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NAFCU: Increasing complexity of regulatory environment taking a toll on credit unions

WASHINGTON, DC (July 15, 2014) — Dover Federal Credit Union President and CEO David Clendaniel will testify today on behalf of the National Association of Federal Credit Unions (NAFCU) before a House Financial Services subcommittee in a hearing on regulatory relief, telling lawmakers “enough is enough” when it comes to overregulation and seeking action to stanch the flow of new burdensome rules from the National Credit Union Administration (NCUA) and the Consumer Financial Protection Bureau (CFPB).

Clendaniel, whose credit union is based in Dover, Del., is testifying before the Subcommittee on Financial Institutions and Consumer Credit in a hearing, “Examining Regulatory Relief Proposals for Community Financial Institutions Part II.” Clendaniel will recommend ways to provide regulatory relief to help ease the growing regulatory compliance burdens facing credit unions under current rules and proposed rules, such as NCUA’s risk-based capital proposal.

CU burdens continue to grow under Dodd-Frank

Clendaniel, in his written testimony, stresses that credit unions didn’t cause the economic downturn but still remain highly regulated under rules created by the Dodd-Frank Act to address the activities of those entities that did. He points out that “on average from 2005-2013, credit unions consistently outperformed banks with lower interest rates on loans and higher returns on savings and deposits.”

“Today, credit union lending continues to grow at a solid pace, up about 14 percent in March compared to 2009,” says Clendaniel. “In short, credit unions didn’t cause the financial crisis, they helped blunt the crisis by continuing to lend during difficult times, and perhaps most importantly, continue to play a key role in the still-fragile economic recovery.”

During the consideration of financial reform, NAFCU was the only credit union trade association to oppose the CFPB having rulemaking authority over credit unions. Unfortunately, there has been an unprecedented new compliance burden placed on credit unions under the CFPB. The bureau’s primary focus should be on regulating the unregulated bad actors, not adding new regulatory burdens to good actors like credit unions that already fall under a functional regulator.

In a 2012 NAFCU survey of association members, 94 percent of respondents said they saw their compliance burdens grow since the 2010 passage of the Dodd-Frank Act. In a March 2013 survey of NAFCU members, nearly 27 percent of respondents said they had increased their full-time equivalents (FTEs) for compliance personnel from 2012 to 2013; and more than 70 percent of respondents said they have had non-compliance staff members take on compliance-related duties to address the growing regulatory burden.

To help reduce burdensome and unnecessary regulatory compliance costs, NAFCU unveiled its five-point plan for credit union regulatory relief in February 2013 along with a call for Congress to enact meaningful legislative reforms. Last December, NAFCU released its “Dirty Dozen” list that outlines 12 key regulatory provisions affecting credit unions that should be eliminated or amended.

NCUA risk-based capital proposal harmful to CUs

Clendaniel’s testimony also points to a number of key issues where regulatory burdens and proposals are causing immediate threats to credit unions’ ability to serve their members and provide them with the services that they want. Among these is NCUA’s proposal on risk-based capital.

“The growing regulatory burden on credit unions is the top challenge facing the industry today,” Clendaniel says. “The number of credit unions continues to decline, as the compliance requirements in a post Dodd-Frank environment have grown to a tipping point where it is hard for many smaller institutions to survive. Credit unions want to continue to aid in the economic recovery, but are being stymied by overegulation. Enough is enough.”

NAFCU’s analysis of NCUA’s risk-based capital proposal, which would revise risk weights and increase minimum capital levels for some, shows that credit unions with more than $50 million in assets will have to hold $7.1 billion more in additional reserves to maintain their current capital cushion if the rule were finalized in its current form.

“Simply put, if the NCUA implements this rule as proposed, credit unions will have less capital to loan to creditworthy borrowers, whether for a mortgage, auto, or business loan,” Clendaniel says in his written testimony.

There has been widespread concern over NCUA’s proposed risk-based capital rule, with the agency receiving more than 2,000 comment letters, including from NAFCU and Dover FCU, expressing significant concerns about the potential impact on credit unions. Clendaniel said NCUA’s recent listening sessions in Los Angeles and Chicago reinforce the need for substantive changes to the risk-based capital proposal and ample time for credit unions to digest any final rule and comply with it.

NAFCU has urged the agency for an extended implementation period of at least three years.

“Furthermore, NAFCU encourages NCUA to allow credit unions the opportunity to voice their thoughts and concerns. The 2,000 comments submitted for the proposal clearly exemplify that credit unions around the country have a vested interest in this issue and they deserve the opportunity to comment given the magnitude of the potential negative impact of this proposal,” Clendaniel says.

NCUA has indicated it is making some changes to the proposed rule.

Clendaniel’s written testimony also highlights the regulatory burden imposed on credit unions by CFPB rules under the Dodd-Frank Act.

“One additional area that could use action are the arbitrary thresholds established under the Dodd-Frank Act,” says Clendaniel. “NAFCU believes that, at the very least, all credit unions, not just those under $10 billion, should be exempt from examination by the CFPB. Furthermore, the additional thresholds established in the Dodd-Frank Act should be raised and indexed.”

“NAFCU appreciates the subcommittee’s work to review legislation that would provide relief for credit unions through commonsense and coordinated regulation and eliminating or amending outdated requirements,” Clendaniel says.

NAFCU supports reg relief bills

In addition to the reforms sought in NAFCU’s five point plan for regulatory relief and NAFCU’s “Dirty-Dozen” regulatory provisions affecting credit unions that should be eliminated or amended, Clendaniel provides feedback on and urges support for a number of legislative measures before the subcommittee including:

  • H.R. 4042, Community Bank Mortgage Servicing Asset Capital Requirements Study Act;
  • H.R. 4626, SAFE Act Confidentiality and Privilege Enhancement Act;
  • H.R. 3374, American Savings Promotion Act;
  • H.R. 4986, End Operation Choke Point Act;
  • H.R. 3240, The Regulation D Study Act;
  • A discussion draft related to Appraiser Requirements under TILA.

About Us:

The National Association of Federal Credit Unions is the only national organization that focuses exclusively on federal issues affecting credit unions, representing its members before the federal government and the public. 


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