Credit unions did not cause the financial crisis. They did not engage in the abuses that led to the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. And they were not the reason that Congress created the Consumer Financial Protection Bureau. These are widely accepted assertions that CFPB Director Richard Cordray fairly frequently acknowledges himself.
As recently as the last Credit Union Advisory Council meeting, Director Cordray stated: “The Consumer Bureau is well aware that credit unions were not one of the causes of the financial crisis. You were not underwriting the bad loans that brought down the housing market. Instead, you were sounding the alarm bells well before the sinking of the economy.”
Unfortunately, instead of zeroing in on those in the marketplace who caused the financial crisis, the CFPB has insisted on lumping credit unions in with those bad actors and continues to sweep them into rulemakings that should be aimed at unscrupulous participants in the financial marketplace.
The Bureau’s broadsword approach to rulemaking has a tragic consequence: the very consumers it seeks to protect are harmed because financial services offered by credit unions could become more expensive and less available. The CFPB’s rules have created an overwhelming regulatory burden that has prompted some credit unions to stop offering certain services, leaving members with no choice but to turn to less reputable providers, or even predators in the marketplace.
Last month, despite much evidence to the contrary, CFPB Director Cordray alleged at a conference that those expressing concerns about overregulation detrimentally impacting consumers were naysayers stating, “Even in our short life span, we have already seen how wrong these predictions can be.”
Director Cordray is entitled to his opinion but not his own set of facts. There is absolutely no question the regulatory burdens placed on credit unions by the CFPB have impacted their ability to provide diverse financial products and services to their members. After studying this question, the GAO recently acknowledged that there is already some evidence of this impact, even without taking into account the most recent regulations that have had even greater impact on credit unions and their members.
Just take a look at the recently finalized Home Mortgage Disclosure Act (HMDA) rule that nearly triples the amount of new data fields that must be collected – far beyond what is required by statute. This will be extremely damaging for credit unions, especially given that nearly half of all credit union loans are mortgage-related. This regulation will unquestionably force some smaller institutions out of the marketplace, decrease consumer choice, and limit affordable options for millions of consumers.
Over the next year, the credit union industry is bracing for the CFPB to start the process of unleashing a tidal wave of new regulations that could threaten not only operations, but their very livelihood. Many of these upcoming rulemakings, such as the one for payday lending and small-dollar loans, could be an important opportunity for the CFPB to protect consumers by correcting the behavior of bad actors. But, the CFPB remains set on throwing the baby out with the bath water by sweeping credit union offerings into their rulemakings.
In the case of the payday lending rule, new requirements and compliance burdens – on top of what is already required by the National Credit Union Administration and state regulators – will cause fewer credit unions to offer alternative small dollar loans. This would reduce consumers’ access to this type of credit and push credit union members and other consumers into the arms of less regulated, or even illegal, payday lenders.
Consumers deserve a CFPB that – as the law requires – takes into consideration the impact its rules will have on their ability to access credit and – as the law specifically allows – exempts credit unions from rules designed to reign in the abusers of consumers. If the Bureau doesn’t do this, the only financial services providers left standing will be the ones Director Cordray has recognized as having caused the financial crisis.
Once again, credit unions are here sounding the alarm. We can only hope that this time, someone is listening.
Donovan is the chief advocacy officer of the Credit Union National Association (CUNA).