Well-Intentioned NCUA, CFPB Are Having Unintended Results
If some regulation of financial products and services is a good thing, then shouldn't a lot more of it be even better? As everyone trying to run a credit union these days knows, the answer to that question is "of course not."
Unfortunately, the often well-intentioned regulators at NCUA and at the Consumer Financial Protection Bureau (CFPB) don't seem to realize that they have gone way too far overboard piling one misaligned compliance rule on top of another. Rather than make borrowing easier and safer for consumers, all of the burdensome new edicts and draconian restrictions have made getting a loan almost impossible for many underserved consumers. What little lending that is now allowed is usually ill-suited for those underserved for whom it was intended.
These millions of low- and moderate-income consumers, often labeled as the unbanked or underbanked, have found that the credit spigot has been turned off in the name of protecting them from themselves. Their lack of access to credit has become so severe that some in Congress want to create a new National Consumer Credit Corporation (NCCC) federal charter to meet that ever-deepening un-met need.
According to the legislation's sponsors, the new NCCC charter would be supervised by the U.S. Comptroller of the Currency, the current regulator of federally chartered banks. NCCCs would not take deposits and would not be federally insured. As stated in the proposed legislation, the new charter would "provide underserved consumers greater access to innovative, affordable, commercially viable, and better suited financial products and services."
Any consumer credit service provider that focused on offering smaller loans under $5,000 to underserved consumers could obtain the NCCC charter enabling it to operate in all 50 states with the same set of rules. Those rules would be built around the need for NCCCs to operate in a manner that profitably allows the lenders to account for the risks that they were taking in the less credit-worthy market segments. Artificially-set usury caps and complicated product requirements would be preempted.
It's sad to say, but traditional credit union lending outreach has become so curtailed by government-imposed price controls and regulator-imposed confinements that the call for a new sustainable substitute charter appears merited.
The very fact that legislation for such a new alternative charter has been hatched is particularly upsetting for many long-time credit union executives and advocates, including me. It wasn't that long ago that an underserved consumer with good character and the ability to repay could count on his or her credit union to step up and provide that smaller amount short-term loan. Under current limitations, the entire credit union industry would be hard-pressed to affect, even in the smallest way, the massive scope of the short-term credit needs of underserved consumers.
If the current "rule-encumbered" credit union charter doesn't allow us to do our job we should be loudly asking, "Why not?" The CFPB, the NCUA, the state supervisory agencies, and lawmakers should radically rethink how they are each impeding the ability of credit unions to help these underserved consumer members and potential members.
Steps Need To Be Taken
All necessary steps should be taken to empower every credit union to assist these consumers' real-life needs. To speed the potentially-reluctant federal and state policymakers along on their "charter fix-it task," the credit union trade associations should also turn up the volume on their own lobbying efforts to make this happen. And if it takes a soul-searching credit union industry "constitutional convention" to bring about positive change, then we should hold a marathon session until the problem gets fixed.
Regardless of the ultimate fate of the new consumer credit charter, I am not willing to surrender to the belief that credit unions must abandon their decades-long efforts to serve all of their members from all walks of life. This breadth of service is at the core of what credit unions are all about. Protecting that is a battle worth fighting and winning. Rather than reinvent credit for the underserved consumer, the best public policy option is to restore credit unions' ability to realistically meet the need.
Chuck Bruen is president and CEO of First Entertainment Credit Union, Hollywood, Calif.