NAFCU Letter in Advance of Tomorrow’s Hearing, “Examining Practical Solutions to Improve the Federal Regulatory Process.”

The Honorable James Lankford
Subcommittee on Regulatory Affairs and Federal Management
Committee on Homeland Security & Government Affairs
United States Senate
Washington, D.C. 20510

The Honorable Heidi Heitkamp
Ranking Member
Subcommittee on Regulatory Affairs and Federal Management
Committee on Homeland Security & Government Affairs
United States Senate
Washington, D.C. 20510

Re: Examining Practical Solutions to Improve the Federal Regulatory Process

Dear Chairman Lankford and Ranking Member Heitkamp:

On behalf of the National Association of Federal Credit Unions (NAFCU), the only national trade association that exclusively represents the interests of our nation’s federal credit unions, I write today in conjunction with tomorrow’s subcommittee hearing entitled “Examining Practical Solutions to Improve the Federal Regulatory Process.” Two main areas where the process can be improved are cost-benefit analysis and improving the examination process for financial institutions such as credit unions.

Credit unions are struggling to navigate a mountain of the new regulations from numerous regulators. Regulatory burden is crushing the credit union industry and forcing many credit unions to merge or simply shut their doors. Unfortunately, the regulatory process is exacerbating the already daunting task of keeping up with constant rulemaking because regulators often do not take into account the true cost and time burden of regulations.

In many cases, the cost and time estimates issued by regulators such as NCUA and CFPB are significantly understated. This can give a distorted view of the burden of an individual regulation and the overall burden facing credit unions. We believe Congress should require periodic reviews of the actual regulatory burdens faced by credit unions from finalized rules. Congress should direct agencies to remove or amend rules in which there was a substantial underestimate of compliance burden. It is important that regulators are held accountable for the cost and time estimates submitted to OMB and included in proposed rulemaking.

Regulators need to conduct a more thorough and accurate cost benefit analysis of regulations. It is critical that regulations provide more benefits than they cost. Ultimately the cost of regulation is passed on to credit union members, as every credit union dollar spent on compliance is a dollar not used to lower the cost of loans, increase interest on savings or invest to provide better services to credit union members.

Additionally, NAFCU supports effective credit union exams that are focused on safety and soundness and flow out of clear regulatory directives. Today, credit unions face more examiner scrutiny than ever, as the examination cycles for credit unions have gone from 18 months to 12 months since the onset of the financial crisis even though credit union financial conditions continue to improve. More exams mean additional staff time and resources to prepare and respond to examiner needs. NAFCU has concerns about the continued use of Documents of Resolution (DOR) when they are not necessary or are used in place of open and honest conversations about examiner concerns. A survey of NAFCU members last year found that nearly 40% of credit unions that received DORs during their last exam felt it was unjustified and nearly 15% of credit unions said their examiners appeared less competent than in the past.

NAFCU strongly supports legislation introduced (S. 774) by Senators Manchin and Moran that would help to ensure timeliness, clear guidance and an independent appeal process free of examiner retaliation.

NAFCU thanks you for hold this important hearing to review methods to improve the regulatory process, and for allowing us to offer suggestions. If my staff or I can be of assistance or you have any questions, please feel free to contact me or NAFCU’s Director of Legislative Affairs Jillian Pevo at 703-842-2836.

Brad Thaler
Vice President of Legislative Affairs
cc: Members of the Subcommittee

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