A legitimate and common complaint regarding the Dodd-Frank Act is that it not only did not resolve too big to fail wherein the taxpayer is on the hook for the missteps of the nation’s largest banks. It actually made the problem worse as the weaker institutions and brokerage firms were merged into multitrillion asset, colossal banks with the implied backing of the U.S. Treasury. They can borrow money more cheaply with the assumption of government backing, and they leverage their position to their advantage over all other financial institutions and especially the smaller community-based credit unions and banks.
After you accept that reality though and recognize that it is not sound, long-term public policy to privatize earnings and socialize losses, does it not makes sense for the Consumer Financial Protection Bureau to try and regulate differently based not just on size but purpose? Doesn’t it make sense to offset the unintended reward to too big to fail institutions by promoting what you want more of, financial institutions that work to build consumer and small business financial strength? Instead, the one-size-fits-all regulations treat a $2 billion asset credit union the same as JPMorgan Chase weighing in at a whopping $2.3 trillion.
While the CFPB has attempted to exempt the very smallest of credit unions and banks in a very limited way from certain regulations, the scale is much too small to accomplish public policy objectives promoting improved consumer access and outcomes. The exemption of $2 billion and below asset credit unions making fewer than 500 mortgages a year and retaining them for three years from some qualified mortgage requirements is an example.
Part of the problem rests with the well meaning but mistaken belief that really small credit unions are even more attuned to their members needs and perhaps serve more low- and middle-income households. Having run a $40 million asset credit union earlier in my career, I remain a strong admirer and proponent of small credit unions where they can deliver real value to their members while maintaining safety and soundness. Low-income designated credit unions are appropriately exempted from some of the regulatory burden.
However, the larger credit unions (still very small relative to even the regional banks like BB&T at $182 billion) actually are able to serve far more low- and middle-income households than the combination of many very small credit unions. Coastal FCU in North Carolina at $2 billion in assets serves over 61,000 low- income members. Over 52% of Truliant FCU’s ($1.6 billion in assets) member-owner households (approximately 70,000 households) earn less than $45,000 per year, and nearly 25% of households would be at or near low-income designation.
Speaking for Truliant FCU, we are dedicated to one purpose: improving our member-owners financial lives. By returning the value of our operation to the member in the form of lower loan rates, higher savings rates, low fees and consultative financial advice we make a significant difference in the financial lives of our member households just as our small brethren do.
If the CFPB’s intent is to create a level playing field for consumers, then additional consideration should be given to consumer-focused, mission-driven credit unions (and perhaps some mutually-owned community banks) that share those objectives irrespective of asset size.
When Truliant reached $1 billion in assets in 2005, I was interviewed by a reporter from this publication about that milestone (see Credit Union Times, Nov. 16, 2005). Like most credit union CEOs, my response was, “Asset size has very little to do with service to members. To a member who gets a 5% car loan instead of 28% car loan, it isn’t any different if you’re $1 billion or $25 million…. Don’t forget that size is nothing more than a manifestation of the fact you’ve done a good job of understanding and meeting member needs.”
As a member of the CFPB’s Credit Union Advisory Council I have been impressed with the agency’s willingness to listen and react to input from credit unions. It is my hope that the CFPB will come to recognize the validity of the above statement regarding the meaning of asset size and purpose in the credit union space as they approach pro-consumer regulation.