NAFCU letter in advance of tomorrow’s hearing “The Dodd-Frank Act Five Years Later: Are We More Stable?”

The Honorable Jeb Hensarling
House Financial Services Committee 
United States House of Representatives
Washington D.C. 20515

The Honorable Maxine Waters
Ranking Member
House Financial Services Committee
United States House of Representatives
Washington D.C. 20515

Re: Tomorrow’s Hearing: “The Dodd-Frank Act Five Years Later: Are We More Stable?”

Dear Chairman Hensarling and Ranking Member Waters:

On behalf of the National Association of Federal Credit Unions (NAFCU), the only national trade association focusing exclusively on federal issues affecting the nation’s federally insured credit unions, I write today in conjunction with tomorrow’s hearing on the five year anniversary of the Dodd-Frank Act.

Credit unions have a long track record of helping the economy grow and making loans when other lenders have left various markets. This was evidenced during the recent financial crisis when credit unions kept making auto loans, home loans, and small business loans when other lenders cut back. Although credit unions continue to focus on their members, the increasing complexity of the regulatory environment, post Dodd-Frank, is taking a toll on the credit union industry. While NAFCU and its member credit unions take safety and soundness extremely seriously, the regulatory pendulum post-crisis has swung too far towards an environment of overregulation that threatens to stifle economic growth. As the National Credit Union Administration (NCUA) and the Consumer Financial Protection Bureau (CFPB) work to prevent the next financial crisis, even the most well intended regulations have the potential to regulate our industry out of business.

During the consideration of financial reform, NAFCU was concerned about the possibility of overregulation of good actors such as credit unions, and this is why NAFCU was the only credit union trade association to oppose the CFPB having rulemaking authority over credit unions. Unfortunately, many of our concerns about the increased regulatory burdens that credit unions would face under the CFPB have proven true. While there are credible arguments to be made for the existence of the CFPB, its 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 prudential regulator. As expected, the breadth and pace of CFPB rulemaking is troublesome, and the unprecedented new compliance burden placed on credit unions has been immense.

While it is true that credit unions under $10 billion are exempt from the examination and enforcement from the CFPB, all credit unions are subject to the rulemakings of the agency and they are feeling this burden. While the CFPB has the authority to exempt certain institutions, such as credit unions, from agency rules, they have been reluctant to use this authority to provide relief.

The impact of this growing compliance burden is evident as the number of credit unions continues to decline. Since the second quarter of 2010, we have lost 1,250 federally-insured credit unions – over 17% of the industry. The overwhelming majority of these were smaller institutions below $100 million in assets. While it is true that there has been a historical consolidation trend in the industry, the passage of the Dodd-Frank Act has served to accelerate that trend. The percentage of credit unions disappearing annually rose from a 3.4% average in the ten years prior to Dodd-Frank to an average annual disappearance rate of 3.9% in the years after Dodd-Frank. The fact is that many smaller institutions simply cannot keep up with the new regulatory tide and have had to merge out of business or be taken over.

This growing demand on credit unions is demonstrated in a 2012 NAFCU survey of our membership which found that 94% of respondents had seen their compliance burdens increase since the passage of the Dodd-Frank Act in 2010. A 2013 NAFCU survey of our membership found that over 70% of respondents had non-compliance staff members take on compliance related duties due to the increasing regulatory burden. This highlights the fact that many non-compliance staff members are being forced to take time away from serving members to spend time on compliance issues.

Five years after the Dodd-Frank Act, one thing is clear: credit unions need meaningful regulatory relief, both from Congress and their regulators. While the creation of the Financial Stability Oversight Council (FSOC) in Dodd-Frank was supposed to help regulator coordination on rulemakings to reduce burdens, such coordination appears to be lacking, especially between NCUA and the CFPB. More needs to be done.

NAFCU has released a “Five Point Plan for Credit Union Regulatory Relief” and a list of “Top Ten Regulations to Eliminate or Amend,” both of which are included with this letter. We appreciate the Committee’s focus on regulatory relief in recent months and urge you to continue your work in this area by advancing the numerous relief proposals currently before the Committee.

We thank you for the opportunity to share our comments in conjunction with tomorrow’s hearing. If you have any questions or would like further information, please do not hesitate to contact me or NAFCU’s Vice President of Legislative Affairs, Brad Thaler, at (703) 842-2204


Carrie R. Hunt
Senior Vice President of Government Affairs & General Counsel

cc: Members of the House Financial Services Committee

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