While the credit union model is the most effective one for helping middle-class citizens improve their financial health, government officials should enact policies to enable credit unions to do even more, Wright-Patt CU President/CEO Doug Fecher told a Senate panel.
Testifying at an Oct. 4 hearing of the Senate Banking Committee's subcommittee on financial institutions and consumer protection, he expressed hope that the new Consumer Financial Protection Bureau issues regulations that "empower consumers without adding to our regulatory costs."
Fecher noted that his credit union's hometown of Dayton, Ohio has lost 33,000 jobs during the recession and that "the need for our services has never been greater."
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He said that Wright-Patt helps its members by disclosing the cost of loans and other products up front. But he noted that while his credit union will change some terms of mortgages, he opposes reducing the principal because the costs will just be shifted to another part of the economy and that will be a net negative.
Wright-Patt CU is a $2.1 billion financial institution that has 210,000 members in the Dayton, Ohio, area. The credit union is headquartered in the suburb of Fairborn, Ohio.
The credit union tries to teach members how to be good borrowers and savers, and its goal is to "create an environment that helps people change their lives," he added.
In response to a question from subcommittee Chairman Sherrod Brown (D-Ohio), Fecher agreed that consumers should have more precise information about mortgage costs so they know what they are getting into. "This could reduce the cost of housing and allow people to spend money building financial assets in other areas," Fecher added.
He also said that if the CFPB requires additional disclosure from all financial institutions, credit unions would look very attractive because their practices and products benefit consumers.
Fecher said his credit union was at a disadvantage because until the CFPB has a permanent director, it is forbidden by law to regulate payday lenders and pawn shops. While credit unions are the most heavily regulated financial institutions, his competitors aren't, and this creates an uneven playing field, he added.
But another witness, banking consultant G. Michael Flores, noted that many of those businesses are regulated by state governments, so it is "a bit misleading to say they are unregulated."
Several of the witnesses at the hearing said that the financial problems facing the middle class weren't just caused by the recession. Rather, they were the result of policies that have helped higher income individuals thrive while not doing enough for others.
"The middle-class squeeze is more consequential than at any time in American history. The problems reflect government decisions that penalize low- and middle-income households," said Ida Rademacher, vice president of the Corporation for Enterprise Development.
Rademacher, whose Washington, D.C.-based organization develops pilot programs aimed at improving the financial lives of the middle class, urged the CFPB to be vigilant about requiring more complete disclosures on financial products so that consumer can make more educated decisions.
She also recommended that lawmakers change policies to eliminate asset tests when determining eligibility for some federal benefits.
These tests "deter people from seeking work, opening bank accounts and saving money," she said in her written testimony.
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