Conference Debate: Is the CFPB CUs’ Friend or Foe?
WASHINGTON—No issue at this year’s GAC was more polarizing than the new Consumer Financial Protection Bureau. Speakers, particularly politicians, were either completely against it or completely for it, depending upon which party they represented.
Rep. Jeb Hensarling (R-Texas) told a Wednesday morning general session crowd that rarely has an agency had so much potential to harm individual liberties. Not only was the appointment of Director Richard Cordray, done without Senate confirmation, “unlawful and unconstitutional,” the bureau will apply subjective judgment in declaring legal activities to be fraudulent.
Credit union ally Rep. Ed Royce (R-Calif.) also had harsh words for the CFPB, saying economists quoted in national press have said the agency will increase the cost of credit for consumers. Additionally, the agency has “large, vague and undefined goals” and will operate under almost complete authority of Director Cordray. Royce said he wants the new bureau to instead be run by a board, as both Elizabeth Warren and Treasury Secretary Tim Geitner originally proposed.
However, Cordray, his staff and left-leaning politicians had a completely opposite message at GAC, stressing that the CFPB defers to congressional mandates, and staff will focus on researching the effects any new regulations will have on consumers and the businesses that provide them with financial services.
Rep. Barney Frank (D-Mass.) told his Wednesday morning general session audience that the bureau will restrict some practices by large banks that have been anticonsumer, and added that he ultimately intended to bring consumers to credit unions and expand their market share.
“Sarah Palin was half right about death panels back in 2010,” Frank said. “We want them, but not for old ladies. We want them for big banks.”
Dan S. Sokolov, the CFPB’s deputy assistant director of research, markets and regulation, told a breakout session group that as Congress intended, creating one agency that focuses solely on consumer financial protection will provide better accountability and oversight. Decision making will not occur in a government bubble. Instead, the agency will rely upon a constant flow of information to ensure new regulations make sense.
The agency has also purposely hired staff from the industries it will regulate, he said. If a policy maker has a question about payday lending or mortgages, he or she can walk down the hall and ask an industry expert, who not only has first-hand knowledge but can also draw upon the experience of colleagues.
In fact, the CFPB will even hire psychology and marketing experts to provide insight into how and why consumers make purchasing decisions.
Congress has set boundaries for the CFPB, Sokolov said, but it also gave the agency enough exceptions to avoid unintended consequences when crafting new regulations. The CFPB’s examination exemption to credit unions with fewer than $10 billion in assets is a good example of that flexibility in action, he said.
Cordray talked up his new agency during his general session Monday, saying he firmly believes that had the CFPB been around 10 years, the financial crisis could have been averted. The bureau’s authority over nondeposit financial service providers will be particularly important, especially those that provide mortgages.
In contrast, Cordray said he and his staff embrace the credit union model, and said they will support those who treat consumers well. Rather than being part of the problem, credit unions were among those harmed during the financial crisis.
The $15 billion Pentagon FCU is assisting the agency in testing new credit card agreements, Cordray said. Because Pentagon exceeds $10 billion in assets, it is among a handful of credit unions that will be regulated by the bureau.
CUNA General Counsel Mary Dunn, who moderated the breakout panel session, said in CUNA’s experience, the CFPB has opened its doors to the trade association, providing meetings with staff and Cordray, who told CUNA “he wants to help, not hurt, credit unions.”
CUNA is also encouraged by the CFPB’s planned Consumer Advisory Board, on which credit unions should have a strong presence. The agency has made a concerted effort to not just be another regulator, but has reached out to credit unions, she said.
Dunn said CUNA’s primary concerns with the CFPB are final regulations on remittances and overdraft programs. New disclosure requirements for remittances might make it difficult for some credit unions to continue providing the service to members.
“As we know, there are some very bad overdraft protection programs out there, but most credit unions work hard with members to provide them with flexibility so their items won’t bounce,” she said.
Panelist Erin Mendez, executive vice president and chief operating officer at the $9 billion SchoolsFirst FCU and CUNA Council Forum Chair, said she is focusing on helping credit unions know what to expect from the CFPB. Fortunately, because the new agency will focus on non-deposit organizations that provide financial services like payday lending, and on institutions with more than $10 billion in assets, credit unions will mostly be dealing with new disclosures.