Banks Find New Best Friend — Credit Unions — in CFPB Fight

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Banks and credit unions have finally found common ground — they both loathe the Consumer Financial Protection Bureau.

Neither community banks nor credit unions think they should be subject to CFPB regulations. Credit union representatives said as much during a recent congressional hearing. Rep. Sean Duffy, R-Wis., during a House Financial Services subcommittee hearing in April, asked credit union executives for the one thing they want most from Congress.

"Exempt credit unions from CFPB regs," responded Robert Burrow, president of $317 million-asset Bayer Heritage Federal Credit Union in Proctor, W.Va.

Short of that request, Burrow said he supports the National Association of Federal Credit Unions' effort to let the National Credit Union Administration overrule or delay any CFPB regulation, and to require the CFPB and NCUA to perform a "look-back, cost-benefit analysis of all new rules."

"It is not one single regulation that is creating this ever-increasing burden — rather [it is] the tidal wave of new rules and regulations," Burrow told the subcommittee. "This was a reason we did not support credit unions being subject to the rulemaking of the CFPB."

James Ballentine, chief lobbyist for the American Bankers Association, was open to those proposals. However, if credit unions get those breaks, small banks should, too, he said.

"To the extent there is going to be a level playing field, we would agree to that," Ballentine said in an interview. "But to say banks should perhaps have this level of regulation and [credit unions] shouldn't, we certainly would not agree to that."

Further, Ballentine said that credit unions and banks, despite their longstanding animosity toward each other, could cooperate to fight CFPB regulations. (Ballentine once told bankers that there was "no time to play footsie" in opposing credit unions' efforts to expand business lending.)

"There is always an opportunity to work together on these issues," Ballentine says.

A CFPB spokeswoman declined to comment, referring questions to remarks that Director Richard Cordray made in February to the Credit Union National Association, when he said the bureau "is well aware that credit unions were not one of the causes" of the recent financial crisis.

"The more perspective we have about your experience in the consumer financial marketplace, the better we will be able to figure out what, if anything, we should be doing in response," Cordray said.

At the same CUNA conference, Sen. Elizabeth Warren, D-Mass., defended Cordray's approach to community banks and credit unions, saying that he "has been providing balance, creating space for credit unions and other small financial institutions to run their businesses and serve their customers without drowning them in regulations."

Banks and credit unions nevertheless feel pressured by the CFPB. Some credit union executives gave specific examples to the House subcommittee about which CFPB regulations they find the most burdensome. The CFPB proposal to increase regulation of international money transfers could force most credit unions out of that business, says Mitchell Reiver, general counsel of $1.9 billion-asset Melrose Credit Union in Briarwood, N.Y.

Credit unions are "faced with virtually impossible new requirements for conducting international remittances," Reiver told the subcommittee, arguing that it would be difficult and costly at the outset of transactions to disclose fees charged by foreign financial institutions.

There are many other concerns with the CFPB shared by community banks and credit unions, the largest being the proposed rule for qualified mortgages, the category of super-safe loans, and qualified residential mortgages, says Paul Merski, chief economist for the Independent Community Bankers of America. Some smaller issues are also alarming to both sides, he says.

"Credit unions and community banks are pushing to roll back the annual privacy notice rules," Merski says. "The ATM placard legislation was a joint effort with community banks and credit unions."

Financial institutions want to send privacy notices when a policy changes; legislation passed in the House and was recently introduced in the Senate. Under the new ATM placard law, financial institutions no longer have to post physical signs on ATMs warning customers about potential fees.

The National Association of Federal Credit Unions supports a cooperative effort between banks and credit unions, says Brad Thaler, a lobbyist for the association. "We're willing to work to try to find common ground," Thaler says.

In remarks to the CUNA in February, Cordray noted that the bureau has proposed exemptions to smaller credit unions on certain elements of QM and QRM.

"There are certain big pieces of our new mortgage rules where the end result may be that most credit unions will be covered by special provisions," Cordray said.

Community banks and credit unions have more similarities than differences, says Pamela Stevens, chief executive of the $57 million-asset Security One Federal Credit Union in Arlington, Texas. Furthermore, Stevens says she believes credit unions and community banks have made a reasonable request.

"We're not trying to undermine safety and soundness," Stevens says. "We're looking for fairness. We would hope the CFPB would use some of their powers to exempt institutions that didn't cause the problems and not use the same brush that many of the larger bank players are being brushed with."

Instead of constantly sniping, banks and credit unions should make amends, she says.

"We don't have a fight with our community banking brethren," she says. "We have a lot more common ground than people think."

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Community banking Law and regulation