Congress Needs to Enact Regulatory Relief Now
Recently, NAFCU called on Congress and the credit union industry to rally behind its five-point plan for enacting broad-based credit union regulatory burden relief.
Since the passage of the Dodd-Frank Wall Street Reform Act, NAFCU has been repeatedly exhorting Congress, the CFPB, the NCUA, the Federal Reserve and others regarding the glut of rulemakings confronting our industry. Regulators, however, appear to be unmoved by the expense and ultimate consequences that are so troubling that some institutions fear their ability to survive.
Were small and mid-size financial institutions to close up shop, the direct consequence would be fewer options for consumers, a more homogenized marketplace and higher prices.
NAFCU has some very specific ideas, embodied in a five-point plan, about what Congress must do to help credit unions so that consumers continue to have a meaningful choice of where they obtain critical financial services.
Chief among the administrative improvements is to allow a federal credit union to petition the NCUA for a waiver in favor of a state rule. Additionally, we want a requirement for a more robust cost-benefit analysis of all new rulemakings. Imagine how much better the financial services marketplace would work if regulators had to ensure that all the rules they issued enhanced rather than restricted an institution’s ability to deliver great service.
Regulatory headaches aren’t caused only by new rulemakings. Credit unions today are stifled by a number of antiquated and outdated requirements that cry out for reform. Consider the NCUA’s prompt corrective action rules. Since a credit union’s net worth ratio is determined solely on the basis of retained earnings as a percentage of total assets, healthy deposit growth can become a negative, causing some credit unions to turn away their members deposits, as well as preventing the institution’s retained earnings from keeping pace with asset growth. In some cases, that triggers nondiscretionary supervisory action.
A solution to this problem is capital reform. Capitol reform will help ensure that healthy credit unions can achieve manageable asset growth and continue to serve their member-owners efficiently.
A thorough review of the NCUA’s corporate governance bylaws and improvements in its field-of-membership standards are paramount to enhancing credit union service to their members. The NCUA should make every effort to ease a credit union’s ability to serve and retain members. That means giving more flexibility to credit unions that wish to serve members in rural or urban areas and making it easier for credit unions that convert to community charters to retain their current members. In addition, all credit unions must be allowed to add underserved areas to their field of membership, regardless of charter type.
Improvements to help credit unions operate more effectively and efficiently are also requisite. These include lifting the arbitrary cap on member business loans or raising the loan exemption to $250,000, with annual adjustments for inflation, and exempting loans made to nonprofit religious organizations, businesses with fewer than 20 employees or those which serve underserved areas.
Data security reforms.
Congress needs to enact new 21st century data security standards to help credit unions deal with cyber-attacks and data breaches. We need national standards for the safekeeping of all financial information, liability if such standards are not met, and a requirement that those responsible for a data breach provide immediate notification to financial institutions and their account holders when a breach occurs. Merchants must also be prohibited from retaining financial data and be required to disclose their data security policies to their customers.
Our industry needs regulatory relief and reform as represented by the above five-point plan. To win it requires the active participation of the entire industry in making our needs known to Congress. Make no mistake. This is a defining moment. While regulators may be slow to respond, credit unions don’t have to be.
Fred R. Becker Jr. is president/CEO at NAFCU.
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