Legislators urge Cordray to tailor certain regs for CUs, small FIs

March 17, 2016

WASHINGTON (3/17/16)--Members of the U.S. House Financial Services Committee peppered Consumer Financial Protection Bureau (CFPB) Director Richard Cordray Wednesday with questions that advance Credit Union National Association (CUNA)-supported principles.

Cordray’s testimony was part of his semiannual appearance before the committee, and reducing the regulatory burden on credit unions and other small financial institutions was a common theme among legislators. (See related story: Nussle concerned Cordray doesn't fully see reg. burden damage to CUs.)

During the hearing, which ran nearly 3 1/2 hours, a number of legislators cited a letter sent to Cordray signed by 329 legislators calling for the bureau to protect credit unions from onerous regulations. The letter was composed by Reps. Adam Schiff (D-Calif.) and Steve Stivers (R-Ohio), and efforts to collect signatures were led by CUNA, state credit union leagues and credit unions.

Cordray acknowledged at the hearing that the letter was delivered.

Rep. Brad Sherman (D-Calif.), who signed the letter, clarified its intent for Cordray.

“The only ask in the letter is to be sure that your regulations don’t have any unintended consequences, and when you write a regulation, and you want a different regulation or approach for small institution, that you have a portion of the regulation [aimed] at smaller institutions,” Sherman said.

Stivers was particularly pointed in his criticism of the bureau’s one-size-fits-all regulatory approach. He asked Cordray to try on a toddler-sized T-shirt, and when the director declined because the fit was not right, Stivers likened the situation to the CFPB’s approach to small financial institutions.

“There are two ways you could fit into that T-shirt. You could go on a massive diet, which many of our community financial institutions are doing to make themselves smaller to serve their clients less, or you could strain the T-shirt and break the T-shirt, the T-shirt being the regulation,” Stivers said. “That’s the problem you’re putting folks in, so I’d ask you to take a look at your authority…under [Dodd-Frank] section 1022 seriously too.”

Dodd-Frank section 1022 allows the CFPB to “conditionally, or unconditionally exempt any class of covered persons” from rulemakings.

CUNA has urged the CFPB to use this authority to exempt credit unions from certain rulemakings that bring a compliance burden that is disproportionate to a credit union’s risk profile.

In response to a question from Rep. Ruben Hinojosa (D-Texas), Cordray confirmed that the bureau’s upcoming short-term, small-dollar loan proposal will not preempt currently available payday alternatives, such as credit union Payday Alternative Loans--or PALs.

"We're also trying to make sure there are ample avenues that remain for small-dollar lending to be available to consumers,” Cordray said. “Community banks and credit unions have a product now that we want to make sure we are protecting and giving latitude for, and other products that may arise around the country. We don't want to squash innovation in this area."

CUNA President/CEO Jim Nussle issued a post-hearing statement thanking the CFPB leader: "We appreciate Director Cordray’s remarks that the CFPB is trying to make sure there are ample avenues that remain for small-dollar lending to be available to consumers. Specifically his statements indicating that credit unions have a product that is worth protecting, and that the CFPB does not want to squash innovation in this area. We hope the CFPB’s forthcoming rulemaking in this market actually aligns with these statements, and that credit unions do not face any additional regulatory hurdles to participate in this market."

Other highlights from the hearing include:

  • Cordray said the bureau’s prepaid products and mortgage servicing amendment proposals would be finalized this year. He couldn’t guess a time frame for other proposals under consideration; and
  • The CFPB will continue to take a “diagnostic and corrective” approach to Truth in Lending Act-Real Estate Settlement Procedures Act integrated disclosure supervision. Cordray says the agency has not made any punitive actions for those making an effort to comply, and that this approach will continue for the time being.