Not too long ago, I had a discussion with an attendee at a regulatory compliance conference at which I was teaching.
During a break, this person told me she’d seen me speak many times but had never seen me so concerned about the effect of consumer regulations on credit unions and members.
We agreed on the need for well-considered rules to protect consumers from bad behavior by certain financial services players. We both agreed these rules were appropriate, necessary, and proper.
I’m not against rules, mind you. I’ve made my living helping credit unions understand and implement consumer regulations.
My biggest concern is that credit unions and members have clear, concise, easily understandable rules that made lending transactions more transparent—and the deluge of rules wasn’t accomplishing that goal as well as we could hope.
Credit unions have faced a deluge of rules, both baffling and complex, including:
• A change to the method of making loans using open-end disclosures that involves the degree to which certain lenders can ensure consumers’ creditworthiness. The change, which has cost credit unions and members billions of dollars, limits the degree to which credit unions may review a borrower’s request for credit at the time of that request.
At the same time, it gives a special loophole to large credit card lenders, allowing them to review the creditworthiness of borrowers at any time. This comes after 30 years of credit unions following the rules and being the “white hat” lenders they are today.
• Rules such as this gem from Regulation Z, section 226.6(b)(1)(ii): “(ii) Location. Only the information required or permitted by paragraphs (b)(2)(i) through (v) (except for (b)(2)(i)(D)( 2 )) and (b)(2)(vii) through (xiv) of this section shall be in the table. Disclosures required by paragraphs (b)(2)(i)(D)( 2 ), (b)(2)(i)(D)( 3 ), (b)(2)(vi), and (b)(2)(xv) of this section shall be placed directly below the table.”
• The constant changing of locations to which borrowers should make inquiries if they’re turned down for a loan. While this doesn’t seem like a big deal, each time the location changes, the adverse action notice required under Regulation B must be redone, costing credit unions and, therefore, members, millions of dollars in obsolete forms, data processor reprogramming, and staff training.
These are only three of a myriad of changes credit union staff have tackled over the last few years. Now the president has made a recess appointment of Richard Cordray to head the Consumer Financial Protection Bureau (CFPB), although there’s likely to be a Supreme Court review of the constitutionality of this appointment.
Others are better suited to make the legal and political arguments for and against the president’s power to make this appointment. I will comment on the effect this fight will have on credit unions dealing with the rules likely to come out of the new agency:
• Cordray and his staff likely will develop a whole series of new rules. Every change affecting credit unions takes time and money to implement—even the small changes.
Credit union staff are already stretched to the limit to meet current requirements. More rules will overtax many credit unions, causing missed or incorrectly implemented requirements.
• Credit union staff will be confused and uncertain about whether they will have to follow rules promulgated by CFPB, given the all but certain fight over the legality of the director’s appointment.
Should they comply or should they wait until the legal case is resolved? If they wait to implement, will they have sufficient time to comply if the case comes out in favor of the appointment?
• Will CFPB take rules in a completely new direction than the old consumer rules? Would this result in credit union staff having to change their fundamental approach to lending and member service?
Given their slim margins, will credit unions survive a deluge of new rules?
Here’s my cry from the heart: Resolve the legal issues first.
Don’t exacerbate the confusion already inherent in this era of new regulations, new regulators, and new challenges with even greater uncertainty over the need to comply with rules based on a political fight over the legality of Cordray’s appointment.
Solve that problem first, please, to ease the already unbearable burden of regulatory compliance credit unions face.