out of thin air. It is pulled out one of
the most important rules that came out of Dodd-Frank, which is
trying to define a qualified mortgage and then defining that
for the secondary market. So we attempt to align that error
discovery process for TILA-RESPA to that 210-day note that was
a result of qualified mortgages, also a part of Dodd-Frank.
As I say, this is an 1,800-page rule trying to merge these
forms. I have heard lots of comments from my bankers. Some of
them have tongue in cheek said that TRID stands for, ``the
reason I drink,'' which, as I say, is tongue in cheek, but it
has seen a lot of product problems for consumers. One-time
closed loans are now very difficult to do, if not impossible,
under the combined form. And so I think consumers have been
hurt. Closing times have been extended. So I am pleased that
this is a good step forward, and I thank the chairman for
letting us have that discussion today.
Chairman Luetkemeyer. The gentleman's time has expired.
With that, we go to the gentlelady from Arizona, Ms.
Sinema, who also is not a member of the subcommittee, but is a
distinguished member of the full Financial Services Committee,
and we welcome her, and she is recognized for 5 minutes.
Ms. Sinema. Thank you so much, Mr. Chairman.
And thank you, Chairman Luetkemeyer, for working with me
and several other of our colleagues to introduce the Systemic
Risk Designation Improvement Act of 2017. As you all know, this
common-sense bipartisan legislation removes the arbitrary $50
billion asset threshold established by the Dodd-Frank Act, and
requires the Federal Reserve to establish a process to formally
designate individuals or groups of financial institution as
SIFIs based on a variety of factors including size, complexity,
substitutability, and interconnectedness.
My first question is for either Mr. Tuggle or Mr. Quaadman.
While not all enhanced prudential standards may be needed for
banks below the globally systemic important bank level, if the
Federal Reserve felt it was appropriate to place some of those
standards, based upon the circumstances of a particular
institution, would they be able to do so under the legislation
that we have proposed?
Mr. Quaadman. Yes, they would be able to. I think one of
the things that the bill does is, one, it looks at activities.
Two, it looks at existing criteria that the Fed has. So the Fed
still could take actions, and they still could have some
enhanced regulations. So I don't think it precludes them from
doing anything. In fact, what it does is it allows the Fed to
tailor a regulatory scheme to fit that bank so we can make sure
that that bank is active in a way that they should and the
regulation fits its profile.
Ms. Sinema. Thank you so much.
My second question is for Mr. Tuggle. I think we should all
be able to get behind the idea of smarter and better tailored
regulations. So, Mr. Tuggle, can you tell me what you think
about a smarter or a better tailored regulations impact is on
the larger financial system? Does it make it safer, and if so,
how?
Mr. Tuggle. It certainly does make it safer because it is
focused on what the real issues are. Regulation that identifies
a risk, a real specific risk, in response to that is better
regulation that is just across-the-board unrelated to what the
risks are. This is a Dodd-Frank example that is very real for
us, the Volcker Rule. We are subject to the Volcker Rule.
We are a plain old bank. And there are no real Volcker
sorts of concerns about us affecting the financial stability of
the United States. But the year that we had to start to
implement Volcker, to understand it, to understand it and to
develop processes. Now, we spent over 6,000 hours of time with
smart, talented people, and we put in place what we had to put
in place, and I don't think it added one smidgeon of greater
security to our financial system.
Ms. Sinema. Thank you.
My final question is for Mr. Quaadman. Mr. Quaadman, in
your opinion, would the elimination of this arbitration $50
billion threshold and, instead, creating more appropriately
tailored regulation of banks of all sizes, would this result in
increased lending to small and medium-sized businesses in
Arizona and other States across the country?
Mr. Quaadman. Yes, and I think for two reasons. One was the
issue I raised earlier in terms of how regulatory compliance is
really shutting out banks from providing smaller loans to
smaller businesses. The other thing is what we consistently
hear from our business members is that, increasingly,
particularly when you are talking about a bank that is under a
SIFI designation, that businesses generally had some form of
relationship type lending or relationship with their bank so
that the loan officer would understand a business and the cycle
of that business and would understand their financing needs, et
cetera, and can help work with them to achieve their needs. The
problem now is that the regulatory compliance people are more
often having a say as to whether a loan should be granted or
not. So I think we are going to see increased lending to
businesses for both of those reasons. One is the smaller loans,
we would be able to open up that flow. The second is that we
would empower the people who understand the business to
actually weigh the merits as to whether a loan should be issued
or not, and I think that would free up a lot of lending that
has currently been bottled up, as well as the fact that, with
the regulatory costs going down, those banks are just going to
have more money to issue loans.
Ms. Sinema. Thank you so much.
And thank you to all of our panelists.
Mr. Chairman, I just want to thank you again for
introducing this legislation. It has been a real privilege and
an honor to work with you on it. I commend you on the work, and
I look forward to getting this bill to the President.
Thank you. I yield back.
Chairman Luetkemeyer. The gentlelady yields back. We thank
her for her comments.
We have exhausted all the questions for today, and we want
to thank the panel for their fine work. The purpose of this
hearing was to look at a group of bills that we believe fix
problems or tweak the existing law to make financial services
entities that they regulate to be better able to serve their
customers and clients. And with regards to the SIFI bill that
is my bill--and we have discussed it at length--we had a visual
aid over here on the side when we were discussing it at a
previous time, 20,000 pages of paper, which is kind of an
average, probably is a low on average, of what a lot of
midsized regional banks are facing whenever they are do a
stress test, living will compliance for their designation. It
costs millions and millions of dollars. It was a whole table
over there, like 5 by 3 by 3, of paper, which a lot of times
doesn't get read.
I think it goes back to, in my mind, that banks are in the
business of assessing risk. That is what they do for a living.
They assess risk, and they decide which risks to take by
working with the customers and the businesses and the clients.
And regulators should be in this business of assessing the
bank's ability to assess risk, not managing the banks on the
risks to take, which is what is going on.
And so I firmly believe that we are on the right road with
this. A threshold is an artificial get-out-of-jail-free card
for some folks, which gets the regulators off the hook from
doing their job, in my mind.
And I think, with regard to a couple of other issues we had
in committee, I just want to comment on briefly. I had a banker
talk to me recently, and he made the comment, ``Blaine,'' he
said, ``I can do a $50,000 vehicle loan, and it takes about 60
to 90 minutes. The paperwork is about that thick, but it is a
depreciable asset, and it can move. I can do a $50,000 home
loan; the paperwork is this tall--in fact, we had a gentleman
here who was testifying one day, and I asked him how many pages
it was, and he said, ``Congressman, we don't measure it by the
page anymore; we measure it by the pound''--and it takes 60 to
90 days, and it probably costs an average of $2,500 to do.''
The same amount of money and here you have an asset that is
not mobile, that appreciates in value, and, yet, over here, you
have as asset that is mobile and depreciates in value, and look
at the difference in paperwork, look at the difference in risk,
and, yet, it is out of whack. And I think this is what we have
to keep in mind: How do we approach these things? How do we
help our constituents and consumers to be able to have access
to credit when they are under this big burden over here with
regards to home loans and the confinement of the banks in being
able to provide that service?
So, again, we want to thank each of you for your testimony
today and your expertise that you brought to our discussion.
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.
And, with that, the hearing is adjourned.
[Whereupon, at 12:10 p.m., the hearing was adjourned.]
A P P E N D I X
September 7, 2017
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