How much does the majority's opinion matter to the Consumer Financial Protection Bureau?
That was essentially the question U.S. Rep. Edward Royce (R-Calif.) posed to CFPB Director Richard Cordray in March of this year during a House Financial Services Committee hearing in which legislators questioned the bureau's track record of granting exemptions to financial institutions as per the Dodd-Frank Act of 2010.
"Does a letter from over three-quarters of Congress change your view of Congressional intent?" Royce asked Cordray at the time.
When Dodd-Frank endured the slow and arduous process through the nation's capital, the question of exemptions was brought up and included in the proposed law. Section 1022 of the 850-page act states under subsection (3) "Exemptions" - "The Bureau, by rule, may conditionally or unconditionally exempt any class of covered persons, service providers, or consumer financial products or services, from any provision of this title, or from any rule issued under this title."
The legislation goes on to state the CFPB has the discretion to determine if an exemption is warranted through three considerations: the total assets of the institution, the volume of transactions involving consumer products and existing provisions of law which are applicable to the area under question. Whether the provision allows the bureau to grant a blanket exemption for credit unions and other institutions from all of Dodd-Frank and CFPB rules depends on interpretation.
Congress and Trade Associations Wants Answers
Earlier this year, a bipartisan super majority - 329 House members and 70 Senators - signed letters directed to the CFPB stating they were concerned with the "approach" the bureau has taken, "which does not routinely distinguish credit unions and community banks from some of the very large financial institutions and non-bank lenders," House members wrote.
The letter went on to state the Government Accountability Office had found regulatory requirements were causing smaller providers to restrict services as a result of "burdens associated with meeting the CFPB's new requirements."
The Credit Union National Association has consistently sought relief for the credit union industry through appeals to the CFPB to utilize its exemption clause granted by Dodd-Frank. According to the trade group's regulatory burden study, compliance costs stemming from regulations have increased from $4.4 billion in 2010 to $7.2 billion in 2014. In a letter from CUNA and 38 state leagues representing the industry, CUNA claimed Congress was clear in Dodd-Frank that "the bureau has the ability to exempt any class of entity from its rulemaking."
The National Association of Federal Credit Unions has claimed it was the only credit union trade association to oppose CFPB authority over credit unions under Dodd-Frank. "Exempting credit unions from rulemakings intended for larger financial institutions would result in significant, immediate regulatory relief that would allow credit unions to better serve their members" NAFCU's Vice President of Legislative Affairs Brad Thaler said in a message to House members this year.
During the March hearings, CFPB Director Richard Cordray responded to the fierce questioning regarding exemptions with a very familiar response: when questioned on the matter by Rep. Royce, Cordray said, "We will continue to do it where appropriate... But in terms of a broad overwriting of what Congress made a judgement about in that statute, which was not to simply exempt all credit unions from everything having to do with consumer protection, I feel that Congress has spoken on that."
Insiders Weigh In
If 399 members of Congress have their disagreements with Cordray, at least they're in good company with much of the rest of the credit union community.
"Sect. 1022 of the [Dodd-Frank Act] clearly provides authority for the CFPB to exempt credit unions from specific requirements and even broader rules," said Mary Dunn, former deputy chief advocacy officer for executive and regulatory affairs at CUNA, who now works at the Washington-based consulting firm CU Counsel. "[An] impasse has developed. It does not appear the CFPB plans to change its focus, so until Congress changes the [Dodd-Frank Act], it would seem that working to improve the rulemaking process on a data-driven basis with the CFPB to address problems in the least intrusive way for credit union operations is in order."
A former senior CFPB official who wished to remain anonymous told Credit Union Journal the agency feels there are sufficient institutions available to consumers to make loans.
"[The CFPB] is simply not as concerned for those smaller institutions that are caught in a small place to not economically make those loans," the official said.
The former CFPB official suggested the bureau has not done analysis on what is most burdensome and what causes the greatest cost to consumers, worrying more about blowback than more concrete changes.
"No doubt consumer advocates would strongly oppose any exemption for any laws. I'm sure the bureau is concerned about that," the former official said. "I think their actions speak to what their views are on how they balance things that they view are most important. I don't think there is a legal impediment to their proposing exemptions."
The lack of movement on credit union exemptions - in spite of broad-based support - has many in the credit union movement perplexed.
"[It's] disappointing and frustrating," said John McKechnie, senior partner at Washington-based Total Spectrum. "Letters are a powerful message, but I don't think it's enough to change thinking at CFPB." Moreover, McKechnie said, the bureau has "developed a very dedicated and committed constituency on the left," suggesting the support fuels the agency's dug-in position regarding a change.
"There is no political incentive for them to budge," McKechnie said.
Jenny Lee, former enforcement attorney for the CFPB, who currently works as a partner at the law firm Dorsey & Whitney, offered a different opinion on the exemptions. She suggested Dodd-Frank, standing alone, cannot be interpreted in a manner that would provide broad exemptions for credit unions from all CFPB rules.
"As I interpret the statute, there are other provisions of Dodd-Frank that talk about the purpose and objective of the CFPB," she said. Lee stated the "Exemptions" section of the legislation gave the bureau the power to make exemptions as it deemed necessary. "You have to read that in the context of the Dodd-Frank Act - there has to be substantive fact or reasoning specific to the entity that is being exempted," she explained.
Lee added the CFPB does not look at which financial institutions had the most risk or were the catalysts for the most recent financial crisis; Rather, she said, they look at the products and services offered by the institution and their effect on consumers. "The notion that credit unions were the innocent ones during [the most recent financial crisis] would make a great movie or political book. Under the law it's not really relevant. How [Dodd-Frank] works is specific to consumer protection - it covers providers," she said.
However, Lee said the analysis of the CFPB's long-term effects on an industry and consumers alike may not be properly researched.
"The question about shrinking access to credit is not looked at enough," she said. Additionally, she suggested it is more a problem of congressional mandate and resources available as opposed to a lack of interest in the issue.
