WASHINGTON — For credit unions, Senate Banking CommitteeChairman Christopher Dodd's proposed regulatory overhaul is boththe best of bills and the worst of bills.

On the plus side, most credit unions wouldn't have to worryabout an additional examination, nonbanks would face moreregulation and credit unions aren't perceived as a potentialsystemic risk.

On the down side, there would be an unknown entity makingconsumer rules that may not understand the uniqueness of creditunions and with that may come greater compliance costs. Also,federal laws wouldn't preempt most existing state laws.

Sen. Dodd (D-Conn.) unveiled the bill on March 15, with noco-sponsors on either side of the aisle, following extensivenegotiations with Republican committee members. The panel ismarking up the bill this week, and he has said he hopes to completework by the time lawmakers leave for recess at the end of the week.The full Senate would then likely take it up in April or May, andif it passes a bill, it would have to be reconciled with theregulatory restructuring bill passed by the House lastDecember.

The bill would create a Consumer Financial Protection Bureauhoused in the Federal Reserve and headed by someone appointed bythe president with the advice and consent of the Senate.

All credit unions would have to comply with the rules issued bythe CFPB, but the NCUA would handle the enforcement forinstitutions that have assets of $10 billion or less. The threecredit unions with assets of more than $10 billion-Navy FCU,Pentagon FCU and State Employees Credit Union-would be subject toconsumer-related examinations by the CFPB, while the NCUA or astate regulator would handle the safety and soundnessexaminations.

CUNA and NAFCU said they plan to ask lawmakers to introduce anamendment raising the threshold to $50 billion, indexed forinflation. The House-passed bill also contains a $10 billionthreshold, which was raised from $1.5 billion at the behest ofcredit union trade groups.

CUNA Vice President for Legislative Affairs Ryan Donovan saidhis group's arguments would stress that by their nature creditunions are focused on treating consumers well and “if our membersdon't protect consumers, then they will lose members.”

NAFCU is emphasizing that two of three largest credit unionsprimarily serve the military and any additional compliance costswould be paid for by those defending the nation and theirfamilies.

Both groups said the new bureau would cause some credit unionsto spend more on compliance. Neither offered up an overall costestimate.

Under the bill, nonbank lenders, such as mortgage companies andpayday lenders, would be subject to examinations by the CFPB.Currently, those entities are mostly regulated by states.

“That would lessen their competitive advantage over creditunions, and we see that as a net plus,” Donovan said.

CUNA and NAFCU are at odds on the issue of federal preemption ofstate laws. Dodd's bill would allow states to enact strongerregulations than those of the federal government.

NAFCU is pushing for an amendment that would let the NCUApreempt any law that “prevents or significantly interferes” withthe ability of a credit union to operate.

NAFCU Executive Vice President of Government Affairs Dan Bergersaid his group has found some interest among lawmakers for theamendment. Other groups with similar positions include the AmericanBankers Association and the Financial Services Roundtable, whichrepresents large financial firms. They contend allowing differentsets of consumer rules would make it hard for financial serviceproviders that operate across state lines and would overturn 150years of precedent.

On the flip side, Donovan said while his group is stillreviewing the Dodd bill, it will work to ensure there is nopreemption of state laws.

NCUA Director of Public and Congressional Affairs John McKechniesaid his agency has “always used its preemption authority lightly,and we don't expect to be adversely affected by these proposedchanges.”

NASCUS, which has long been concerned about federal encroachmentof state power, didn't comment on Dodd's proposal but has saidthroughout the legislative process that it will work to protectstate autonomy and be certain that federal rules are a floor,rather than a ceiling.

The new consumer bureau's rules could be overturned by atwo-thirds vote of the newly created Systemic Risk Council, made upof the heads of several key financial regulators, though not theNCUA.

At a news conference unveiling his bill, Dodd said in responseto a question from Credit Union Times that the newregulator will be a “strong and independent consumer watchdog.” Andwhile he conceded that the bill “won't stop the next [financial]crisis from occurring,” he predicted it will provide futuregenerations with the tools needed to curb practices that havecaused many problems to the financial system.

Sen. Bob Corker (R-Tenn.), the lead negotiator for the GOP onthe issue, praised the bill for including many components supportedby his party-including placing the consumer regulator inside theFed rather than as an independent agency as proposed by PresidentObama. However, he said he's not pleased with the overall bill andwould use the committee markup to try to get a bill that can getbipartisan support.

CUNA and NAFCU said they are pleased that Dodd's proposalwouldn't require credit unions to have to contribute to any fundaimed at rescuing for-profit companies deemed too big to fail. Thebill also doesn't place executive compensation restrictions onnot-for-profit financial institutions, such as credit unions.

Dodd's bill creates an Orderly Liquidation Fund, financed bymandated contributions from “eligible financial companies,” whichinclude large bank holding companies.

Under the House-passed bill, the Federal Reserve would handlethe regulation and the FDIC would administer a fund aimed atrescuing troubled institutions. But lawmakers approved an amendmentexempting financial institutions with assets of $50 billion orless-which includes all credit unions-from contributing to thefund.

While there will be much discussion of the merits of Dodd'slegislation, political factors will play a significant role inwhether the Senate passes a bill.

While some committee Republicans have praised parts of the bill,the relations between the parties have been especially tenserecently, fueled in part by the Democrats' threats to circumventnormal Senate channels to pass health care legislation.

Corker told reporters that while there will be some bitternessamong Republicans about the health care process, “I hope mostmembers will consider this issue on its own merits.”

NAFCU Director of Legislative Affairs Brad Thaler gave “betterthan 50-50 odds that the Senate will pass something,” but Doddstill has a great deal of work to do to seal the deal.

Dodd will be walking a legislative tight rope. He needs to findways to win over some Republicans while not alienating liberals inhis own party.

Some Senate Democrats and Sen. Bernard Sanders (I-Vt.) havepushed forcefully for having the consumer financial regulator as anindependent agency. While Sanders isn't on the Banking Committee,his vote will be up for grabs, especially if the final vote countis close.

This November's elections could motivate lawmakers to act.

“Nobody wants to face the voters having helped Wall Streetwithout having taking steps to help Main Street,” Thaler said.

–[email protected]