CUNA weighs in on CHOICE Act in letter to Chairman Hensarling
WASHINGTON, DC (January 13, 2017) — The Honorable Jeb Hensarling
Chairman
Committee on Financial Services
House of Representatives
Washington, DC 20515
Dear Mr. Chairman:
On behalf of America’s credit unions, I am writing regarding the anticipated reintroduction of the Financial CHOICE Act in the 115th Congress. The Credit Union National Association (CUNA) represents America’s state and federally chartered credit unions and their more than 100 million members.
Credit unions accept that they must operate in a regulated environment. However, one-size-fits-all regulation does not work for Main Street – local credit unions, small banks, and the consumers and small businesses they serve. It’s created a rigged system favoring the largest institutions who can afford to comply with the “solutions” dreamt up in Washington – the very institutions that caused the crisis that hurt so many. Now, over regulation of small institutions is hurting consumers, costing them time and money, and limiting their choices. Local member-owned credit unions know their members better than Washington which is why now is the time for Congress to enact regulatory reform that works for credit union members.
Your legislation takes strides in the right direction toward getting Washington out of the way of local, member-owned credit unions. Thank you very much for the opportunity to comment on your legislation at the hearing in July, in our letter last fall and during our meeting in Dallas. We deeply appreciate your willingness to give our concerns consideration. As you prepare to release the next version of the CHOICE Act, we respectfully ask you to consider the following modifications and potential additions to the bill.
Modifications Necessary to Address Credit Unions’ Concerns
Common sense reforms to the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act) would allow credit union members to have greater access to safe and affordable products and services and allow credit unions to devote more resources to serving their member owners. We have previously indicated our support for many provisions of the CHOICE Act; however, certain provisions make it difficult for us to fully endorse the bill. Respectfully, we ask you to consider our concerns and our proposed remedies.
Savings and Loans Treated as National Banks
The CHOICE Act includes a provision that would allow savings and loan associations (S&Ls) to elect to operate as national banks, thereby circumventing a statutory cap on business lending. We oppose this provision in the absence of similar legislation providing statutory relief for credit unions from the member business lending cap. No one has articulated a sound public policy reason that the S&L cap ought to be essentially eliminated but the credit union cap ought to stay intact. Frankly, we believe that small businesses are in great need of access to credit and the best public policy would be to eliminate both charters’ caps to help meet the demand.
S&Ls were chartered specifically for mortgage lending, while credit unions have provided business loans to members for more than 100 years. Since the beginning of the financial crisis, commercial lending by S&Ls has decreased more than 17 percent. During this same period, business loans have been the fastest growing loan type at credit unions, demonstrating credit unions’ commitment to their small business members and communities. The credit union cap was enacted at the behest of the banking industry over twenty years ago, yet serves no economic, safety and soundness, or prudent public policy purpose. We urge you to take advantage of the opportunity that this type of broad regulatory relief legislation presents by including provisions to completely and unconditionally eliminate the credit union member business lending cap.
Recognizing, however, that the Committee may not be ready to lift the member business lending cap, an alternative option would be to address a disparity in the treatment of certain residential loans. When a bank makes a loan for the purchase of a 1-4 unit non-owner occupied residential dwelling, the loan is classified as a residential real estate loan. However, if a credit union were to make the same loan, it would be classified as a business loan and therefore subject to the member business lending cap. CUNA supports legislation amending the Federal Credit Union Act to provide an exclusion from the member business lending cap for these type of loans. We respectfully ask the committee to incorporate H.R. 389, the “Credit Union Residential Loan Parity Act,” sponsored by Representatives Ed Royce, Don Young, Jared Huffman, and Peter DeFazio, into the CHOICE Act. Incorporating this bill would correct the disparity between banks and credit unions and enable credit unions to provide additional credit to borrowers seeking to purchase residential units. Credit unions would be better able to serve their members, and more affordable housing would be available for Americans, including lower income renters. If H.R. 389 was incorporated into the CHOICE Act, our concerns regarding the expansion of the S&L charter would be alleviated.
National Credit Union Administration Subject to Appropriations
CUNA has grave concerns regarding the provision that would subject the National Credit Union Administration (NCUA) to the appropriations process. Credit unions and their members currently fund NCUA. If for any reason NCUA requires additional funding, so long as the need is demonstrated transparently, credit unions — not taxpayers – are called on to provide the additional funds. Similarly, if NCUA’s funding requirements diminish, credit unions should be required to pay less. This equitable funding is best preserved by maintaining current direct funding mechanisms through operating fees and earnings on the share insurance fund. Under the current system, credit unions are not required to pay for other areas of the federal government, nor are taxpayers called on to pay for NCUA operations; that system should remain. Maintaining a separate, independent federal regulator and insurer is critical to the credit union system.
Funding for the FFIEC Ombudsman
Our analysis of the funding scheme for the creation of an Ombudsman at the Federal Financial Institutions Examination Council suggests it could create a disproportional burden on credit unions and their members. The funding for such a position should be based on either expected or actual use or an asset base, which will help ensure that funding is equitably assessed among the regulated industries.
Review of Executive Regulations
CUNA has concern with the provision which would repeal the Chevron deference doctrine of administrative law that gives federal agencies deference on their interpretations of statutes; we believe the implications of this provision, particularly its applicability only to financial regulators, ought to be given further consideration before changes are enacted. CUNA continues to support the incorporation of the REINS Act into the CHOICE Act to provide Congressional oversight of regulations with a large economic impact.
Additions to the CHOICE Act
While we believe the CHOICE Act takes significant strides towards reducing credit unions’ regulatory burden and ensuring consumers have continued access to safe and affordable financial services from not-for-profit cooperatives, we urge you to go even further in your legislation.
Clarify CFPB’s Exemption Authority
We strongly support the incorporation of the Taking Account of Institutions with Low Operational Risk Act (TAILOR Act) into the CHOICE Act. This legislation would require agencies to tailor rules to account for entity size and risk when promulgating regulations. We urge the committee to go even further in facilitating appropriate tailoring of rules, particularly from the Consumer Financial Protection Bureau (CFPB or Bureau). The committee should provide additional clarification that the CFPB not only can but should exempt from its rules, less complex community financial institutions that have not engaged in financial abuse.
As you know, Section 1022 of the Dodd-Frank Act provides the CFPB authority to exempt “any class of covered entity” from its rulemaking. The CFPB has repeatedly refused to exercise this authority in a meaningful way, even after a supermajority of both Houses of Congress sent the Bureau a letter requesting greater use of the exemption authority. The CFPB’s failure to effectively use this authority harms consumers seeking safe financial services, including remittances and mortgages, from credit unions when one-size-fits-all rules disproportionately impact credit unions with fewer resources than larger financial institutions. Congress should clarify that credit unions and other less complex financial institutions should be exempt from CFPB rules unless the Bureau demonstrates they are causing harm to consumers.
FSOC and OIRA Reforms
The CFPB must provide more consideration about whether the burden associated with new rules is limiting the benefits credit unions are providing to consumers. In addition to the REINS Act, the committee should also consider CUNA’s suggestions for additional and more appropriate checks on the CFPB from the Financial Stability Oversight Council (FSOC) and the Office of Information and Regulatory Affairs (OIRA). These suggested changes would help ensure that CFPB rules do not impact safety and soundness of financial institutions and that consumer credit is not unnecessarily limited.
Increase CFPB’s Supervisory Threshold
Credit unions and banks with more than $10 billion in total assets are subject to supervision by the CFPB, despite the fact they are regulated for safety and soundness by prudential regulators. Focusing CFPB supervision, as well as rulemaking, on less regulated nonbank entities and the largest, most complex, financial institutions with over $50 billion in assets will allow more resources to be devoted to problem actors that may need greater scrutiny. Therefore, Congress should raise the CFPB’s supervisory threshold to $50 billion in assets, as well as indexing the threshold for inflation.
Reform CFPB’s Unfair, Deceptive or Abusive Acts or Practices Authority
In addition, we request that Congress enact safeguards for the CFPB’s Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) authority, which has been abused in a way that has harmed credit unions and their members. The CFPB has used its UDAAP authority as a broad tool to sweep credit unions into proposed regulations consistent with the Bureau’s ideological goals, despite no substantial evidence of harm to consumers. Furthermore, it has attempted to circumvent the data collection process and research analysis necessary to issue informed rules by instead using UDAAP as a “catch-all.” This is very clearly the case in the CFPB’s payday lending proposal, which sweeps in credit unions despite no comprehensive data on credit union small dollar lending and a barely registering number of consumer complaints. Unfortunately, these actions will, and in some instances already has, limited consumers’ access to safe and affordable credit.
In its supervisory role, the CFPB has used its authority to admonish and penalize credit unions for engaging in practices consistent with longstanding statutory directives and guidance from their prudential regulator. Through these actions, the CFPB circumvents the will of Congress and harms consumers by creating an uncertain operating environment for credit unions and their members. The CFPB sadly has proven that abuses, particularly under the single director structure, are probable when allowing such unrestrained authority to make UDAAP findings.
Accordingly, CUNA strongly supports the CHOICE Act’s proposal to repeal the vague “abusive” standard, which is not defined and most susceptible to biased political abuse. Additionally, we urge the Committee to enact legislation making additional appropriate modifications to this authority including heightened cost benefit analysis, mandatory extensive consultation with prudential regulators codified in detailed written analysis, requirements that UDAAP findings not conflict with established judicial precedent or established statutory directives, and narrow application of UDAAP analysis to a specific finding of consumer abuse. Credit unions are already subject to substantial regulation from a prudential state and/or federal regulator, and operate under the jurisdiction of dozens of consumer financial protection and other laws; therefore, the CFPB should be focusing on entities actually engaging in illegal activities.
Conclusion
We believe the viability of local, member-owned credit unions is essential to economic freedom and economic growth. It is also a critical ingredient of consumer financial protection, because credit unions are a democracy in the financial services sector. Today, the greatest threat to credit unions is the regulatory structure strangling them. Congress and regulators can provide greater consumer protection by ensuring that local, member-owned credit unions and community banks are able to thrive in a balanced, common-sense regulatory environment that is not rigged in favor of the too-big- too-fail banks and others that prey on consumers and whose behavior caused the previous financial crisis.
Thank you for the opportunity to comment on financial regulatory reforms for the 115th Congress. We appreciate your efforts to provide meaningful regulatory relief and hope that additions and modifications can be made to the CHOICE Act so credit unions can fully support the legislation.
Sincerely,
Jim Nussle
President & CEO
About CUNA
Credit Union National Association (CUNA) is the only national association that advocates on behalf of all of America’s credit unions, which are owned by 135 million consumer members. CUNA, along with its network of affiliated state credit union leagues, delivers unwavering advocacy, continuous professional growth and operational confidence to protect the best interests of all credit unions. For more information about CUNA, visit cuna.org. To find your nearest credit union, visit YourMoneyFurther.com.
