WASHINGTON — Credit unions of all sizes would be forced to deal with a greater compliance burden if the current version of a bill creating a Consumer Financial Protection Agency is passed.
Legislation that recently sailed through a House committee carved out an exemption for smaller credit unions, but that exemption only applies to administration.
"All credit unions under $1.5 billion in assets will be exempted from direct examination and supervision of CFPA, but they will still be required to comply with regulations issued by the agency," CUNA Spokesperson Pat Keefe explained. "Exam and supervision will be done by the credit unions' 'prudential regulator,' either NCUA or state agency."
Both CUNA and NAFCU have publicly stated serious concerns with the current version of the CFPA bill, but have stopped short of opposing it altogether. The trade associations' chief concern is the added regulatory burden, especially on smaller institutions that have no one person charged with compliance, and the potential for NCUA, state agencies and the consumer agency to be pulling in different directions.
Larger CUs, Larger Burdens
While the bill has a long way to go in reaching its final form, the current draft raises the specter of larger credit unions facing significantly higher compliance costs. While it allows the CFPA to delegate examination responsibilities to the prudential regulators, the agency would have its own examiners that would be included in delegated exams and would retain the authority to conduct its own independent examinations. The cost in time and labor for annual examinations would double and that doesn't include the amount of time compliance officers would have to spend reading new regulations handed down by the CFPA and ensuring compliance with those new rules.
"Every cost of compliance is a cost that is going to be borne by CU members," pointed out Brad Thaler, NAFCU's director of legislative affairs.
The CFPA would serve as a "back-up role" for smaller CUs, but it would still be able to send examiners to participate in an NCUA examination, make special investigations based on consumer complaints, and even remove NCUA as a compliance regulator if it believes the agency has "failed to adequately carry out consumer compliance supervision."
"They are going to have subpoena authority, they are going to have hearing authority, there is powerful stuff within this (agency)," said Ed Kramer, EVP-Regulatory Programs at Wolters Kluwer Financial Services, Minneapolis, Minn.
The potential embarrassment that NCUA, and other regulatory agencies, would face if the CFPA were to remove them from compliance supervisory roles will almost certainly mean more robust fair lending examinations for financial institutions of all sizes, Kramer explained, that will "ultimately lead to more actions, some of which will lead to referrals to the Department of Justice, who is saying it is ready to take the action."
Kramer encouraged credit unions to put internal monitoring systems in place to ensure they are complying with fair lending regulations. He pointed to a handful of smaller FIs cited for violations with whom he is working to try and remedy the situation as prime examples of what can happen if CUs don't spend the time and money to review their own practices.
"What could have been $10,000 to $20,000 expense is now $100,000, and then they need to put in the monitoring expense anyway," said Kramer.
While many of the regulations passed by the new agency could be immaterial to smaller CUs, the fiduciary responsibility of the compliance officers there to ensure compliance would take up precious man-hours and possibly force some institutions to seek greater efficiencies through mergers.
"From a CU perspective, when Congress or a regulator changes compliance requirements, that in itself is very burdensome to credit unions, which often have to make basic operational changes just to ensure compliance," Keefe said.
Good for Attorneys, But...
"There are so many regulatory protections in place for consumers; let the regulators who are already in place do their jobs," added NAFCU's Director of Regulatory Compliance, Anthony Demangone. "If this were to go into place it would be great business for me as a compliance attorney, but that's not necessarily good for the industry."
For all its potential cause for alarm, the CFPA bill could bring one positive to the table. Keefe noted that this new legislation gives lawmakers opportunities they don't have under the CARD Act. "The (CARD Act) is very specific, giving regulators no chances to write rules...that reflect real world issues, such as those credit unions face," said Keefe. "It could have been a much different story if regulators had the authority to apply rules to implement the law that reflect the way credit unions work."
