Branching Out

Regulations We’d Rather Not See

We all hope these regulatory predictions don’t come to pass.

April 7, 2013
Never argue with stupid people. They’ll drag you down to their level and then beat you with experience.”
— Mark Twain
Now, don’t get me wrong—I’m not comparing regulation makers to idiots. This would reflect poorly on idiots. But something should be said when these regulation makers draft an international remittance rule that makes it easier to actually fly to Mexico to deliver money than to wire it.
While many regulations are merely aggravating, some could become game-changers. These are the regulations that make credit union CEOs as neurotic as hypercaffeinated squirrels. Whether created by regulatory agencies or legislatures, these rules and regulations could be extremely disruptive.
Let me go out on a limb and theorize a few of these. While they probably won’t happen in the near future, they do seem as inevitable as a Lindsay Lohan traffic incident and subsequent 12-hour prison sentence.
Prediction: The end of Freddie and Fannie
  • Why: Moral hazard.
  • Background: Freddie Mac and Fannie Mae are government-sponsored enterprises (GSE). For decades, these GSEs have purchased mortgages from issuers so millions of consumers could become homeowners and accumulate wealth as their homes appreciated— at least until the housing bubble burst. This is why GSEs’ survival is now as tenuous as the slowest antelope at a lion convention. The process of transferring mortgage risk from originators to GSEs lends itself to fraud, waste, and abuse (and those are the good points).
  • Impact: For most lenders, the future of the 30-year mortgage is as bright as Tom Cruise’s acting career. Only behemoths like Wells Fargo and Bank of America will play this game. For others, it will be shorter-term loans, adjustable-rate mortgages, and other unique products.
Prediction: Another credit union tax battle
  • Why: The government needs money.
  • Background: Since Lassie was a pup, credit unions have enjoyed protection from federal taxation in exchange for restrictions on membership, capital, business loans, etc. This, of course, has been attacked by bankers like an open bar.
  • Impact: If credit unions don’t prevail, we’ll be doomed to even slower growth. Bankers would be free to charge even higher rates and fees, and they’d still be unhappy.
Prediction: Regulations fail to handle new technologies
  • Why: Because Regulation D is still, in 2013, a factor.
  • Background: With the advent of mobile banking, paperless checking, and a financial computer on your phone more powerful than most mainframe computers from the 1970s, one would think that regulatory agencies would be on top of such high-tech trends. And then again, these are the same agencies who still own IBM Selectrics.
  • Impact: Mainstream financial institutions will slowly wade into new technologies like slugs through peanut butter, while unregulated business will quickly flock to them.

Prediction: Large banks continue to ignore the rules

  • Why: It’s the money, stupid.
  • Background: For a large institution, multiple billion-dollar settlements are the norm, not the exception. The reason is simple: It’s less expensive than doing it right. Even Harvard MBAs understand that.
  • Impact: Ironically, smaller institutions will shoulder the full cost of compliance while others will not.
Personally, I hope I’m wrong. I hope that rationality prevails and common sense returns. And as long as I’m dreaming, I also hope that the price of gasoline falls dramatically, my hair comes back, and I don’t wake up grumpy in the morning anymore.
Of course, I might be too harsh on those who write the rules we must live by. For those, I found another Mark Twain quote they can rally around: “The rule is perfect: In all matters of opinion our adversaries are insane.”
JAMES COLLINS is president/CEO at O Bee CU, Tumwater, Wash., and Credit Union Magazine's humor columnist. Contact him at 360-943-0740.