Credit unions applauded introduction of a bill that would raise the asset threshold for direct supervision by the Consumer Financial Protection Bureau from $10 billion to $50 billion, but the measure's eventual fate remains uncertain.
Under terms of the "Consumer Financial Protection Bureau Examination and Reporting Threshold Act of 2014" introduced last year by Senators Pat Toomey (R-Pa.) and Joe Donnelly (D-Ind.), credit unions below $50-billion in asset size would not have to be subject to "direct examination and reporting requirements of the [CFPB], and for other purposes" — meaning $63.6 billion Navy FCU would be the only credit union subject to CFPB's direct scrutiny.
And it likely would be many, many years before any other CUs would come even close to that threshold. According to NCUA data, only five credit unions, including Navy, exceed $10 billion in assets — State Employees of Raleigh, N.C. ($29.5 billion); Pentagon Federal of Alexandria, Va. ($18.6-billion); Boeing Employees of Tukwila, Wash. ($13.1 billion) and Schools First of Santa Ana, Cal, ($10.4 billion).
Below them, three other credit unions — Golden 1 of Sacramento, Cal, ($8.8 billion); Alliant of Chicago ($8.1 billion); and Security Service of San Antonio ($8.1-billion) — are slowly inching their way up to the $10 billion figure.
At present, credit unions under $10 billion in assets are examined by their normal examination agency for compliance with CFPB rules, so CFPB rules do still apply to CUs of all sizes, but only those CUs over the $10-billion mark are subject to direct examination by CFPB.
But Dennis Dollar, an Alabama-based credit union consultant, thinks the threshold should be pushed even higher — to the $100 billion level, which, of course, would exempt all credit unions, even Navy FCU, from such regulatory supervision.
"The CFPB's examination authority is a duplication of exams already being conducted by NCUA and the states," Dollar explained. "The CFPB rules apply to all financial institutions, including credit unions, the question is whether the potential for non-compliance is so great that the regular examinations are not enough."
Maybe for some Wall Street and other mega-banks, Dollar added, that risk of inability of the regular examiners to deal with all of the compliance concerns may require additional examination authority for CFPB. "But, in most financial institutions -- and that includes all credit unions because of their size — a special CFPB exam is not needed and amounts to considerable burden for credit unions already examined closely on all compliance issues by their states and/or NCUA."
Jack M. Antonini, president & CEO of the National Association of Credit Union Service Organizations (NACUSO), said he thinks raising the threshold would be good for the credit union movement as a whole.
"The industry is member-owned and focused," he said. "Credit unions do not take advantage of their members/owners as [do] some other loan originators who may be receiving substantial personal income by pushing certain types of loans, or not fully disclosing the details about the loans."
Ben Rogers, research director at Filene Research Institute,would like to see the threshold raised to $50 billion. "Without a whiff of bad behavior from credit unions larger than $10-billion in assets, raising the threshold would save those large credit unions a lot of sweat and tears, not to mention, the several that are now approaching the $10-billion threshold" he told Credit Union Journal. "Raising the limit would also allow the CFPB to focus on the more shadowy corners of the financial services world."
Antonini thinks one of the reasons CFPB is considering raising the examination and reporting threshold is that smaller financial institutions "tend to know their customers better, depend less on brokers and outside loan originators and are less complex, so their primary regulators can do the examinations and not encounter problems that the CFPB would want to see first-hand."
Dollar conceded that a $50 billion threshold is better than $10 billion, but he still insists that $100 billion is more appropriate.
"It is a slap in the face of longstanding supervisory agencies like NCUA, OCC and FDIC to say that their experienced staffs can't examine compliance as well as a brand new agency like CFPB that is less than six years old," Dollar noted. "And, although they will continue to develop their examination credentials over time, [they] are still basically riding with examination training wheels."
But will Congress actually pass this measure?
John McKechnie, a partner at Total Spectrum in Washington DC and a former senior official at NCUA, noted that the idea to raise the CFPB exam threshold has been "kicking around" on the Hill since last year, and it's "likely to gain momentum" now that the Republicans hold majorities in both chambers.
"As far as credit unions are concerned, a discussion of thresholds begs the question: why should any credit union be subject to CFPB examination," McKechnie said. "Credit unions plainly did not engage in the kinds of anti-consumer practices that caused the financial crisis and led to the formation of CFPB in the first place. I've yet to hear a compelling argument in favor of adding this extra regulatory burden on any credit union, regardless of size."
Ryan Donovan, chief advocacy officer at Credit Union National Association (CUNA), said that on the surface, the environment for major changes to the Dodd-Frank Act looks "challenging."
"But I'm not ready to rule anything out four weeks into the Congress, despite the very strong statements from the White House indicating the president will oppose further changes to this law," he said.
Still others have suggested raising the asset threshold is a red herring. One such critic, credit union consultant Marvin Umholtz, said what is really needed is an overhaul of CFPB itself.
"Changing the CFPB rule on examination from $10 billion to either $50 or $25 billion would have a direct impact on a handful of very large credit unions, but would be unlikely to have an impact that anyone would call 'industry-wide,'" he said. "When it comes to industry-wide impact, it is the CFPB's rulemaking authority, and the counter-productive rules that the agency has promulgated and proposed, that will be the ruin of credit unions and community banks. The CFPB needs to clean house and recruit smart people who actually know something about the financial services marketplace, or it needs to be closed down immediately, before it can cause any more irreparable damage."
But other Capitol Hill observers point to clear indications that President Obama will oppose further reforms to Dodd-Frank and the regulator that it created, noting that there's a better chance of getting the threshold lifted than dismantling or overhauling CFPB.