CU Trades Are Gearing Up for Major Fight on Reg Restructuring

"We are making it clear [that] our members don't want to pay for a new agency, and when we have spoken to administration officials and people on Capitol Hill, they have listened to our concerns. But they are definitely interested in finding ways to broaden consumer protection," he said.

Berger said the group's decision to stake out a middle ground-supporting the creation of a new agency but excluding credit unions and other depository institutions from its oversight-places NAFCU in the middle. On the one side are American Bankers Association and its allies, which oppose any new regulator. On the other side are consumer groups, which are strongly pushing for the new agency.

Bert Ely, a consultant to and analyst of the financial services industry, said while NAFCU's approach is appealing on one level, it could cause political problems.

"If you leave out depository institutions, those who are left, like the mortgage brokers, will argue that they are being treated like second-class institutions. And many of them are quite influential," Ely said. "And all sorts of issues regarding making the playing field level come up as well."

CUNA President/CEO Dan Mica said his organization's decision to not take a position until the debate is further along reflects a desire "not to be on the outside throwing stones and to have a seat at the table so we can negotiate in good faith and achieve a product that is mutually beneficial to credit unions and the administration and those in Congress."

The battle of the new agency will be waged in part by existing government departments and regulators that don't want to lose power and money.

Last week, NCUA Chairman Michael E. Fryzel announced that he plans to include funding for a new Office of Consumer Protection in the agency's budget for next year. He said the office would be a liaison to the new regulatory agency. However, opponents of the new agency could use the existence of a new office to argue that credit unions don't need to be regulated by another agency because the NCUA is beefing up its consumer protection.

But Fryzel may not be the one who will lead the follow through on the proposal. President Obama has named former NCUA board member Deborah Matz to be the new chairman, and she his awaiting a confirmation hearing by the Senate Banking Committee. Fryzel would remain on the board once Matz is confirmed as his term as a board member expires in 2013.

Ely also said most financial services providers fear a new agency would create more confusion.

"There is already a lack of uniformity on enforcement across federal agencies, and the new regulator will add to that. Combine that with a lack of uniformity within the agencies, and it is something to worry about," he said.

CUNA and NAFCU are also working to change the regulatory proposal to include the NCUA chair on the systemic risk panel. The plan now calls for it to be chaired by the secretary of the Treasury and is made up of the heads of the "principal financial regulators," such as the Federal Reserve and the FDIC..

Berger said even though credit unions didn't cause the problems that triggered the recession, "We want to have someone at the table when decisions are made about policies that will avoid this happening again since some of those decisions could effect us."

CUNA and NAFCU have both increased their political contributions in recent years to prepare for political battles such as these.

Political action committees affiliated with credit unions gave $2.8 million in 2007 and 2008. The largest amounts were $2.3 million from CUNA's PAC and $318,030 from NAFCU's PAC, according to the Center for Responsive Politics. But credit unions were dwarfed by contributions made by political action committees from other financial service sectors: $10 million from commercial banks and $9.6 million from the securities industry.

–cmarx@cutimes.com