Credit Union Trades Face Uphill Regulatory Fight

The Biden Administration has signaled its intention to tighten financial regulations, so the two national credit union trade groups may face an uphill battle as they call on the new administration to loosen its reins on credit unions.

“We often find that well-intentioned policy proposals have the unintended consequence of making credit union services less available and more expensive to those who need them the most,” CUNA President/CEO Jim Nussle wrote in a recent letter to President Biden.

In his own letter to members of Congress, NAFCU President/CEO B. Dan Berger said NAFCU will continue to press regulators to “provide clear rules of the road and streamlined regulations that allow credit unions to put more resources toward serving their members.”

However, based on early signals from the new administration, regulators may not be receptive to the idea of streamlining regulations.

At the NCUA, Biden has appointed Democrat Todd Harper as chairman. Harper has said he wants to tighten consumer protection efforts at the agency.

At the CFPB, Biden has nominated Federal Trade Commission member Rohit Chopra, a former bureau official, as director. And until Chopra is confirmed by the Senate, Biden has installed CFPB official Dave Uejio as acting director. Chopra and Uejio worked for former CFPB Director Richard Cordray during the Obama Administration. Cordray, the first director of the agency, favored a strict regulatory regime.

Nussle and Berger said in their letters to policymakers that the coronavirus crisis demonstrated the role that credit unions play for their members. However, the pandemic also has created problems for credit unions that Congress and federal agencies should address, they said.

“Credit unions are financial first responders, a fact that has been amplified during the COVID-19 pandemic,” Nussle wrote. “Credit unions entered the COVID-19 crisis well-positioned to serve their members, and throughout the crisis have provided significant assistance including making loan modifications, offering emergency small dollar loans, and participating in the Small Business Administration’s (SBA) Paycheck Protection Program (PPP).”

“Credit unions’ dedication to their communities was evident in the way they quickly offered relief to those who were impacted by the COVID-19 pandemic,” Berger wrote in a letter to policymakers.

The two trade groups have proposed specific regulatory changes they would like to see adopted, including several they said are needed due to the pandemic. The following is a selection of the recommendations that the trade groups have submitted to congressional leaders and the White House.

CUNA

CUNA officials said they are concerned that due to the pandemic, the NCUA’s Share Insurance Fund equity ratio could drop below 1.30% and that the agency board might try to assess credit unions a premium charge. When the equity ratio dips below 1.20%, the agency is required to develop a restoration plan.

“We urge the NCUA to forebear on any assessments, consistent with the forbearance toward distressed members the agency has urged credit unions to embrace,” Nussle wrote in his letter to Biden.

Nussle also said that credit unions are increasingly making investments in zero- and low-risk assets and he told Biden that CUNA has asked the agency to exclude such investments from a credit union’s net-worth ratio. He noted that other banking regulators already have taken that step.

Nussle said the NCUA also should follow the lead of banking regulators and issue an interim final rule to provide temporary relief to credit unions for regulatory compliance based on asset thresholds. He said that CUNA strongly supports an interim final rule that allows credit unions to use their 2019 asset size for regulatory requirements through the end of 2021.

The NCUA also should consider an interim final rule that would eliminate the requirement that a borrower be a member of a credit union for at least one month before they are eligible to receive a loan modeled after the agency’s Payday Alternative Loan Program I, Nussle said. “This change would ensure credit unions have the flexibility necessary to meet the emergency credit needs of new credit union members,” Nussle wrote.

When it comes to the CFPB, Nussle applauded the regulatory flexibility the agency has offered throughout the pandemic but called on the agency to provide even more during the pandemic and after.

However, Uejio already has announced that the CFPB intends to roll back some of the regulatory flexibility that the Trump Administration had given financial institutions.

NAFCU

NAFCU officials have endorsed some of the same proposals as CUNA has, but has offered the administration and Congress several others.

In a letter to congressional leaders, NAFCU Vice President of Legislative Affairs Brad Thaler said that in an effort to provide small businesses with the most options for capital, Congress should consider excluding business loans made in response to the pandemic from the credit union member business loan cap.

Thaler said that Congress also should consider legislation that would allow all credit unions to add underserved areas to their fields of membership. “Allowing all credit unions to add underserved areas will open the door to more lenders being able to help those in rural and underserved markets,” he told lawmakers. He added that the proposal has bipartisan support on the NCUA board and has had bipartisan support in past Congresses.

NAFCU also endorsed a proposal to make permanent the changes to the Central Liquidity Facility that Congress put in place as a result of the pandemic, saying that the CLF changes are important tools that expires at the end of 2021.

The NCUA should be the sole regulatory for credit unions, NAFCU officials said, arguing that Congress should remove the CFPB’s examination and enforcement powers over credit unions. In addition, the trade group said, the CFPB should be concerted into a bipartisan board structure rather than the single-director structure that now exists.