Dear Chairman Luetkemeyer and Ranking Member Clay:
On behalf of America’s credit unions, I am writing regarding today’s hearing entitled, “the State of Bank Lending in America.” The Credit Union National Association (CUNA) represents America’s credit unions and their 110 million members. We respectfully ask you to include this letter for the record of the hearing.
Today’s hearing intends to examine recent trends in bank lending and how the current regulatory climate impacts the availability of credit for consumers and small businesses. As you explore this topic, we encourage you to keep in mind that several factors, including compliance burdens from new regulations resulting in increased costs to consumers, should be considered in addition to lending trends.
While loan growth for most loan types has improved since the financial crisis, certain loan types have failed to recover to pre-crisis growth levels. For example, in the years since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (2011 to 2016), 1-4 family home purchase originations averaged $1.7 trillion annually. That’s 16% lower than the annual average in the 15 years prior to 2011. Over the 2011-2016 period, 1-4 family home purchase originations have failed to reach the $2.24 trillion low-water mark experienced in the 2001-2007 expansion. In fact, since 2011, the strongest year for total U.S. 1-4 family home purchase originations experienced $2.04 trillion in originations – which is roughly 10% lower than the previous-cycle low (in 2001) and 46% lower than the previous expansion peak production (in 2003). While lending has been growing year-over-year since the crisis, it has not reached pre-crisis loan growth levels despite near-full-employment, rising incomes and the very low interest rate environment.
One of the reasons that loan growth has not recovered to pre-crisis levels is that federal regulators have imposed more than 200 regulatory changes on credit unions and other lenders. The largest financial institutions, which comprise the greatest share of bank lending, are the least impacted by this increased regulatory burden because they can, for the most part, spread the cost of compliance over large economies of scale. Nevertheless, the impact of these rules is being felt by credit unions and small banks that do not have the scale over which to spread the burden. In this respect, the system created by the Dodd-Frank Act essentially rewards the largest banks and less regulated nonbank lenders – the very institutions that caused the financial crisis –with one-size-fits-all rules that give them a competitive advantage over credit unions and small banks and push more consumers into their products.
It is important for the subcommittee to examine the full scope of how lenders, particularly small lenders, are responding to the new requirements. Earlier this year, we surveyed credit union executives to measure the impact of these rules on credit union members. The findings indicate:
- More than four in 10 credit unions (44%) that have offered mortgages sometime during the past five years have either eliminated certain mortgage products and services (33%) or stopped offering them (11%), primarily due to burden from CFPB regulations. Credit unions with assets of less than $100 million are the asset group most apt to have dropped their mortgage program altogether.
- TILA‐RESPA Integrated Disclosure rules are far and away (80%) the single rule most negatively impacting credit unions that have offered mortgages. This is followed by the Qualified Mortgage rules (43%) and, at more of a distance, Mortgage Servicing (30%) and HMDA rules (19%). TILA‐RESPA serves as the most troublesome rule for all asset groups. (Notably, many credit unions have not even yet turned their full attention to the new requirements in the new HMDA rules so this impact is likely understated).
- One in four credit unions (23%) that currently offer HELOCs indicate they plan to either curtail their HELOC offerings or stop offering them in response to the new HMDA rules.
One-size-fits-all regulation robs consumers of lending options from smaller community financial institutions and can often push consumers to use less regulated lenders. The Wall Street banks can afford to comply with these rules and their contribution to overall loan growth will mask slower loan growth or lending contraction by smaller lenders. We have encouraged the CFPB to use its existing exemption authority to shield smaller and less complex financial institutions lenders from the most onerous requirements of its new regulations; however, the CFPB has not used its exemption authority effectively.
As credit unions continue to implement new CFPB mortgage related rules such as the Home Mortgage Disclosure Act, the costs and burdens of one-size-fits-all rules continue to be felt and this disproportion compared to the largest lenders will continue to grow. While handpicked data may paint the market in one light, from a compliance perspective credit unions are continually forced to consider ongoing costs and future potential problems that could result from new rules such as lender liability from the qualified mortgage rule. The result as highlighted in the survey of CUNA members is that they are forced to make difficult decisions to reduce or abandon offerings, which can be a consumers' safest and most affordable option, to protect the resources of the membership as a whole. For smaller and less complex financial institutions, complex rules mean they are spending more time on compliance and less time innovating and working directly with members.
Lastly, we remain concerned that CFPB rules have left credit unions vulnerable to frivolous class action litigation and other unintended consequence that may not be realized until the next economic downturn. The subcommittee should carefully examine the larger picture of the playing field CFPB rules have created for small financial institutions compared to the largest banks and nonbank lenders, and the unintended consequences that may be harming America's consumers.
On behalf of America’s credit unions and their 110 million members, thank you for your consideration of our views.
Sincerely,
Jim Nussle
President & CEO