Overregulation is not just choking credit unions, it is choking our economy.
According to recent reports from the Competitive Enterprise Institute, 212 of the 4,128 federal regulations that were in the works in 2011 are “economically significant,” meaning they constitute at least $100 million in economic impact. Additionally, regulatory compliance costs are estimated to be $1.75 trillion, roughly equal to about 48% of federal spending. These regulatory costs equal 11.7% of our total GDP. This means that more than $1 out of every $10 of the national income is spent on complying with regulations. Moreover, the Small Business Administration estimates that regulations add $10,585 in costs per employee.
Given these factors, is it any wonder that our economy is stagnant and job creation is lagging in this stifling regulatory environment?
While credit unions would like to do more to grow and promote job creation, most are overwhelmed by an ever-increasing regulatory burden. For instance, the Dodd-Frank Wall Street Reform and Consumer Protection Act is a titan of financial legislation at 848 pages. The Consumer Financial Protection Bureau, itself a by-product of Dodd-Frank, has issued over 3,500 pages of new rules from late June to August 2012. This is an astronomical amount of regulation in an unbelievably short timeframe. Just reading the proposals coming from the CFPB is onerous.
Compare that with some of our nation’s landmark pieces of financial legislation. The National Bank Act, which established our banking system, was 29 pages. Even the Sarbanes-Oxley Act, the most far-reaching reform of American business practices since the time of Franklin D. Roosevelt, came in at 66 pages.
Adding to the regulatory burden is the fact that the CFPB is not the only regulator of credit unions. They must also answer to their prudential regulator, the NCUA, and remain subject to regulations issued by the Department of Justice, Department of Labor and the Financial Crimes Enforcement Network. And the pace with which the regulations are issued gives no consideration to smaller, Main Street-based financial institutions like credit unions, which are at a distinct disadvantage over Wall Street institutions and big banks in terms of resources.
Overregulation is a losing proposition for everyone. Nearly half the small business owners in a Gallup poll this February reported that they are not hiring new employees because of potential health care costs (48%) and government regulations (46%).
For credit unions, every dollar spent on compliance is a dollar not invested to help a family realize its dream of home ownership or a small business owner’s goal of entrepreneurship. Worst of all, more regulation will not necessarily be more beneficial to consumers. Due to the high cost of compliance, many credit unions may decide to opt out of certain lines of business, leaving consumers to search for certain products and services from larger, more expensive providers and predatory lenders.
Such may be the case in the matter of remittances. The CFPB recently raised to 100 the number of remittances a financial institution may conduct in one year without triggering new rules and disclosures. That’s only about eight per month. In fact, this final rule is so troublesome that lawmakers, led by Rep. Blaine Luetkemeyer, R-Mo., and Rep. Yvette Clark, D-N.Y., recently wrote a joint letter to the CFPB requesting a delay in implementation. The letter points out that the rule was intended to provide greater transparency and certainty, as well as increased access to low-cost transfer services for consumers. Instead, it puts access to transfer services “in serious jeopardy due to the nearly impossible compliance challenge that financial institutions must solve by next February.” This rule will clearly harm consumers, not help.
At NAFCU, we have been steadfast in our efforts to get our economy back on the road to prosperity. More importantly, our member credit unions stand by willing and able to assist as long as regulation does not stymie their efforts. We have been diligent in trying to stem the rising tide of regulation. To this end, we have met with and written to the administration and the CFPB on numerous occasions to provide the common-sense credit union perspective. In addition, we have written to Treasury Secretary Geithner urging his leadership as chairman of the Financial Stability Oversight Council to bring some order to this regulatory quagmire.
Going forward, we will continue to champion efforts to bring about effective coordination in rulemaking coupled with thorough cost-benefit analysis. But we need your voices in the debate to ensure that the credit union viewpoint–and that of your members–is heard. Contact your congressional representatives and let them know how the burden of overregulation is impacting you and your members. It is not just our industry at stake but our nation’s financial future.
Dan Berger is executive vice president of government affairs at NAFCU.
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