Don’t let a credit union regulator run the CFPB
The credit union industry’s chief regulator is reportedly on President Donald Trump’s shortlist of potential nominees to lead the Consumer Financial Protection Bureau. As the head of a regulatory agency that advocates on behalf of the tax-free sector of the financial services industry it is charged with regulating, National Credit Union Administration Chairman J. Mark McWatters would not be a wise choice to head the CFPB.
The credit union industry is not fully subject to the entire arsenal of financial regulation, making the NCUA chairman unsuitable to head the consumer bureau. While the CFPB is responsible for consumer protection regulations across the financial services sector, the credit union industry remains exempt from taxation and many regulations, such as the requirements banks must follow under the Community Reinvestment Act. In fact, credit unions are not subject to full CFPB oversight because the NCUA shields them from much of the bureau’s regulations through its lenient interpretations and enforcement.
Further, amid concerns that the CFPB lacks sufficient checks on its regulatory authority, the NCUA’s willingness to flout Congress in its rulemakings makes its chairman suspect for leading the bureau. McWatters and others at the NCUA have been strident advocates for expanding the credit union charter far beyond what Congress intended when it established the industry in the 1930s. Established as not-for-profit institutions to serve individuals of modest means, the $1.36 trillion industry now earns billions of dollars in profits every quarter and features outsized CEO salaries while remaining tax-exempt.
The NCUA’s active role as an advocate for the credit union industry has led to multiple lawsuits and more than $1 billion in legal fees to private law firms. The agency currently faces a lawsuit against its October 2016 field-of-membership rule, which dramatically expands the service areas in which community credit unions can do business and renders statutory standards meaningless. The agency has repeatedly sidestepped statutory limits to benefit the industry it is charged with regulating.
The CFPB should not be led by the head of an agency that has acted as a cheerleader for the industry under its oversight. Rather, it requires an even-handed official with experience in the broader commercial banking sector.
The agency would be better served by individuals who have hands-on experience overseeing commercial banks and who are familiar with the full array of regulations under which every commercial bank must toil. For instance, Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig or former FDIC board member Jeremiah Norton—regulatory authorities dedicated to their statutory mission—would be more appropriate candidates for the CFPB.
This is also a prime opportunity for Washington to consider a commission or board to oversee the bureau—the original idea for CFPB leadership. Commission governance, which is what originally passed the House of Representatives in the debate over the Dodd-Frank Act and has been advocated by opponents of the law for years, has regulatory precedent at the FDIC and Securities and Exchange Commission. Further, it would establish a balanced and bipartisan approach at the agency while avoiding the kind of confusion and infighting that have gripped the bureau since the departure of former director Richard Cordray.
However, if Washington is willing to settle for single-director governance at the CFPB, then let’s advance a director with meaningful experience in the full range of regulations for which the CFPB is responsible. And let’s choose a leader not with a track record of cheerleading for the industry he is charged with overseeing and regulating, but rather a commitment to the laws by which our agencies are established by Congress.