Democrats Squabble as House Debates Regulatory Restructuring

A threatened revolt by Democratic centrists delayed the start of the House debate on legislation to revamp the way the federal government regulates financial services.At press time, the House had just begun debate on the measure,, and Democrats argued that the measure was necessary to prevent another economic meltdown while Republicans said it would cause job losses and limit consumer choice.Lawmakers hadn’t yet tackled any of the amendments that were of special concern to credit unions.Of particular interest was an amendment by House Judiciary Committee Chairman John Conyers (D-Mich.) to allow bankruptcy judges to rewrite mortgages. The House passed the amendment as part on another bill earlier this year, but it was defeated in the Senate.Lobbyists for CUNA and NAFCU said passage of the amendment would cause them to oppose passage of the legislation.CUNA President/CEO Dan Mica wrote that the “specter of a well-underwritten loan to a deserving borrower being adjusted through a judicial process is simply abhorrent to most credit union executives and volunteers.”NAFCU President/CEO Fred Becker wrote that “any amounts crammed down are losses to the credit union that ultimately lead to increased loan rates and decreased dividends offered to members of the credit union.”Another source of concern is the proposal for the Consumer Financial Protection Agency. Both trades have tried to minimize its impact on credit unions, which they argue are already the most heavily regulated financial institutions.The manager’s amendment, which is a package of amendments to the committee-passed bill that are agreed to by the main sponsors of the measure, exempts credit unions with assets of $10 billion or less from being examined by the CFPA.All credit unions would be subject to any regulations issued by the CFPA but only the three credit unions with assets of more than $10 billion-Navy FCU, State Employees CU, and Pentagon FCU-would face additional examination by the CFPA. The bill does not index that $10 billion threshold for inflation, and lobbyists for CUNA and NAFCU expressed concern that as credit unions increase their assets more of then would be subject to the additional regulation.The original committee-passed bill had a $1.5 billion threshold for credit unions, which would have impacted 77 credit unions.Mica urged lawmakers to encourage the CFPA to delegate examination of the larger credit unions to the NCUA and also make sure that CFPA relies on the examinations of state-chartered credit unions by state regulators to ensure compliance with federal consumer laws.Becker urged lawmakers to be cautious on the CFPA and other measures because “credit unions are the original consumer protection entities.”The conflict within the Democratic Party occurred after moderate members threatened to withhold support for the measure and succeeded in gaining certain concessions. These included a promise from the leadership that there will be votes on an amendment by Rep. Melissa Bean (D-Ill.) to exempt national banks from state rules and an amendment by Rep. Walt Minnick (D-Idaho) to replace the CFPA with a council made up of the heads of regulatory agencies.Another component of the legislation is aimed at giving additional powers to regulate and rescue firms deemed too big to fail. The Federal Reserve would handle their regulation, and the FDIC would administer a fund aimed at rescuing troubled institutions.But lawmakers approved an amendment that would exempt financial institutions with assets of $50 billion or less-which includes all credit unions-from having to contribute to the fund.It creates a regulatory council on systemic risk chaired by the secretary of the Treasury and made up of representatives of all financial services regulatory agencies, including the NCUA.The measure also includes a provision allowing Congress to request an audit of all of the operations of the Federal Reserve, including its decisions on monetary policy. The leadership opposes the measure, but there is bipartisan support for it.For the latest news on the House debate, go to www.cutimes.com.–[email protected]