Lawmakers and regulators readily acknowledge that credit unions did not cause the recent financial crisis. Yet they have been paying a high price for Wall Street's antics since implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law on July 21 five years ago.
The Consumer Financial Protection Bureau, created under the Dodd-Frank Act, has the authority to exempt smaller institutions like credit unions from its rules. But the agency has been reluctant to use this authority to provide credit unions with relief. While it's true that credit unions under $10 billion in assets are exempt from the examination and enforcement by the CFPB, all credit unions are subject to the bureau's rulemakings — and they are feeling this burden.
Dodd-Frank has created a huge regulatory morass that has stifled innovation, delayed economic growth and sped consolidation within the credit union industry. The regulatory burden and escalating compliance costs based on rules promulgated under Dodd-Frank by the CFPB have helped lead to the loss of 1,250 federally insured credit unions — more than 17% of the industry — since the second quarter of 2010, according to data from the National Credit Union Administration.
Consolidation isn't a new phenomenon, but the numbers show its paced has increased greatly under Dodd-Frank. The percentage of credit unions disappearing annually rose from an average 3.4% in the 10 years before Dodd-Frank to an average 3.9% in the years after, according to NCUA data. That uptick represents an extra 30 to 40 credit unions lost through consolidation annually.
Still, credit unions continue to prove their value in the financial services market by helping the economy grow and making loans when other lenders have walked away. Even CFPB director Richard Cordray, recognized that credit unions and community banks are “the most responsible lenders” and that their record of low default rates is exemplary during a question-and-answer session following his midyear address to Congress on July 15.
NAFCU supports several ideas and proposals that could help reduce or slow the crush of new, burdensome rules on the nation's credit unions.
A prime example is the Financial Product Safety Commission Act of 2015, which recommends revising the CFPB's leadership structure from a single director to a commission of five members appointed by the president. NAFCU has long held the position that, given the broad authority and awesome responsibility vested in the CFPB, a five-person commission has distinct consumer benefits over a single director.
In addition, NAFCU believes that Congress should act on bills pending before it that would provide credit unions and other community institutions with greater regulatory relief, such as those ideas found in the Financial Regulatory Improvement Act of 2015. This includes NAFCU-backed provisions for credit union relief and transparency, among them a requirement for public National Credit Union Administration budget hearings, statutory relief from annual privacy notice requirements, and granting of safe harbor qualified-mortgage status for certain loans held in portfolio.
We believe that rolling back unnecessarily burdensome and costly regulations is the only way to ensure credit unions' ability to survive and help Americans thrive. Keeping the existing state of regulatory burden only punishes consumers and chokes America's future economic development.
B. Dan Berger is president and CEO of the National Association of Federal Credit Unions.