Who Wins in the Regulatory Tug of War?

I’ve studied the 7 Cooperative Principles. I’ve sat through presentations about them. I’ve heard them referenced by credit union CEOs, credit union consultants, employees and lobbyists over the years. Principle #1 and #7, the bookends if you will, appear to have been tossed out the window. Or maybe they were never really something that was true in the first place? Or maybe they were just shelved for awhile until they’re needed for reference material later on down the road?

As a reminder: Principle #1: Voluntary and Open Membership. It states, “Cooperatives are voluntary organizations, open to all people able to use its services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.”

Principle #7: Concern for Community. It states, “While focusing on member needs, cooperatives work for the sustainable development of communities through policies and programs accepted by the members.”

As a final preface of things before I get into it, I’m not trying to preach here, and I do characterize some things below in a way I wouldn’t normally speak or write. It’s uncomfortable and I think necessary as I’m sharing my genuine reaction and puzzlement as a credit union member and news consumer. And it made me realize that maybe I was wrong to think the guiding principles credit unions were founded on were really real. I’ve now pulled back my foundational expectations and I’ll work things out in my head eventually.

On April 18, David Baumann, our Washington-based reporter, filed the story titled “Senate Passes Resolution to Nullify CFPB Auto Loan Guidance.” Not the sexiest headline ever, and that’s my fault.

The story revolved around rolling back some regulations, which has been happening a lot over the past year. And the hook of the story came in a couple of forms: The Senate passed a resolution to nullify the 2013 auto sales guidance issued by the CFPB. And it was passed using the Congressional Review Act, which prohibits Senate filibusters, and it only needs 51 votes to pass. It passed 51-47. It has now passed the House and President Trump has indicated that he will sign it.

Now, there’s a debate over the CFPB’s use of the word “guidance” because the Government Accountability Office said it was actually a “rule.” And with that declaration by the GAO, and under federal law, this should have been open for public debate. It was not.

So, with no debate, this repeal of the CFPB’s “guidance” has opened the door for lenders to discriminate against minority borrowers. The entire point of the CFPB’s guidance in 2013 was to prevent lenders from giving non-white borrowers more expensive auto loans – or as the CFPB officially stated in the guidance, “potentially discriminatory markups” in auto lending practices.

No more of that pesky rule!

See that non-white person coming into your credit union for a car loan? As soon as Trump signs this into law, just kick up that rate a little bit more. That minority won’t care, or maybe not notice. If they do, let them try to sue. You’re covered.

This is where I’d might say, if we were speaking face-to-face, “Unbelievable!” But I won’t just yet.

As with nearly every regulatory story coming out of D.C., we get the statements from the leadership of CUNA and NAFCU. This passage is directly from David’s story:

CUNA supported efforts to repeal the guidance.

“Credit unions support this concept since CFPB bulletins, like rules, should take into account unintended consequences on smaller financial institutions,” CUNA President/CEO Jim Nussle said in a letter to senators this week.

NAFCU also endorsed the resolution.

“While the unprecedented use of the Congressional Review Act on guidance may create future uncertainty, we are supportive of Congress finding ways to provide credit unions the flexibility to best serve their members,” NAFCU Director of Legislative Affairs Brad Thaler said.

I get it that CUNA and NAFCU sometimes look at the broader brushstrokes when it comes to regulation rollbacks. That’s fine and that’s what they do. As a human, I see this wider swath of a deregulation move as not actually taking “into account unintended consequences” on the non-white credit union members. Unbelievable!

I’m not sure but, as a credit union member, did I miss the communication from my credit union that the executives and board supported this? I’ve checked and there was no communication or even any communication about supporting this concept of CFPB bulletins.

If this auto lending regulatory burden on credit unions has been such a nightmare or however you want to characterize it, why has auto lending hit record highs since 2013? I believe the credit union industry needs to get on the same page.

Since 2013, the CFPB has fined several auto lenders including Ally Financial Inc. and Toyota Motor Credit Corp. under this guidance. Did credit unions even notice? Don’t worry, they’ve stopped enforcing it months ago.

Are credit unions getting slaughtered in auto lending? Are credit unions doing OK? Or are credit unions greedy? I don’t know and I hope they aren’t simply greedy.

All we get to go by is the data. And the data shows that there’s been no negative results of this rule on the industry’s overall auto lending efforts. Are there too many regulations? No one seems to know what the perfect number of regulations are. Like a restaurant owner getting and paying for a health inspection, regulations are the cost of doing business.

There are other editorials and reports out there on this exact topic by MarketWatch, The New York Times, Bloomberg and others with much better writers and I’m sure they’re much smarter than my clumsy attempt to make a point here.

As an editor, it’s unclear how well-thought-out CUNA and NAFCU’s deregulation strategies are, other than it appears that it’s a very wide lens they’re looking through. We are watching a deregulatory tug of war and we understand the extra workload caused by many regulations. We also have to ask, who’s on the other end of that rope if the credit union industry wins this game?

As a credit union member, and if my credit union belongs to either trade group (and it is a member) I’d ask if the executive team knew about this specific issue before the vote took place. And if so, what did you say to CUNA and/or NAFCU? Also, I’d ask, where did Principles 1 and 7 go?

Michael Ogden is executive editor for CU Times. He can be reached at mogden@cutimes.com.