Congress took an important step last month when it enacted regulatory relief legislation for small and less complex financial institutions. However, credit unions and their members still need more relief from the Consumer Financial Protection Bureau and its one-size-fits-all approach to rulemaking that continues to hinder credit unions’ ability to fully serve consumers.
Going forward, CFPB regulations should be two things: appropriately tailored to focus on bad actors, and fully supported by data and research.
Credit unions support both the existence of the bureau and common-sense regulation. Indeed, credit unions are the original consumer financial protectors, because their not-for-profit, cooperative ownership structure and mission “to promote thrift and provide access to credit for provident purposes” affirms different goals and motivations than for-profit financial institutions.
Considering the size of the average credit union is minuscule ($31 million) compared to massive Wall Street banks with assets in the trillions of dollars, it’s no wonder that the CFPB’s approach has had an adverse impact on smaller financial institutions. Wall Street banks can afford to hire hordes of compliance staff and high-priced attorneys, but local credit unions must divert time and resources previously dedicated to member services to comply with rules intended for mega banks and abusers of consumers.
As a result, credit unions struggle to keep up with increasing regulatory red-tape and ultimately end up having to shelve some consumer-friendly options from the market. Take the CFPB’s remittances rule – half of the credit unions that offered remittances either exited the market or reduced offering once the overly burdensome regulation went into effect. The real-world impact means consumers are denied access to safe and affordable financial services, which is the exact opposite result that consumer advocates seek.
It is crucial that the CFPB tailor its rules to ensure not-for-profit financial cooperatives are empowered to offer consumer-friendly products and services. This can be accomplished without sacrificing consumer protection because credit unions have a long and storied history of protecting consumers and acting in the interest of their member-owners. Plus, the bureau’s own data used in its rulemaking process reveals no consumer abuse by credit unions.
The good news is the architects of the Dodd-Frank Act (officially known as the Wall Street Reform and Consumer Protection Act) expressly authorized a safety mechanism to ensure the CFPB does not impose unintended harm on low-risk, good actors. Section 1022 of the Dodd-Frank Act gives the bureau the authority to exempt any class of service provider from rulemakings under Title X of the Act, and credit unions have called on the Consumer Financial Protection Bureau to exercise this authority. In multiple letters to CFPB leadership, an overwhelming majority of both chambers of Congress have also asked the bureau to exercise this authority. Even credit unions’ federal prudential regulator, the National Credit Union Administration, has called on the bureau to use this exemption authority for credit unions.
Unfortunately, the CFPB has not actively used this exemption authority for credit unions, despite lip service over the years that credit unions are a vital part of the financial system and are not the abusers of consumers the bureau was created to combat. We hope this tide will change soon.
Credit unions are consumer protectors. The data back that up, as credit unions consistently receive the highest marks in consumer satisfaction and the lowest rate of consumer complaints to the CFPB. It’s time the bureau and credit unions start working together on behalf of consumers. Using its exemption authority to keep rulemaking from impeding the ability of credit unions to deliver safe and affordable products and services is a good first step in a partnership to protect consumers.