Since you asked how you could regulate us better...we would really prefer it if you would just leave us alone.

That was the message from the Credit Union National Association and the National Association of Federally-Insured Credit Unions in letters responding to a Request for Information from the Consumer Financial Protection Bureau concerning enforcement processes. In letters sent Monday to the CFPB, both CUNA and NAFCU led with the suggestion the CFPB leave enforcement and oversight of credit unions to the National Credit Union Administration.

Elizabeth Eurgubian, CUNA’s deputy chief advocacy officer and senior counsel, reminded officials at the CFPB the Bureau has the authority to delegate to NCUA when it comes to credit unions.

After acknowledging the CFPB has exclusive examination and primary enforcement authority over credit unions with assets of more than $10 billion for compliance with consumer financial laws, Eurgubian wrote, “Currently, only seven of nearly 5,700 federally insured credit unions are above the $10 billion threshold and thus subject to Bureau examination and enforcement. Because of the different structure and business model of credit unions, primary examination and enforcement over all credit unions—including the largest seven—should be under the control of the NCUA.”

Mick Mulvaney, acting CFPB director.
Mick Mulvaney, acting CFPB director. Bloomberg News

Eurgubian followed with: “The bureau can delegate its examination and enforcement over the seven largest credit unions to the NCUA, by exempting these credit unions from section 1025 of the CFPA. This delegation can be provided to the NCUA based on the Bureau’s authority under section 1022(b)(3)(A).”

Should the CFPB retain examination and enforcement over credit unions with over $10 billion in assets, CUNA stressed the importance of “synergy” with the NCUA as a partner throughout the investigation and enforcement process.

Ann Kossachev, NAFCU’s regulatory affairs counsel, wrote in the trade group’s letter, “NAFCU commends the Bureau for conducting this review to assess the efficiency and effectiveness of its enforcement processes and is happy to suggest areas for improvement. Above all else, NAFCU maintains that federally-insured credit unions should not be subject to the Bureau's enforcement authority.”

UDAAP guidance needed

Both trade associations expressed concerns regarding the CFPB’s lack of definitions and specifics regarding alleged illegal practices. Under the Dodd-Frank Act, it is unlawful for any provider of consumer financial products or services or a service provider to engage in any unfair, deceptive, or abusive act or practice, which is commonly known by the acronym UDAAP.

In NAFCU’s letter, Kossachev noted the Dodd-Frank Act provides “broad definitions” of prohibited behavior under its UDAAP provision, “which the Bureau has repeatedly used as the basis for its enforcement actions,” she wrote.

“This evaluation should start with providing clearly articulated rules for the types of acts and practices that constitute a UDAAP,” Kossachev asserted. “The Bureau should also provide clear rules for the industry after an enforcement action is resolved, so that the specific acts or practices at issue are memorialized for the rest of the industry to use in their compliance efforts.”

In CUNA’s letter, Eurgubian said the trade group “remain[s] concerned” the Bureau will continue to use UDAAP “without any rules or guidance in place to help entities, such as credit unions, comply.”

If the CFPB wishes to make changes to policy, Eurgubian argued the Bureau should engage in the “appropriate” notice and comment process so the due process rights of stakeholders are not violated.

UDAAP should not be used as a “catch-all” for the Bureau to enforce policies not required by laws or regulations,” Eurgubian wrote. “As such, CUNA urges the Bureau to issue a regulation or formal guidance to define the terms of UDAAP so credit unions are aware of how to comply with the Bureau’s expected standards.”

Other suggestions from NAFCU/CUNA

In addition to urging the CFPB to exempt credit unions from its enforcement authority and to better define what constitutes a UDAAP, NAFCU’s Kossachev detailed three suggestions to “improve” the CFPB's enforcement processes:

  • Make the Notice and Opportunity to Respond and Advise (NORA) process mandatory. "Parties to an action deserve the ability to present their positions to the Bureau before a determination is made on the enforcement action," Kossachev wrote. "Making this process mandatory would substantially increase transparency, protect essential due process interests and avoid the appearance of uninformed, one-sided decision-making."
  • Permit entities to make presentations prior to legal proceedings. In addition to allowing parties to submit a written response through the NORA process, Kossachev argued the bureau should also allow them to attend preliminary hearings before a decision is reached on an enforcement action. Doing so "would allow parties to meet face-to-face with Bureau enforcement officials to better understand the allegations against them and lead to a more informed process overall."
  • Make press releases less inflammatory, more focused on facts. Kossachev recommended the bureau adopt a more facts-based approach to press releases related to legal proceedings, similar to other federal financial regulators. She said NAFCU and its members have concerns about the current length and language of press releases, which often aim to invoke an emotional response.

CUNA’s Eurgubian said should the CFPB retain examination and enforcement over credit unions, it had additional suggestions:

  • The CFPB must not impose enforcement actions that are not supported by prescriptive laws, regulations, or guidance under its jurisdiction;
  • If the bureau continues primary examination and enforcement over the largest credit unions, then its processes must be more transparent and directed at resolving any violations, with enforcement actions serving as a last resort; and,
  • The bureau should establish for the financial services industry a matrix for how it determines civil money penalties. This matrix should be published for notice and comment.

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