'Willy-Nilly' Rulemaking Cause Confusion
MADISON, Wis.-The most pressing issue on the regulatory front for CUs: credit card-related rules.
That's according to CUNA Mutual Group Director of Regulatory Compliance William Klewin , who pointed out new credit card regulations already are in their fourth iteration, and described them as "cumbersome," "confusing" and the source of a number of changes in data processing systems.
And after all those changes? "It is unclear whether or not the average consumer, when looking at the disclosures, knows what they are getting into or whether there is information overload," he said. "Are people truly better informed? And given the increased cost, are consumers really benefitting?"
Klewin's suggestion: credit card regulations need to be reset from the top. He said the No. 1 goal should be making disclosures much more clear.
"Right now, the rules are being made up willy nilly depending on a particular situation."
Mortgage lending regulations drew only a slightly better grade from Klewin. He characterized real estate rules as "also difficult," adding, "at least some of those are addressing abuses in the market."
Another burdensome regulation CUs must keep an eye on is the multi-featured, open-end lending rule that addresses HELOCs, credit cards and other forms of open-end lending. Klewin said each iteration of the CARD Act has affected open-end lending-often as an "oh, by the way," making compliance all the more difficult.
"Those particular rules are still being affected by proposed credit card rules," he warned. "It is likely other elements of Dodd-Frank will bring further changes. It is just such an unknown at this point."
Cuts to interchange income have attracted the focus of the financial services space for months. While this has been for good reason (the potential for a significant loss of income "will raise existential questions for credit unions," Klewin predicted), he said CUs need to be preparing for pending rules regarding funds availability and remittances.
The Dodd-Frank Act already made one significant modification to the 1987 Expedited Funds Availability Act, Klewin noted. When a check is deposited, the amount made available immediately was raised to $200 from the longtime standard $100. However, there is a push to make even more money available as soon as possible.
"The burden is on financial institutions, to the point the credit union or bank does not have the opportunity to make sure the check is good. There will be issues on liability related to making funds available sooner because there will be bad checks passed and then finger-pointing between institutions," he predicted.
If someone is a citizen of another country but is working in the U.S. and sending money home-he or she uses a remittance. Klewin said most remittances go to Mexico, Central America, South America, Eastern Europe and Southeast Asia.
Although fees and costs associated with remittances have declined over the years thanks to competition, Klewin said regulators have decided disclosures need to be stated. These disclosures will need to include exchange rates, which, of course, fluctuate daily, making written rules a challenge.
"This requirement will drive costs back up again, and likely will cause many organizations to decide not to offer remittances, which will further diminish competition, which will drive up costs," he said. "There is a desire to let people know what they are getting into, but is it worth it? People were satisfied with the service they were getting provided, but now they likely will have to pay more. There will be a cooling effect on credit unions wanting to get involved in remittances."
The new remittance rules still are in their comment period. When finalized they will be part of the CFPB, which Klewin said means they might be rewritten all over again. CUs should expect to hear about remittance disclosures and new funds availability standards in early 2012, with implementation dates of October or later.
Regulator For A Day
If Klewin were to be handed the power, for one day, to enforce the spirit of a new rule while at the same time lessening the back office, paperwork or HR burden, he would pick the credit card rules because of the intense regulatory burden they place on CUs.
"The rules need to be meaningful and valuable to the consumer," he declared. "I would start with disclosures and rules relating to changes in terms that are so arcane it is impossible to know how to comply. It is like throwing a dart at a dartboard in the dark.
"We also should keep in mind all of the rules place a huge burden on small credit unions," he added. "They just don't have the people to keep up with all the rules."