Sentate Bill Would Give Fed More Consumer Powers
After months of bipartisan bashing of the Federal Reserve's actions during the recession, a major proposal discussed by Senate Banking Committee members would give the Fed more power to regulate consumer financial products.
In the wake of unanimous opposition from Republicans to creating a Consumer Financial Protection Agency, Committee Chairman Christopher Dodd (D-Conn.) and Sen. Robert Corker (R-Tenn.) were floating a compromise proposal to beef up the Fed's consumer regulatory powers.
Several key Democrats were lukewarm to the idea, and lobbyists for CUNA and NAFCU said the impact on credit unions' regulatory burden is unclear.
Under the Dodd-Corker proposal, which at press time was still being finalized and circulated to other committee members to solicit their input, there would still be a divide between those that make the rules and those that enforce them and examine financial institutions for safety and soundness.
"They are closer than they've ever been to a compromise, but it's still not clear whether they are at the 50 yard line or 10 yard line," CUNA Vice President of Legislative Affairs Ryan Donovan said of the Senate discussions. "But it's also still not clear whether credit unions will fare better under this scenario."
Currently, the Fed has a great deal of rule-making authority on consumer issues that affect credit unions. Just in the last year, credit unions have had to deal with a range of Fed-issued regulations in areas such as credit card usage and overdraft programs.
The Fed doesn't examine credit unions to see that the regulations are being enforced.
Placing a new consumer financial products regulation bureau in the Fed is against the wishes of the Obama administration, which wants a separate agency, and the House, which passed a regulatory overhaul in December that created the new independent regulator.
"I continue to vigorously support the House-passed bill that establishes an independent agency with strong rule-writing authority and enforcement powers to implement consumer protections," House Financial Services Committee Chairman Barney Frank (D-Mass.) said in a statement. "My main objection to housing this critical function in the Federal Reserve has been the central bank's historical failure to implement consumer protection as a central part of its mission and role."
Sen. Charles Schumer (D-N.Y.), a member of Senate Banking Committee, said that he is skeptical of the idea because trying to get the Fed to protect consumers effectively "has been an uphill and very often unsuccessful battle."
NAFCU Director of Legislative Affairs Brad Thaler said giving the Fed more power in this area would likely cause higher compliance costs for credit unions and other financial institutions that didn't cause the financial crisis.
He also said the proposal could be a "hard sell" among Democrats who think it is too weak and among Republicans who don't want any additional regulatory entity, whether it is independent or housed in another agency.
Under the House-passed legislation, most credit unions (those with assets of $10 billion or less) wouldn't be subject to examinations by the new agency, but the NCUA would be responsible for enforcing the regulations. However, the $10 billion threshold isn't indexed for inflation so the number of credit unions not exempt from CFPA examination-currently Navy Federal Credit Union, State Employees Credit Union and Pentagon Federal Credit Union-could grow as credit union asset sizes grow.
Frank said he could support housing the consumer regulator in the Treasury Department if it "has sufficient independence and broad regulatory scope to accomplish the mission of protecting consumers."
On another sticking point, Senate negotiators haven't reached an agreement on a fund that is aimed at unwinding large financial entities deemed too big to fail.
The House bill charges all financial institutions with assets of $50 billion or more-which excludes all credit unions. CUNA and NAFCU are pushing for similar language in the Senate bill.
The trade groups successfully defeated a provision that would have placed the threshold for contributions to the fund at $10 billion.