Removing Barriers Blog

GAO Report Criticizes Complex Financial Regulatory Structure
Posted March 30, 2016 by CUNA Advocacy

The Government Accountability Office (GAO) recently released a report entitled: Financial Regulation: Complex and Fragmented Structure Could be Streamlined to Improve Effectiveness. The report noted that the U.S. financial regulatory structure is complex, with responsibilities fragmented among multiple agencies that have overlapping authorities. As a result, financial entities may fall under the regulatory authority of multiple regulators depending on the types of activities in which they engage. It added that while the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) made a number of reforms to the financial regulatory system, it generally left the regulatory structure unchanged. The complexity of the regulatory structure, "has created challenges to effective oversight. Fragmentation and overlap have created inefficiencies in regulatory processes, inconsistencies in how regulators oversee similar types of institutions, and differences in the levels of protection afforded to consumers." 

Key takeaways for credit unions

There are several takeaways from the study for credit unions.  

The study recommended that Congress consider (but stopped short of making a recommendation for Congressional action) consolidating the number of federal agencies involved in overseeing the safety and soundness of depository institutions, combining the entities involved in overseeing the securities and derivatives markets, transferring the remaining prudential regulators’ consumer protection authorities over large depository institutions to CFPB, and the optimal role for the federal government in insurance regulation. If such ideas were ever acted upon by Congress, the National Credit Union Administration's role as the Supervisor and regulator of credit unions could change. And, the CFPB could be given some of the authority NCUA has to examine credit unions for safety and soundness. The NCUA took issue with this change in a letter incorporated in the report, and so do we.  We believe that an independent federal credit union regulator is critically important.  We have opposed previous proposals and suggestions to eliminate NCUA or merge it with another entity, and we will continue to do so.

The report also discusses problems with the enforcement of Unfair, Deceptive, and Abusive Acts and Practices (UDAAP) by different regulators. This can be particularly problematic for credit unions who have over $10 billion in assets and are examined by the CFPB. It states:  

"While Congress addressed some of our concerns through consolidating rulemaking and other authorities over consumer financial products and services under CFPB, the Dodd-Frank Act maintained a divided consumer protection regulatory regime for depository institutions. As a result, the potential for inconsistencies continues to exist in the way depository institutions are overseen for compliance with consumer protection laws and the level of protections provided to consumers. In particular, CFPB and the federal prudential regulators have similar but different regulatory authorities related to unfair or deceptive acts or practices. Prudential regulators enforce Section 5 of the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices for depository institutions of any size that they supervise. The Dodd-FrankAct prohibits unfair, deceptive, or abusive acts or practices and CFPB enforces this for depository institutions with more than $10 billion in assets.5 This means that for depository institutions with more than $10 billion in assets that are overseen by both CFPB and a prudential regulator, both regulators can enforce their respective authorities and conflicts may arise in how the two regulators interpret and apply them." 

The report also highlights how the complexity and interconnectedness of the US financial regulatory regime makes regulatory compliance unnecessarily difficult and unpredictable. This finding supports our long-held view that regulatory burden is bringing real harm to credit unions, especially the smaller ones that struggle with the enormous compliance complexity.    

Next Steps

The report was requested by past and current leaders of the House Financial Services Committee.  In the short term, it does not appear likely that the Committee will take up the report and turn it into legislative changes that can move through the Committee quickly.  Nevertheless, we are aware of an interest on the part of Committee leadership to make significant changes to the Dodd-Frank Act, and they will likely take this report into consideration as they put together legislation in the future.