Credit unions should take a close look at the well-intended butpoorly crafted Consumer Financial Protection Agency, or CFPA, thatis scheduled to come up for a vote by the House Financial ServicesCommittee when Congress returns from its summer break.

The original purpose of the legislation, H.R. 3216, was to reinin unregulated entities and activities that played a role in themost recent economic crisis. It was particularly aimed at predatorymortgage lending. While neither credit unions nor the creditinsurance they provide their members played any part in theproblem, they would both be brought under the new agency. Thelegislation would further splinter regulation of credit unions and,for credit insurance, would add a duplicative layer of costlyregulation on top of an insurance product that is already highlyregulated by each state in which credit unions operate.

Operationally, if enacted as drafted, credit unions would besubject to the NCUA for safety and soundness, the CFPA forcompliance with consumer regulations, the Federal Reserve forsystemic risk and, if state-chartered, their state regulators forstate examinations.

On the insurance side, credit unions would be subject to boththeir state insurance department and the CFPA for credit insuranceactivities. But that may be just the beginning. The legislationleaves open the definition of the “business of insurance” thatwould be subject to CFPA regulation. Consumer groups are askingthat any insurance closely related to a credit transaction besubject to the CFPA. That would include auto owners, homeowners andprobably others.

With respect to the credit insurance that credit unions offertheir members, under the proposed new law each state and thefederal government could regulate the price, form, market conduct,licensing and commissions of credit unions and their employees.Under this new dual regulatory construct, there is no clearguidance on which regulator's authority takes precedence. Forexample, if a state were found to have the strongest pro-consumerposition on a clause within the credit insurance contract, then thestate would be the regulator for that part of the business. But ifthe CFPA had a stronger pro-consumer position on another clausewithin the contract, then the CFPA would be the regulator for thatissue. With overlapping authority, the final arbiter would be thecourts, the cost of which would ultimately be borne by the consumerfor whom the legislation was intended to help.

The one area in which there is no duplication is regulation forsolvency. That would continue to reside with each state. But thequestion of how anyone could separate solvency from product pricingis a mystery the legislation doesn't even attempt to address. Infact, there has been little to no thought on how the CFPA wouldactually regulate credit insurance with the 50 state insuranceregulators.

Confusing? You bet. But it doesn't have to be. Congress shouldleave insurance regulation to the states or create a federalinsurance agency but not try to have credit unions and their creditinsurance answer to both. The CFPA isn't the place for insuranceregulation, so it should be omitted from the bill.

If lawmakers in Washington are serious about curbing predatoryinsurance practices closely related to mortgage lending, there'ssomething Congress can do: Ban single-premium credit insurance formortgage loans. That is the position CUNA Mutual took when ittestified in North Carolina in support of that state's proposedban. Federal legislation to achieve that objective is inantipredatory mortgage legislation that passed the House butstalled in the Senate (H.R. 1728). The House could simply lift thesingle premium mortgage insurance language from H.R. 1728 andinsert it in place of the proposed CFPA language on creditinsurance. That's something we can agree upon, and it promises toprovide strong consumer protections rather than createconfusion.