It’s not common knowledge, but it should be: More than 110 million Americans are members of credit unions. And similar small institutions, community banks, employ three-quarters of a million people and originate nearly half of all loans made to small businesses.
Despite their work to aid everyday Americans with their financial needs, small institutions have been under attack due to regulations imposed by the federal government a decade ago to control the excesses of financial giants on Wall Street. In the years following the Great Recession, credit unions and community banks have suffered the consequences of other bad actors’ irresponsible deeds.
Since 2009, the number of credit unions has decreased by about 2,000 due to mergers. And the community can’t afford to lose some of its strongest financial advocates. Because credit unions are organized as not-for-profits, they reinvest earnings in their members through lower fees and better rates. The competition provided by credit unions and community banks helps keep bigger financial institutions honest.
Now, Congress has taken an important step to stand up for small lenders. The Senate, House, and President recently green-lit legislation that exempts credit unions and smaller community financial institutions from the most burdensome of these federal regulations.
Credit unions celebrate a victory with the passage of S.2155, which means the process of getting mortgage loans from credit unions will be simpler and more straightforward for consumers. It will adjust thresholds that ensure lending regulations intended to reign in Wall Street banks do the job without overburdening credit unions. It changes how credit unions designate certain apartment loans, freeing up capital for additional small business lending, and it provides important safeguards against elder abuse, giving greater protections to some of the most vulnerable consumers of financial services.
The origin of the problem:
In order to monitor the big banks responsible for the financial crisis more closely, Congress enacted the Dodd-Frank Act in 2010. The law has largely prevented these titans from engaging in the sort of predatory behavior that almost took down the American economy.
But it has proved costly for community financial institutions, who had little to do with the Great Recession. Indeed, in mid-2009, at the peak of the crisis, just two percent of credit union loans were delinquent. That’s less than one-fourth as many bad loans as the banks had on their books. Regulations are eating up one of every six dollars credit unions spend on operations each year – or $6.1 billion in total.
The Senate led the charge to ward off those higher prices. This spring, the upper chamber passed the Economic Growth, Regulatory Relief and Consumer Protection Act, S. 2155 – a bill that would offer credit unions and smaller community banks relief from the most burdensome of Dodd-Frank’s regulations.
In so doing, it frees up credit unions to divert spending away from regulatory compliance – and toward their customers. The bill streamlines the process for securing a mortgage. It would also tweak how some loans to landlords are categorized. That move alone can unlock an extra $4 billion for credit unions to lend to small businesses.
The passage of S. 2155 would not have been possible without the earlier work of the House on H.R. 10, the Financial CHOICE Act, which was introduced by House Financial Services Committee Chairman Jeb Hensarling. Several of H.R. 10’s provisions are included in S. 2155.
Years of deliberation, hearings, markups and floor votes in the House inspired and prompted the Senate to craft and ultimately pass S. 2155. As a result, it’s effectively a bicameral bill; the House deserves credit for laying the groundwork for S. 2155.
