CFPB Should Take Credit Union Difference into Consideration Before Regulating

01/08/2013
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FOR IMMEDIATE RELEASE

Contact:
Patrick Keefe – CUNA Communications; (202) 508-6765; pkeefe@cuna.coop

WASHINGTON, DC (01/08/2013) - Before credit unions become subject to any new rules developed by the Consumer Financial Protection Bureau (CFBP), credit union differences from other financial institutions should be taken into consideration, CUNA has written to the agency’s chief, Richard Cordray.

“There are a number of factors unique to credit unions that support liberal use of the CFPB’s exemption authorities for our members, and we urge the agency to be as proactive as possible in considering how those authorities should be applied,” CUNA President and CEO Bill Cheney wrote in his letter to CFPB Director Cordray.

Cheney pointed to lower fees as an example of a key difference of credit unions from non-member owned financial institutions. “In the case of international remittance transfers, a number of credit unions reported that they either do not have any income from these transfers or suffer losses from these services,” Cheney wrote. “Nonetheless, they provide the service to meet their members’ needs. In situations where fees are well below what others are charging consumers for the same transactions, the regulation should take that into consideration—and the CFPB has the authority to make such allowances.”

Cheney also urged the CFPB director to focus more attention in 2013 on regulating entities in the financial marketplace that engage in abusive practices, such as payday lenders, that have been unregulated or under-regulated to date.

He also cited credit union concerns about a variety of mortgage-related rules (final versions of which, required under the Dodd-Frank Wall Street Reform Act, are expected imminently):

  • The CFPB’s pending definition of “qualified mortgage” under the Ability to Repay proposal;
  • Whether the agency is going to expand the definition of “finance charge” under Regulation Z;
  • Key requirements in the mortgage servicing proposal; and
  • Provisions in the mortgage loan originator compensation proposal.

The complete text of CUNA’s letter follows:

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January 8, 2013

The Honorable Richard Cordray
Director
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 20552

Dear Director Cordray:

I want to take this opportunity to write to you on behalf of the Credit Union National Association regarding a number of issues that are pending before the Consumer Financial Protection Bureau. As you know, CUNA is the largest advocacy organization for credit unions in this country, representing approximately 90% of the nation’s 7,000 state and federal credit unions that serve about 95 million members.

Although we have commented on all of these issues, given the scope of the rulemakings that are pending at the agency, we wanted to reinforce our members’ concerns and again urge the agency to do all it can to contain new regulatory requirements for credit unions. While credit unions want their members to have the necessary information they need to make informed decisions, they are already heavily regulated, and any new requirements imposed on them will divert them from fulfilling their primary mission of making loans or meeting other financial service needs of their members.

Exemption Authority as Applied to Credit Unions/CFPB’s International Remittances Proposal

Credit unions are well aware that the Dodd-Frank Wall Street Reform and Consumer Protection Act bestowed broad powers on the CFPB. Congress has also provided the agency, under that Act and other statutes, with considerable authority to exempt entities, such as credit unions from all or part of its regulations. Credit unions are not expecting to be exempted from every rule that the agency issues.

However, there are a number of factors unique to credit unions that support liberal use of the CFPB’s exemption authorities for our members, and we urge the agency to be as proactive as possible in considering how those authorities should be applied. CUNA will be sending a separate letter to the agency shortly on the exemption authority, but one example of a key difference is that credit union fees are often lower than those of non-member owned financial institutions. In the case of international remittance transfers, a number of credit unions reported that they either do not have any income from these transfers or suffer losses from these services. Nonetheless, they provide the service to meet their members’ needs. In situations where fees are well below what others are charging consumers for the same transactions, the regulation should take that into consideration—and the CFPB has the authority to make such allowances, as will be addressed in our forthcoming letter. (We will also be filing separate comment letters on the delayed effective date and substantive provisions in the latest remittances proposal.)

Mortgage-Related Rules

Credit union mortgage lenders and servicers are justifiably concerned about the numerous mortgage-related rules required by Congress that the agency is developing, some of which will be issued this month. In order to allow our members sufficient time to implement new requirements, which are understandably overwhelming, we have supported a delayed compliance date of up to 18 months (24 months in some cases). We urge the agency to provide coordinated and achievable compliance deadlines and as much time as possible for institutions to reprogram systems and to address the operational challenges the rules will present.

The substance of these proposals has presented many concerns as we noted in our comment letters. In particular, our members have been most concerned about the definition of “qualified mortgage” under the Ability-to-Repay proposal, whether the agency is going to expand the definition of “finance charge” under Regulation Z, key requirements in the mortgage servicing proposal’s, and provisions in the mortgage loan originator compensation proposal.

Regarding the definition of “qualified mortgage (QM),” credit unions are concerned that they will be hampered in their ability to continue working with members to structure mortgage loan products to meet their members’ needs. One of the related, problematic areas presented regarding the treatment of a “QM” is whether it will be entitled to a “safe harbor,” which would arguably provide protection to the lender should the borrower challenge whether the loan meets the “QM” standards, or a “rebuttable presumption” that arguably would not provide the lender with the same level of legal protection that a “safe harbor” could afford. CUNA continues to strongly support the “safe harbor” approach for “QM” loans while allowing loans with different yet reasonable terms to be afforded a “rebuttable presumption” of compliance.

Concerning the definition of “finance charge,” which was raised as part of the agency’s rulemaking to combine various Truth-in-Lending and Real Estate Settlement Procedures Act requirements, CUNA strongly opposed expanding the definition. Among other things, it would result in many loans being subject to additional requirements under the Home Ownership and Equity Protection Act, not because a credit union’s loan criteria had changed, but by virtue of the new definition. We support efforts to back away from this approach, which is not required by statute, at least while credit unions and financial institutions will be struggling to comply with mandatory statutory provisions.

One of the primary concerns about the servicing proposals is that credit unions are providing much of the information it would call for, but not necessarily in the format that the proposal would require. CUNA also raised serious concerns about the periodic statement requirements, including the treatment of partial payments, and advance ARM notice requirements and forced-placed insurance requirements.

We also raised serious concerns about the mortgage loan originator’s compensation proposal that called for the use of “proxies” to determine whether compensation involving a particular loan must be subject to additional requirements.

Unregulated Entities

We realize that the agency is required by Congress to implement a number of rules, such as in the mortgage-related area by January 21st, and that these major implementation efforts have diverted agency resources from other issues. However, in 2013 we urge the agency to focus on entities in the financial marketplace that engage in abusive practices, such as payday lenders, that heretofore have been unregulated or under-regulated, rather than developing provisions that will sweep regulated entities such as credit unions into their coverage.

Conclusion

Throughout 2012, the CFPB has taken a number of steps to consider the views of stakeholders, including meeting with and reaching out to credit unions, CUNA, and state leagues to learn about credit unions’ concerns. We also appreciate the creation of and your engagement with the new Credit Union Advisory Council, which is not required by statute. Moreover, regarding the international remittance regulation, the agency met with our International Remittance Transfers Working Group and reissued portions of the proposal for further comments on two separate occasions.

CUNA commends these efforts and the general appreciation of the work of credit unions that you and your staff continue to express. Nonetheless, credit unions remain very concerned that they will be subject to a barrage of requirements even though they did not cause the financial crisis. Credit unions provide affordable loans and competitive savings rates, and as the only member-owned financial cooperatives in this country want to ensure their members have access to reasonable information about their accounts.

We urge the agency to help direct its appreciation of the way credit unions operate into meaningful regulatory relief for credit unions so that they can do even more to serve their communities.

Thank you for your consideration of the matters raised in this letter and our concerns. I always appreciate meeting with you and hope we will be able to sit down again to discuss these matters in the very near future.

Best regards,
Bill Cheney
President and CEO,
Credit Union Natl. Assn. (CUNA),
Washington, DC

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About CUNA

With its network of affiliated state credit union leagues, Credit Union National Association (CUNA) serves America's 6,900 state and federally chartered credit unions, which are owned by more than 96 million consumer members. Credit unions are not-for-profit cooperatives providing affordable financial services to people from all walks of life. For more information about CUNA, visit www.cuna.org or follow @CUNA on Twitter. For more information about credit unions, visit www.aSmarterChoice.org and follow @asmarterchoice on Twitter.

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