WASHINGTON — When it comes to what's equitable, credit unions unfairly contend with a number of regulations that are either excessive or financially burdensome, Mary Dunn CUNA deputy general counsel and senior vice president of regulatory advocacy, told the Small Business Administration's national regulatory fairness hearing last week.
At the March 12 hearing, small business owners, representatives from 11 business trade groups and 20 federal agencies shared testimonies on the impact that federal regulations have had. The SBA hearing was a sounding board for business leaders to report unfair or excessive federal regulatory enforcement by any federal agency that impacts their members and small businesses nationwide. SBA Administrator Steve Preston and other agency officials listened to witnesses during the six-hour hearing.
Dunn opened her testimony, saying, "credit unions are one of the most heavily regulated entities and are currently subject to a wide range of regulatory requirements including an array of consumer protection rules on issues," such as truth-in-lending, privacy, and the Fair and Accurate Credit Transaction Act.
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"Because credit unions are member owned and want to avoid predatory practices, CUNA supports reasonable protections for consumers," Dunn said. "However, new laws translate into regulatory requirements, and, as a result, the burdens imposed on credit unions today are staggering and costly."
The regulatory burdens are particularly problematic for credit unions, which average about $90 million in assets, Dunn testified, "and many credit unions are much smaller." This is compared to almost $1.5 billion in assets for banks, she added, pointing out that credit unions have less than 10% of the market share of deposits compared to more than 90% for banks.
The area of business lending is particularly limiting for credit unions, Dunn said "especially at the very time when [small businesses] are finding it increasingly difficult to obtain credit." The 12.25% member business lending cap "is truly arbitrary and unique among financial institutions in that banks have no similar restrictions and thrifts have higher limits."
"The limitation discourages a number of credit unions from even engaging in member business lending because the costs of initiating such a program are very high and credit unions are concerned costs may not be recouped when loans are limited to 12.25% of assets," Dunn said.
Meanwhile, the Bank Secrecy Act has resulted in significant burdens and penalties for noncompliance, Dunn testified. Adopted in 1970 to help the federal government to curtail illegal money laundering and related activities, the law has been amended a number of times including under the USA Patriot Act. Dunn told SBA that CUNA has organized a BSA task force headed by Eugene Foley, president/CEO of Harvard University Employees CU. The task force has already met with key regulators as well as House Financial Services Committee officials. CUNA is hoping the committee will hold a hearing soon "to alleviate the significant regulatory burdens that BSA imposes."
Dunn said another area of regulatory excess involves the current prompt corrective action system. While CUNA supports reasonable standards for financial institutions subject to capital requirements and regulatory sanctions should they fail to meet capital standards, the PCA system needs revising.
"Even though credit unions are generally risk averse and have far less risk in their portfolios than other financial institutions," Dunn said, "and despite the fact that federal insurers for credit unions have a superior record of safety and soundness, credit unions are subject to higher capital standards than all other financial institutions in this country."
Dunn said if PCA is structured properly, it can provide important tools for financial regulators while ensuring appropriate capital is balanced with an institution's risk. Requiring credit unions to be overcapitalized under the current system limits credit union service, including business lending.
Weighing in on the subprime mortgage crash, credit unions want to offer solutions to distressed borrowers, Dunn said. Credit unions want to work with consumers to modify mortgage loans to help avoid foreclosures and to provide loans to other eligible individuals who may have obtained problematic loans elsewhere.
Dunn told SBA that NCUA Chairman JoAnn Johnson recently told the House Financial Services Committee that the agency will encourage credit unions to facilitate offering mortgage relief. CUNA is looking forward to working with NCUA on this endeavor, Dunn said.
Dunn also presented SBA with testimony from CUNA Chairman Tom Dorety at a March 6 House Financial Services Committee on the Credit Union Regulatory Improvements Act (H.R. 1537) and the Credit Union Regulatory Relief Act (H.R. 5519). Both proposals contain provisions that Dunn discussed at the SBA hearing.
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