On April 10, the House Financial Services Committee conducted a hearing on "Examining Credit Union Regulatory Burdens.” Pamela Stephens, president and CEO of Security One FCU, an Arlington-based credit union with $54 million in assets, testified on behalf of the Credit Union National Association (CUNA).
During the hearing, based on CUNA's 35-point plan for relieving regulatory burden, Stephens cited ongoing concerns with the National Credit Union Administration (NCUA), the Consumer Financial Protection Bureau (CFPB), and the Financial Accounting Standards Board (FASB), among others.
In her opening statements, she said, "We have come to call what credit unions face in terms of regulatory burden a crisis of creeping complexity. It is not just one new law or revised regulation that challenges credit unions, but the cumulative effect of regulatory changes." She added that this phenomenon has been building for over a decade and that as the CFPB continues to promulgate and review regulations under its jurisdiction as required by the Dodd-Frank Act and other statutes, "there will likely be hundreds of additional changes credit unions will be required to make, notwithstanding the fact that everyone agrees that credit unions did not cause or contribute to the financial crisis."
In driving home the point of over-regulation, she noted that credit unions had been subject to over 120 rule changes from 15 different agencies between 2008 and 2012, and that since then, 37 additional rules and regulatory changes had been adopted, which is more than one new rule or rule change per month.
She described how there seems to be a “treadmill” of regulatory burden. “I’m constantly running, trying to catch up, and fear we are not in compliance,” she said.
Stephens cited regulatory burden as one of the prime reasons for the significant consolidations taking place in the community financial institution sector. "Difficulties in maintaining high
levels of member service in the face of increasing regulatory burden are undoubtedly a key reason that roughly 300 small credit unions merge into larger credit unions each year."
She encouraged the committee to exercise its critical oversight function, to closely scrutinize the proposals coming from the CFPB, the NCUA and other agencies; to ask regulators how their proposals will impact the delivery of financial services to those they serve; and to encourage the CFPB to use its exemption authority to exempt credit unions from regulations designed to rein in the abusive activity of unregulated entities.
She added that despite the very significant concerns with some CFPB rulemakings, the CFPB has provided a model of outreach and inclusion in addressing issues under Dodd-Frank that other financial regulatory agencies should be required to emulate. She referenced the recently established Credit Union Advisory Council, which meets four times a year. "Nevertheless," she states, "so much more is needed."
Stephens specified several other concerns with CFPB, including remittances regulations, mortgage regulations, and exemption authority.
With respect to the NCUA, Stephens cited a mix of positive steps to address regulatory relief and ongoing concerns with the potential for regulatory overreach.
"The agency is developing too many rules under the guise of safety and soundness at a time when the credit union system is performing very well,” she said.
As of YE 2012, Stephens , credit union performance remained very positive, earnings rose to record levels, the system's net worth ratio was around 10.4 percent, delinquencies continued to fall to 1.2 percent, and lending rose 4.6 percent.
She raised concerns about loan participation rules, examination issues and appeals, lack of oversight regarding NCUA's budget, and questioned whether NCUA has inappropriately applied certain rules. "CUNA supports an amendment to the Federal Credit
Union Act," she said, "that would expand the size of the NCUA Board to five members and designate one seat on the Board for a state credit union supervisor."
Regarding the FASB, Stephens pointed to a proposal from FASB regarding the way financial institutions and other entities report credit losses which, if adopted, would mean they would have to significantly and immediately increase their allowance for loan and lease loss accounts (ALLL). She said that making accurate forecasts of future events would be extremely problematic.
Stephens made recommendations in six categories for statutory changes and reports, including highly important Federal Credit Union Act amendments, proposals designed to address the credit needs of members who own small businesses, and improvements to the Dodd-Frank Act. "First and foremost," she said, "we encourage Congress to reform credit union capital requirements by permitting them to accept supplemental forms of capital and to increase the member business lending cap."
According to CUNA, during the hearing the subcommittee members said they favored streamlining regulations for credit unions and allowing greater credit union investment opportunities, including access to supplemental capital. Lawmakers also asked pointed questions about qualified mortgages and the true costs of regulatory burdens, and commented on the need for increased lending to small business owners.
In wrapping up her statements, Stephens said, "The scope and depth of the regulatory burden crisis facing community financial institutions is so great that producing an exhaustive list of the challenges and solutions is frankly impossible."
Stephens covered many other points in some detail during her testimony, and you can access the transcript of that testimony and CUNA's 35-point plan here.