As Congress returns from its summer recess, the Consumer Financial Protection Agency Act (H.R.3126) will be among the first challenges for the House Financial Services Committee chaired by Congressman Barney Frank, D-Mass. We are all well aware that the creation of this agency and the increased regulation and supervision of consumer financial products and services is a priority of the Obama Administration. It seems apparent that some version of this act and its associated agency is inevitable. The question is, can credit unions and community banks continue to succeed in the aftermath of still another regulation aimed to cure a problem that we did not create?
While it is evident that failure to check widespread abuses in subprime mortgage lending contributed significantly to the current financial crisis, it would be almost impossible to find that credit unions or community banks were in any way associated with these abuses. Assistant Treasury Secretary Michael S. Barr stated in early July that “closely regulated credit unions and community banks with straightforward credit products struggle to compete with less scrupulous providers who appear to offer a good deal and then pull a switch on the consumer.”
How can we resolve this dilemma? We realize that the abuses present in the subprime market harmed a number of consumers and simultaneously came close to destroying the financial and banking markets as we know them. We agree that consumers need greater protection from the largely unregulated entities that currently offer financial services. Yet, we are already heavily regulated. We did not create the problems and we will struggle for our survival under the increased regulatory burdens that this act could create.
Getting Attention
The answer appears to be in the details of the act, the role that the proposed agency will ultimately play and the degree of additional oversight that we will experience as a result. In a recent letter to Congressman Frank, Credit Union National Association (CUNA) President Dan Mica requests consideration on seven key points that credit unions feel must be addressed in order for the agency to effectively and efficiently operate within the credit union industry.
In brief, it is possible that a new agency could enhance our regulatory world if given complete rule making authority. This would centralize all consumer related regulation under one agency and would greatly simplify the fragmented world that currently exists.
Included in this would be a preemption of state laws. While the preemption will in itself be controversial, it is truly necessary if we are to enjoy the simplification as offered. The flip side of the coin is that the enforcement of these regulations needs to remain with each credit union or community bank’s current regulator. The addition of another regulator with the accompanying annual examination would create an unnecessary burden for those of us who have nothing to hide and have no history of consumer abuse.
Finally, we need to maintain our current flexibility in the design of products and services. The concept of a standard product offering will rob us of our ability to be responsive to the unique needs of our members. As member-owned cooperatives, credit unions have a history of putting people ahead of profits and creating customized solutions that are often emulated by other financial service providers.
As we approach this milestone step in our regulatory evolution it is critical that our role is understood, appreciated and allowed to continue as a model for consumer centric financial service providers.
