New Bill Pushes for CFPB Rule Exemptions

The CFPB was born out of the Dodd-Frank Act with the purpose of protecting the average American from the big bad wolf – the wolf of Wall Street, that is – and the banks that have been blamed for causing the Great Recession.

The reality, however, according to groups that solely support credit unions, is that the CFPB is hurting the small institutions that have nothing to do with causing 2008's economic crash.

The bureau was the brainchild of then-Harvard Law School Professor Elizabeth Warren, who is now a Democratic senator from Massachusetts. Her idea was that the CFPB would fight for the American people and keep lenders in check. In the beginning, the CFPB was hailed by some as a much-needed force in the financial industry. A notable exception to that was NAFCU, which supported consumer protections for Wall Street and payday lenders, but felt credit unions did not need another regulator. CUNA, at the time, supported the CFPB but wanted credit unions to have their own regulator. What resulted was Section 1022 of the Dodd-Frank Act, which authorizes the CFPB to provide exemptions to credit unions from the requirements of statutes.

The problem, CUNA said earlier this week, is that five years later, the CFPB is unwilling to exercise that exemption, and credit unions are feeling the burden.

Now, CUNA and NAFCU have something to agree on: Both said in letters to Congress this week that it is time to force the CFPB to enact those exemptions, and at least one member of Congress listened.

Rep. Roger Williams (R-Texas) this week introduced H.R. 3048, the Community Financial Institution Exemption Act. According to a press release from his office, the bill would force the CFPB to "explain to community banks and credit unions why they are not exempt from certain CFPB rules and regulations as permitted in the Dodd-Frank Wall Street Reform and Consumer Protection Act."

"For the last five years, Main Street American lenders have had to close up shop because they are incapable of spending more time, money and resources complying with costly federal regulations," Williams said. "These institutions are vital to the success of the small business community, and we need to make sure they are guaranteed the protections they are granted under the law."

According to Williams, 60% of all business loans under $1 million are made by local institutions, but small financial institutions are disappearing in rising numbers since the implementation of Dodd-Frank. Williams quoted the Independent Community Bankers of America when garnering support for his bill and said since 2007, there have been 153 new final regulations, 87 compliance changes and 59 annual adjustments to thresholds, with 103 proposed rules still being considered.

According to CUNA, since the beginning of the financial crisis, credit unions have been subjected to more than 190 regulatory changes from nearly three dozen federal agencies, totaling nearly 6,000 Federal Register pages.

"We believe that the bureau can and should go much further than it has to exempt credit unions from its rulemaking, because credit unions, unlike other financial institutions, have not engaged in the consumer abuse the Bureau is meant to address," CUNA President/CEO Jim Nussle said in a letter to Williams. "The imposition of regulations on credit unions designed to curb abuse elsewhere in the financial marketplace has the unintended consequence of reducing access to affordable products and services for credit union members."

CUNA said it recently conducted a survey of credit unions that offer or had offered international remittance transfers. The survey showed that nearly 23% of credit unions that had offered IRTs are no longer doing so, and 26% turn members away to stay below the CFPB's rule threshold, resulting in less than two transactions a week. Another 12% of credit unions are considering no longer offering IRTs.

Nussle said that while H.R. 3048 is a step in the right direction, he had some technical concerns with the bill. Nussle did not address those concerns in his letter.

NAFCU also showed its support for the bill this week. On Wednesday, NAFCU said the bill is a solid step in the right direction for giving credit unions regulatory relief.

"NAFCU supports H.R. 3048, the Community Financial Institution Exemption Act, as a strong first step in ensuring all credit unions are exempt from onerous CFPB rulemaking," Jillian Pevo, director of legislative affairs for NAFCU, said. "Credit unions do not have economies of scale that large for-profit institutions have and are often times forced to end a product line or service rather than face the hurdles of complying with a new regulation. NAFCU has long advocated for CFPB exercising authority under Section 1022 of the Dodd-Frank Act to provide meaningful relief to all credit unions. This thoughtful legislation brings this important issue to the forefront."

H.R. 3048 was referred to the House Financial Services Committee on Tuesday, and if it does pass out of the committee, will likely not make it to the House floor prior to the August recess.