Senate Gearing Up for Reg Debate
Lawmakers were trying at press time to iron out a bipartisan agreement on legislation to overhaul the way financial services are regulated.
While the provisions impacting credit unions-which mostly center on a new entity to regulate consumer financial products-were not a major source of conflict during the most recent negotiations, lobbyists for CUNA and NAFCU said because the process is fluid there is still a chance for additional changes.
The Senate bill, which was passed last month by the Senate Banking Committee along party lines, would house the new consumer regulator inside the Federal Reserve, but it would be headed by a presidential appointee. Under the version passed by the House last year, the regulator would be an independent agency. Under both versions, the new regulatory entity would only have direct examination authority of financial institutions with assets of more than $10 billion. Only three credit unions are that large: Navy Federal CU, Pentagon Federal CU and State Employees' Credit Union.
All other institutions would have to comply with the regulations issued by the consumer regulator, but enforcement would be done by their safety and soundness regulator, such as the NCUA.
Sen. Richard Shelby (R-Ala.), the top Republican on the Banking Committee, has said he wants there to be an additional check on the regulations issued by the new regulator. If lawmakers create a new board to review those regulations, lobbyists for CUNA and NAFCU said they might try to ensure that there is a representative from the NCUA.
NASCUS President/CEO Mary Martha Fortney urged lawmakers not to encroach on the autonomy of state regulators.
She wrote senators that the "encroachment of federal preemption only weakens the states' strong frontline defense against deceptive and unlawful financial services practices."
Fortney also recommended that a representative of state regulators be included on the proposed systemic risk council. She noted that state regulators "are in a position to detect problems at the local level before they become a greater national risk."
CUNA and NAFCU both have concerns about the bill.
"It has improved dramatically since it was introduced last year, and we have been and continue to work to address our concerns," said CUNA Vice President for Legislative Affairs Ryan Donovan. "Our members are really concerned about the additional regulatory burden. Our goal is not to get the bill to place where we can support it but minimize the adverse effect on credit unions."
NAFCU Senior Vice President for Government Affairs Dan Berger said because "credit unions didn't create the problem, we object to being subject to a new regulator."
There was sharp rhetoric in the Senate before and during the negotiations, with both parties accusing one another of being too close to Wall Street. Much of the disagreement centered on the structure and funding of the vehicle for unwinding failing financial entities.
Republicans and Democrats disagreed whether the fund would result in increased taxpayer bailouts. Credit unions weren't affected by the debate because only financial institutions with assets of more than $50 billion will be required to pay into the fund.
At one point the wrangling-which manifested itself in sharp exchanges between the Republicans and Democrats and a threat by all 41 Senate Republicans to vote against the bill-threatened to scuttle the legislation.
Eventually the rhetoric cooled down.
Senate Banking Committee Chairman Christopher Dodd (D-Conn.) said on April 21 he expects to have an agreement between leaders and as a result there will be a bill that will help consumers.
"This will put consumers in control of their financial lives, and they will know there is a cop on the street looking out for them," he said in a speech on the Senate floor.
Following Dodd's speech, Senate Minority Whip Jon Kyl (R-Ariz.), took to the floor and said Republicans were eager to protect consumers as well but wanted to do so without adding to the regulatory burden or stifle the flow of capital to businesses. "I am still confident it is possible to reach a bipartisan consensus on this," he said.