Overregulation is endangering our credit unions

As the National Association of Federal Credit Unions (NAFCU) testified before the Senate Banking Committee this week for credit unions’ regulatory relief, one thing bears repeating: Credit unions, with their prudent business model and lending policies, proved their mettle during the financial crisis. 

Credit unions stood by millions of their members through the crisis and continue to provide unsurpassed service today. They have been widely recognized for this by policymakers and lawmakers.

{mosads}When Congress proposed creating the Consumer Financial Protection Bureau (CFPB), NAFCU was the only financial services trade association to oppose placing credit unions under the bureau’s direct regulatory authority. 

NAFCU agreed there was a need to regulate the unregulated, to subject fringe providers to the same kinds of consumer protections that were already required of federally regulated depository institutions. We were concerned with the potential overregulation of credit unions. Regrettably, our concerns have become a reality.

Since the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act — aimed at reining in the bad actors, including those on Wall Street — and establishment of the CFPB, regulatory compliance costs have taken a severe toll on Main Street credit unions.

Unfortunately, there appears to be no end in sight to overregulation. The National Credit Union Administration’s second risk-based capital proposal, 500 pages long, is an example of a regulation that is costly and completely unnecessary.

The mounting costs and growing complexity of credit unions’ compliance burden are driven by two key components of overregulation: regulators’ overestimation of risk and the need to regulate it, and their underestimation of the time it takes to comply with a rule that, in the end, confers little benefit.  

Unfortunately, the result has become abundantly apparent as more and more credit unions, not-for-profit, member-owned financial institutions, have ceased doing business. 

Since 2007, the number of credit unions has declined by 1,600. That’s a whopping 21 percent drop. Under these circumstances, it is no surprise credit unions and NAFCU believe “enough is enough” when it comes to overregulation.

To help stem the tidal wave of regulations, NAFCU has introduced its “top 10” list of regulatory requirements that should be eliminated or amended to benefit credit unions and their 100 million members. 

One key component of this plan would improve the process for credit unions seeking changes to their fields of membership. Another would update the current requirement to disclose account numbers, a change that would help protect members’ privacy.

Credit unions aren’t in business for profit. They are run by their members, for their members. Whatever “earnings” credit unions realize go right back to the membership in the form of higher dividends, lower rates and fees and other service enhancements.

Credit unions want to continue to serve Main Street without being caught in a regulatory quagmire that undermines their ability to provide members low-cost, low-fee products and services. For example, according to Bankrate’s 2014 annual checking account survey, the proportion of credit unions that offer free checking has held steady for the past few years, at 72 percent. By contrast, just 38 percent of banks do so.

For credit unions, every dollar spent on compliance is a dollar not invested to help a family realize its dream of home ownership, a dollar not used to advance a small-business owner’s goal of entrepreneurship or a dollar not used to help an aspiring student attend college.

We continue to believe the CFPB should concentrate on the unfair, deceptive and abusive practices of Wall Street banks as well as non-depository institutions that wreaked havoc nationwide during the financial crisis.

While all financial institutions have grown since the passage of the Federal Credit Union Act in 1934, it should be noted that the credit union market share of household financial assets is roughly the same today as it was 20 years ago. 

The defining characteristics of credit unions remain the same today as they were in 1934: not-for-profit, cooperative in nature, serving a defined field of membership, and no mechanism for capital stock.

Ultimately, enough is enough. Overregulation hurts everyone. We welcome the opportunity to work with Congress to find ways to cut back on the regulatory burden of credit unions, which did not contribute to the financial crisis, and urge that this remain a priority in the 114th Congress so credit unions will still be around to serve Main Street in the future.

 

B. Dan Berger is president and CEO of the National Association of Federal Credit Unions.

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