Heather Anderson It’s been five years since the Dodd-Frank Act, and credit unions have already adjusted to the reality of new mortgage regulations. The interchange dust has settled. Members pay higher remittance fees or have gone elsewhere for the service.

The biggest restrictions, however, are still to come.

Currently, the CFPB is targeting small dollar loans. Credit unions experienced a moment of déjà vu when bureau chief Richard Cordray released an outline of proposed restrictions March 26 at a field hearing. The regs mirrored what the NCUA already has in place.

If the NCUA’s payday lending restrictions are the CFPB’s gold standard, why can’t the bureau just exempt credit unions from the regulations?

Good question. Too bad credit unions can’t get a straight answer.

The CFPB was created to rein in the financial meltdown’s bad actors. In congressional hearings during and following the crisis, and even today, one elected official after another has given credit unions great lip service, stressing they didn’t cause the financial crisis.

But when push comes to shove, credit unions are nonetheless included in rulemaking intended to prevent the next crisis.

Sen. Elizabeth Warren raised a number of eyebrows during her GAC address when she thanked credit unions for championing the CFPB. This was news to a number of credit union executives in the audience.

Since the conference, I’ve sifted through a number of CU Times news articles, trade letters to Congress and the most comprehensive CFPB historical manifesto of all time: Consultant Marvin Umholtz’s newsletter archives.

What I found was, to an extent, Warren was right.

As Dodd-Frank made its way through the legislative process, credit union industry opposition to the CFPB was not as strong as one would think.

It’s easy to Monday morning quarterback the chaotic years of 2008, 2009 and 2010. In all fairness, at the time, the CFPB was not the industry’s biggest worry.

In March 2008, the U.S. Treasury’s Blueprint for Modernized Financial Regulatory Structure recommended consolidating banking regulators, including the NCUA. While the agency and trades scrambled, the industry was rocked by a liquidity crunch that revealed cracks in the Central Liquidity Facility’s U.S. Central foundation (‘memba the $8 billion credit unions invested in CU SIP notes in late 2008 and early 2009?). Unrealized losses were mounting at large corporate credit unions and even as NCUA Chaiman Michael Fryzel went to Treasury and Congress, hat in hand, asking for help in funding the industry’s largest bailout in history (caused, in part, by insufficient oversight) plenty in the industry were wild-eyed with conspiracy theories claiming there was no corporate crisis.

It was not our finest hour.

By mid-2009, lobbying for and against the CFPB was in full swing.

NAFCU opposed the CFPB for credit unions, although it supported increased consumer protections for non-depository entities like Wall Street and payday lenders. CUNA, which leans left compared to NAFCU, supported the Democrat-championed CFPB, but asked that regulations applied to credit unions be enforced by their own regulator.

By then, credit unions had already spent a cache of political bargaining chips and had another big fight on their hands with the Durbin amendment.

Even some of the credit unions that would potentially be regulated by the CFPB came out in support of the bureau. In a March 31 article in CU Times, Navy Federal went on record opposing the CFPB, but Pentagon FCU CEO Frank Pollack and State Employees’ CU CEO Jim Blaine not only said they support the new regulator, they added the didn’t think the additional compliance costs would have a significant impact on their bottom lines.

“I have not figured out why credit unions are fighting this,” Pollack said.

By Spring 2010, the CFPB seemed like a done deal. CUNA President/CEO Dan Mica said in his June 30, 2010 letter to the House that his trade’s concerns about the CFPB had, for the most part, been met. Mica called the shift of credit unions with more than $10 billion in assets to the CFPB as their primary regulator a reasonable compromise.

NAFCU took a tougher position, continuing to oppose the bureau and allow the NCUA to retain credit union rulemaking and oversight. The trade asked that at a minimum, the $10 billion supervisory threshold should have been raised to $50 billion.

So where do we go from here? Even with Republican control in Washington, so long as a Democrat sits in the Oval Office, the CFPB will survive.

However, the CFPB continues to present a real threat to credit unions. Fewer than 1,000 credit unions offer NCUA-approved short-term, low-dollar loans. However, the CFPB has made clear it intends to apply payday loan regulations to transactions like overdrafts. Cutting off NSF revenue would be a kiss of death for many credit unions, regardless of size.

And that’s just what the bureau is working on today. Who knows what the future will bring?

If trade associations are listening to credit union executives – at least the ones that seek me out in emails, phone calls and hallway chats at conferences – they should take a harder position against the CFPB. The crisis is over. There are no more excuses. This is a credit union priority.

Until then, credit unions will continue to be punished for the sins of the financial crisis while reassurances of their innocence will continue to fall flat.

Instant Insights /

Credit Unions and the CFPB: Where Did It Go So Wrong?

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