Credit unions and other financial institutions are likely to face an added regulatory burden as a result of the regulatory overhaul bill passed by Congress this year.
The upside, it could have been worse.
The areas of the legislation likely to have the greatest impact on credit unions are the creation of the Bureau of Consumer Financial Protection and the Federal Reserve's new power to regulate interchange fees.
The bureau, which will be headed by a presidential appointee and housed in the Fed, is mandated by the bill to issue at least 24 sets of rules, according to an analysis by the law firm of Davis Polk & Wardwell.
CUNA and NAFCU worked to limit the impact of the new regulator, which both the Obama administration and the House had wanted to be a standalone entity.
All credit unions have to comply with the bureau's rules and regulations, but the bureau itself will only directly handle the enforcement at credit unions that have assets of more than $10 billion. However, the bureau can go on joint examinations with the NCUA if there is a practice that the agency is concerned about.
Former NCUA Board Member Geoff Bacino said the new rules will increase compliance costs and cause a realignment of responsibilities at many credit unions.
"There will be a range of additional things they will have to do to comply, and there is no doubt that the NCUA will be enforcing the rules closely," he said. "Because of the additional rules, the compliance people and internal auditors will be even more important cogs in the credit union machine."
The bureau, which is scheduled to begin operations by July 21, 2011, will assume many of the consumer protection functions of existing financial regulators though the agencies will keep their own offices of consumer protection. It hasn't been determined how many of the 33 employees of the NCUA's Office of Consumer Protection will be transferred to the new bureau.
Davis Polk estimates that the federal government will issue approximately 243 new sets of rules, most of them coming from the Securities and Exchange Commission and the Commodities Futures Trading Commission. In addition, the law requires 67 one-time studies and 22 additional periodic reports.
Elizabeth Warren, the Harvard Law School professor who came up with the idea for the bureau and is the point person for setting it up, said its goal is to improve and increase disclosure among companies that sell financial products.
"Too many creditors use complex forms, so it is harder to determine prices at the beginning of the transaction," she said during a December speech to the Consumer Federation of America. "When competitors can obscure the price of credit, companies that make cheaper or better products can't compete."
Republicans who will control the House next year have said they will closely monitor how the bureau and other regulators implement the bill and aren't averse to use the funding process to exert leverage.
Rep. Randy Neugebauer (R-Texas), who will chair the Financial Services Oversight Subcommittee, complained in a CFA speech that the agency has "very, very broad powers." He said the key to an improved marketplace is not necessarily more regulation, but having regulators "doing what they are tasked to do."
Officials of CUNA and NAFCU who have met with Warren said she hopes the agency's regulations won't negatively impact credit unions and other small financial institutions.
"The big guys can handle anything we do. I am worried about the smaller players," one official quoted Warren as saying.
On interchange, the final bill contained an amendment originally proposed by Senate Majority Whip Richard Durbin (D-Ill.), which gives the Federal Reserve the power to write regulations to ensure that debit card fees are "reasonable and proportional" in relation to processing costs. It excludes credit unions and community banks with assets of less than $10 billion. It also allows merchants to set a minimum or maximum amount for each transaction and lets them offer additional discounts for using a certain type of card or cash.
Both CUNA and NAFCU cited the amendment as a major reason for their opposition to the final bill.
The road to passing the Dodd-Frank bill was long. The Obama administration unveiled its proposal in June 2009 and each chamber of Congress had to vote on it twice. Obama signed it into law in July.
During the legislative process, CUNA, NAFCU and NCUA succeeded in obtaining several amendments that benefited credit unions. One such amendment gave the NCUA chairman a seat on the council empowered to determine if a failing institution poses a systemic risk and to hear appeals of rules issued by the consumer bureau. Another amendment eased some of the demographic data reporting requirements.
The original proposal kept the NCUA as an independent agency even as it merged some other financial regulators.