Removing Barriers Blog

CUNA, Leagues, and Credit Unions Unite Democrats and Republicans on CFPB Exemption Authority
Posted March 14, 2016 by Chandler Schuette

Nothing happens in a vacuum.  We did not just wake up one morning and say to ourselves, “Let’s see if we can get Congress to write a letter to the CFPB.”  No, the letter that nearly 330 Members of the House of Representatives sent the CFPB this week was not spontaneous and it is not an isolated action.  Rather, it is the manifestation of frustration and concern on the part of CUNA, Leagues, credit unions and Congress that the Bureau designed to protect consumers of financial products has not sufficiently tailored its rules towards providers that, before the Dodd-Frank Act, were not regulated, and other abusers of consumers.

How did we get to a place in which so many from both parties came together to send a unified message to the CFPB?  This is what happens when a government agency is not implementing the laws under its purview as Congress intended or desires.  It is really as simple as that. 

Nearly six years into the Bureau’s existence, there is considerable concern that the Bureau’s rulemakings are adversely effecting credit unions and small banks’ ability to serve their members and customers.  It is making safe and affordable financial services, like remittances, less available and more expensive.  This is not the result that anyone in Congress desired, which is why they gave the Bureau very broad authority to design rules that target abusers and leave the good actors unharmed.  While we are grateful there are some exemptions for smaller credit unions in the qualified mortgage requirements, in the vast majority of cases the Bureau has not meaningfully used this authority.

CFPB Director Cordray told CUNA’s Governmental Affairs Conference (GAC) that he has considered our argument that the authority the Bureau has is broader than the manner in which the Bureau has used it, and rejected the argument. 

“Your leadership has strenuously made the suggestion that, in light of this history, the Bureau should simply exempt credit unions altogether from consumer financial protection laws.  They have argued that the law would allow us to do that.  I have considered their arguments carefully and I do not believe that is correct.  The U.S. Congress had all of these suggestions in front of it when the Dodd-Frank Act was being written.  But Congress did not do that, and though it gave us some amount of exemption authority, it is not plausible to me that we could use such authority to override Congress’s own judgment on such a broad-based policy matter.  Instead, Congress said that all financial institutions have to play by the rules, and we have to enforce them.  That is our charge.  But that does not mean one size necessarily fits all.  Congress itself drew some thresholds and tiers that distinguished larger institutions from smaller institutions, such as its provision giving us supervisory authority over banks and credit unions with more than $10 billion in assets but not those with less.  So where we can customize our rules to treat smaller institutions differently in light of their compliance burdens and the level of risk they pose, we have done so and will continue to do so.”  (emphasis added)

CUNA appreciates Director Cordray's participation at our GAC, however we disagree with his statement and analysis. There is no evidence that Congress ever considered exempting credit unions and small banks from the regulatory authority of the CFPB.  No such amendment was offered during committee, floor or conference committee consideration.  If such a proposal had been on the table, we would have strongly supported it.  After all, the National Credit Union Administration has an office of consumer protection that already serves an important role for credit union members.  But no Member of Congress ever proposed that.  That is an argument for another day.

The crux of our disagreement with the Bureau is whether they are using the authority that they have under the law – the authority that the Director identifies above to “customize our rules to treat smaller institutions differently in light of their compliance burdens and the level of risk they pose” to the extent necessary.  We contend they have the authority to do much more than what they have already done. Moreover, they have not been shy to arguably test the limits or go beyond the authority Congress has granted to them in areas like the auto industry. Yet, they are arguing they don't have authority to do something Congress explicitly told them they can do. This dichotomy is puzzling.

All credit unions – even Navy Federal Credit Union – are small relative to the mega banks that serve the largest number of consumers and pose the greatest risk to the financial sector. Each of the four largest banks is larger than the entire credit union system!  Credit unions collectively and individually are such unique players in the broader market that it makes sense that a Bureau that can “customize our rules to treat smaller institutions differently in light of their compliance burdens and the level of risk they pose” should do that for all credit unions and similarly sized banks.

It also makes sense for the Bureau in the course of customizing their rules to say to providers that have a history of treating consumers well that they can continue to follow the rules that have been working.  Why do credit unions need new regulations on small dollar loans when members they serve have access to safe and affordable products under the current regulatory requirements?  Similarly, if consumers are not complaining about products and services offered by credit unions, why rock the boat?  Leave well enough alone for those doing a good job, and focus on the bad actors.

That’s the message that Congress is sending through this letter.  They’re telling the Bureau to make sure that the rules they are issuing do not result in fewer or more expensive financial services options for consumers using credit unions and small banks.  They’re urging the Bureau to use the exemption authority that Congress conveyed to do that.

What is really remarkable about this letter is not only the number of Members that signed it, but the fact that it earned the support of the majority of both parties.  CFPB matters can be politically divisive.  Supporters of the Bureau cast those critical of the Bureau as wanting to neuter or eliminate it.  Opponents of the Bureau cast those who support the Bureau’s mission as liberals that support overregulation.  This letter attracted strong bipartisan support because it is not about whether the Bureau should or should not exist.  It’s about the real world impact of the Bureau’s regulations and the result desired by consumers’ elected representatives.

Credit unions do not want consumers of financial products to be abused; rather, we want to serve consumers with safe and affordable products as this is the reason for our existence.  Through this letter, the broad majority of Democrats and Republicans in Congress are united behind that message.  It’s a message that we hope the CFPB will heed; it’s a message we will continue to encourage Congress to deliver.

Ryan Donovan

Chief Advocacy Officer