The NCUA would maintain its authority over credit unions, but there would be a new agency to regulate many of the financial products issued by credit unions, according to a regulatory restructuring plan released last Wednesday by the Obama administration.
While the NCUA would remain intact, some of its consumer protection responsibilities would be shifted to a new Consumer Financial Protection Agency that would regulate mortgages, credit cards and other financial products. Currently, many consumer regulations are issued jointly by the NCUA, the Federal Reserve, the FDIC, the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
In a White House speech attended by lawmakers, regulators and lobbyists, President Obama said the changes were needed to avoid a recurrence of events and policies that "led us to near catastrophe." Obama did not mention the NCUA in his remarks, and the CU regulator is referred to in only two of the 85 pages in the document that spelled out the details of his plan.
The president said the proposal, which must be approved by Congress, seeks to "create a framework in which markets can function freely and fairly, without the fragility in which normal business cycles suddenly bring the risk of financial collapse, we want a system that works for businesses and consumers."
Obama has said he hopes Congress completes action on the plan by the end of the year.
Although the NCUA's oversight of credit unions would remain intact, the plan does not give the agency a seat on a council of regulators designed to monitor systemic risk. The plan would create a Financial Services Oversight Council to "help fill gaps in supervision, facilitate coordination of policy and resolution of disputes and identify emerging risks in firms and market activities." It would be chaired by the secretary of the Treasury and made up of the heads of the "principal financial regulators."
The NCUA chair is not listed as one of those regulators on the committee. However, several lobbyists for credit unions said they would try to get the NCUA chair included when the issue is discussed in Congress.
But Rep. Paul Kanjorski (D-Pa.) a leading supporter of credit unions, said the omission reflects well on their performance and might nit need to be changed.
"The administration's decision not to include a representative from the NCUA on the proposed Financial Services Oversight Council should be understood to reflect a determination that credit unions do not pose a risk to collapsing the entire financial system, the prevention of which is the primary function of the council. Nevertheless, this is an issue that I will continue to monitor," he said in a statement.
The administration has proposed significant changes in how banks are regulated, including the elimination of the federal thrift charter and the creation of a national bank supervisor to regulate all federally chartered banks and federal branches and agencies of foreign banks.
The plan would also give the Federal Reserve additional regulatory power and give the FDIC resolution authority for unwinding large firms. It also imposes higher capital and liquidity requirements. It would also give banks unlimited interstate banking authority over payment and settlement systems.
CUNA Executive Vice President and General Counsel Eric Richard said eliminating the federal thrift will make it harder for credit unions to convert to other entities because "Mutual savings banks, which offer more options without forcing the institution to get a commercial banking charter, would no longer be an option.''
NCUA Chairman Michael E. Fryzel, who was at the White House to attend Obama's speech, said in a statement that he was "pleased with two specific elements: the creation of a council that would enhance consumer protections and the maintenance of a separate and independent NCUA. Both of these, in concert with other aspects of reform under consideration, will serve to ultimately improve the safe and sound operations of the U.S. financial system."
CUNA Vice President of Legislative Affairs Ryan Donovan said the consumer protection agency is an "interesting academic idea," and his association wants to see if it will redistribute the regulatory burden on credit unions or add an additional layer to them.
The new agency would complement-not supplant-the consumer protection efforts of states. The plan says the agency's rules would "serve as a floor and not a ceiling. The states should have the ability to adopt and enforce stricter laws for institutions of all types."
That provision pleased NASCUS President/CEO Mary Martha Fortney, who also said her organization is "pleased that the plan keeps the dual chartering system and keeps a strong role of state regulators in overseeing credit unions and in consumer protection."
NAFCU President/CEO Fred Becker said in an interview that he had concerns about the new agency because "credit unions are already the most heavily regulated financial services provider and are concerned about having another bureaucratic layer."
He added that "until we see more of the details, it's hard to know the true potential impact on federal credit unions, but we have found administration officials very receptive to listening to our concerns and expect to build on that relationship."
Both the American Bankers Association and the Independent Community Bankers of America expressed strong opposition to creating a new agency to regulate financial products.
"Community banks pride themselves on the safety and soundness of the loans they make, and it's unnecessary that their customers be penalized for the poor practices of a few," ICBA said in a statement.