With the Consumer Financial Protection Bureau launch about a month away, credit union executives are expecting to spend more money and time complying with myriad of new regulations.
While Elizabeth Warren, who is setting up the bureau, has extolled the virtues of credit unions and promised to do no harm to them, executives and industry experts were not assuaged by her promises.
"The tendency of regulators is to regulate to the biggest offender, which would be the large banks. They aren’t gearing the rules toward smaller institutions. But when an atomic bomb goes off, the fallout goes far beyond the spot of the detonation," said former NCUA Chairman Dennis Dollar, who now runs a credit union consulting firm.
Truliant FCU President/CEO Marc Schaefer said he was fearful that the bureau will issue regulations that will cause his $1.1 billion credit union to have to spend more time on compliance issues and less time helping members manage their financial affairs.
He noted that after Congress passed the 2009 law revamping credit card rules, his credit union was forced to place additional warnings about late payments on all statements. This caused the Winston-Salem, N.C.-based credit union to receive 2,000 phone calls from confused members, many of whom were worried that they had missed a payment.
Nevada Federal Credit Union President/CEO Brad Beal said while he is "watching and waiting" for the new bureau, he expects its actions will cause him to add to the credit unions' compliance staff and spend more money on other areas to meet the requirements of the new regulations.
Beal, whose Las Vegas-based institution has $685 million in assets, said he fears the additional requirements will hurt the credit union’s bottom line at a time when the state’s economy is still sluggish.
"Every time we take two baby steps forward we take one baby step back. There are no strong signs of the recovery," he said.
The CFPB, which will be an independent entity housed in the Federal Reserve, is scheduled to begin operations on July 21. However, if it doesn’t have a director in place, some of its powers will remain at the Treasury Department.
Unlike some regulatory agencies, such as the NCUA, it won’t be self funded. Last year’s financial overhaul bill, which created the CFPB, mandated that it be funded by the Federal Reserve. The law said the Fed can transfer up to $500 million annually, based on the request from the CFPB director. However, a key House subcommittee recently unveiled a budget proposal for the fiscal year that starts Oct. 1 that would limit the Fed’s transfer to $200 million.
The new bureau will be staffed by people hired from existing federal agencies, mostly the Fed, and by people hired from outside the government. One NCUA employee is scheduled to be transferred to the CFPB. The bureau will only have direct supervisory authority of institutions with $10 billion or more in assets, but all institutions must comply with its regulations. Enforcement for other institutions will be done by their safety and soundness regulator, such as the NCUA.
Dollar predicted that the NCUA, which has been stepping up its enforcement efforts since the financial crisis began in 2007, will be equally as rigorous in enforcing any new regulations from the CFPB.
He also predicted that the new bureau’s regulations could deal with more than just consumer issues.
"Credit unions are concerned that if you use enough elastic it could cover almost any aspect of credit union operations," he said.
Though President Obama hasn’t named a director of bureau, Warren has already named several key officials, including former Massachusetts Banking Commissioner Steve Antonakes (whose department also oversaw credit unions) and former Morgan Stanley Managing Director Elizabeth Vale.
CUs are already devising strategies for how to influence the agency.
Truliant’s Schaefer recently brought in former Assistant Treasury Secretary Michael Barr, a chief architect of the financial overhaul bill, to advise his board. Barr advised the CU to submit points of differentiation–its set of core values and best practices–to the bureau so it could use them as a role model for other financial institutions.
Schaefer noted that that by highlighting the fact that his credit union takes great care to look out for members’ interests, including practices such as not advertising any loan rates that most members aren’t eligible for, it might persuade the CFPB to be less heavy handed.