NAFCU: Growing Regulatory Burden Top Challenge Facing Credit Unions
Washington (April 8, 2014) – The National Association of Federal Credit Unions (NAFCU), in a statement submitted for a hearing today before the House Financial Services Committee, emphasizes the increasing regulatory burden faced by the credit union industry under rules of the National Credit Union Administration (NCUA) – particularly NCUA’s proposed risk-based capital rule – and the Consumer Financial Protection Bureau (CFPB). NAFCU presses the need for legislative and regulatory action to mitigate these burdens.
The association submitted its statement for the record of the hearing being held this morning by the House Financial Services Committee, “Who’s In Your Wallet: Examining How Washington Red Tape Impairs Economic Freedom.”
NAFCU, in its statement, stresses that credit unions did not cause the economic downturn yet remain in the crosshairs of regulations created under the Dodd-Frank Act to address the activities of those entities that did. In fact, NAFCU points out that on average, from 2005-2013, credit unions consistently outperformed banks by providing lower interest rates on loans and higher returns on savings and deposits.
“Today, credit union lending continues to grow at a solid pace, up about 6.8% at the end of 2013 compared to 2009,” the NAFCU statement says. “In short, credit unions didn’t cause the financial crisis, they helped blunt the crisis by continuing to lend during difficult times, and perhaps most importantly, continue to play a key role in the still-fragile economic recovery.”
In a 2012 NAFCU survey of association members, 94% of respondents said they saw their compliance burdens grow since the 2010 passage of the Dodd-Frank Act. In a March 2013 survey, nearly 27% of respondents had increased their full-time equivalents (FTEs) for compliance personnel from 2012 to 2013; and more than 70% of respondents said they have had non-compliance staff members take on compliance-related duties to address the growing burden.
To help reduce burdensome and unnecessary regulatory compliance costs, NAFCU unveiled its five-point plan for credit union regulatory relief in February 2013 along with a call for Congress to enact meaningful legislative reforms. Last December, NAFCU released its “Dirty Dozen” list that outlines 12 key regulatory provisions affecting credit unions that should be eliminated or amended.
The NAFCU statement also points to a number of key issues where regulatory burdens and proposals are posing immediate threats to credit unions’ ability to serve their members and provide them the financial products they want. Among these is NCUA’s proposal on risk-based capital.
NAFCU’s analysis of the NCUA risk-based capital proposal, which would revise risk weights and increase minimum capital levels for some, shows that credit unions with more than $50 million in assets will have to hold $6.7 billion more in additional reserves to maintain their current capital cushion if the rule were finalized in its current form.
“Simply put, if the NCUA implements this rule as proposed, credit unions will have less capital to loan to creditworthy borrowers, whether for a mortgage, auto, or business loan,” the NAFCU statement says. It adds, “Rigorous congressional oversight is critical in ensuring the NCUA’s risk-based capital proposal does not inhibit the ability of consumers to access the basic financial services and competitive rates credit unions often provide.”
NAFCU is also monitoring examination issues at NCUA. “NAFCU supports effective exams that are focused on safety and soundness and flow out of clear regulatory directives,” the NAFCU statement says. “However, the examination process, by its very nature, can be inconsistent. Regulatory agencies in Washington try to interpret the will of Congress, examiners in the field try to interpret the will of their agency, and financial institutions become caught in the middle.”
The NAFCU statement also details the regulatory burdens imposed on credit unions by CFPB rules under the Dodd-Frank Act.
“In addition to regulations from the NCUA, all credit unions are subject to the rulemaking of the CFPB,” the NAFCU statement notes. “The tidal wave of new regulations coming from the Bureau, even if they are well-intentioned, has proven to be overwhelming to credit unions, as they are often forced to comply with the exact same rules as our nation’s mega banks.”
These rules include, among others, new requirements affecting providers of remittance transfers under the Electronic Fund Transfer Act (EFTA), the expansion of the Home Mortgage Disclosure Act (HMDA) dataset to include additional loan information, the combination of mortgage disclosures under the Truth in Lending Act and Real Estate Settlement Procedures Act, and the qualified mortgage (QM) standard.
NAFCU also notes it is closely watching for possible rules concerning prepaid cards and overdraft protection, and it remains concerned about CFPB’s Consumer Complaint Database.
“The growing regulatory burden on credit unions is the top challenge facing the industry today,” NAFCU wrote. “The number of credit unions continues to decline as the compliance requirements in a post Dodd-Frank environment have grown to a tipping point where it is hard for many smaller institutions to survive. Credit unions want to continue to aid in the economic recovery, but are being stymied by overregulation. Congress must continue to provide vigorous oversight to the regulators of credit unions, and encourage them to look for ways to provide relief for credit unions through common-sense and coordinated regulation and eliminating or amending outdated requirements.”
The National Association of Federal Credit Unions is the only national organization that focuses exclusively on federal issues affecting credit unions, representing its members before the federal government and the public.