Removing Barriers Blog

CFPB Director Underestimates Regulatory Burdens Facing Credit Unions
Posted March 06, 2016 by CUNA Advocacy

In his speech before CUNA’s Governmental Affairs Conference, CFPB Director Richard Cordray outlined several areas in which he believes credit unions and the CFPB can work together. He noted that credit unions provide enormous value to millions of people around the country and are consistent stewards of consumer interests.  And, he applauded credit union efforts to advance financial education. Nevertheless, he continued to articulate his view that despite that credit unions are “not the culprit in the financial crisis” they should still be subject to rulemakings aimed at reigning in the abusers of consumers.

The director also argued that the CFPB has not hurt credit unions because credit union lending and membership have grown since the imposition of the new rules.  There is no disputing that large credit unions are indeed doing well, and these credit unions drive these overall numbers. However, the attrition rate of smaller credit unions has accelerated since 2010. In other words, the rate of decline in the number of credit unions in the years since the financial crisis is greater than it was during the crisis.

Director Cordray suggested in his speech that credit unions should accept the current state of things as “good news” and that the American dream has been made stronger by the changes coming out of the CFPB. This perspective is very concerning because as outlined in our recently released_Regulatory Burden study, there are some very alarming trends for small credit unions. The study shows that the financial impact of regulation has increased by 40 percent since 2010, and the relative impact is over three times greater at smaller than at larger credit unions. It also found dramatic evidence of differential impacts by credit union size. Cost impacts were much stronger at smaller versus larger credit unions. There are basic fixed costs associated with complying with regulations, and at larger credit unions these costs can be spread over a larger asset base.

CUNA’s economists have outlined why regulatory burden weighs heavily on credit unions’ ability to serve members – particularly in mortgage lending. Although the economy and business conditions have improved during the last five years, the weight of new rules and regulations has been too much for many smaller credit unions.  Director Cordray dismissed the concerns CUNA raised regarding recent mortgage lending rules, claiming the Bureau proved everyone wrong because mortgage lending is strong and no lawsuits have been filed against credit unions.  These statements are premature at best, and reveal a shallow understanding of the immense compliance burden the totality of these new mortgage rules are placing on credit unions. The CFPB missed the point that many of these new mortgage requirements are forcing credit unions out of the marketplace on a daily basis, and impacting credit union members’ ability to be able to rely on these safer and more affordable options.  The topline data – driven by the larger credit unions – might look good, but at the operational level for small credit unions these rules are having real and adverse impacts.  For example, smaller credit unions are devoting almost half of their staff time to dealing with the impacts of regulations. This is taking away from face-to-face time with members and in some instances impeding their ability to expand service offerings.

Interestingly, Director Cordray also left out of his speech some of the other problems past rulemaking have caused credit unions-- most notably the international remittance transfer rule, which caused almost half of credit unions either to stop offering or reduce remittances services.  

Cordray said many positive things about the credit union industry in his speech. Going forward we will continue to urge the CPPB to look at the entire picture of how rulemakings are impacting credit unions, particularly small credit unions.  But, we disagree with this assessment that the current state of regulatory burden in the marketplace is “good news.”  It is far from that.