WASHINGTON, DC (September 29, 2015) —
Re: Tomorrow’s full committee mark-up of credit union regulatory relief legislation
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 in advance of the full committee mark-up scheduled for tomorrow. NAFCU appreciates the committee’s action on legislation that will provide regulatory relief for our nation’s credit unions and their 101 million members. Outlined below, please find NAFCU’s strong support for the Risk-Based Capital Study Act (H.R. 2769); the Financial Product Safety Commission Act (H.R. 1266); and the Bureau of Consumer Financial Protection-Inspector General Reform Act (H.R. 957).
H.R. 2769, the “Risk-Based Capital Study Act of 2015”
Consideration of this NAFCU-sought legislation is a key vote for NAFCU’s membership and we urge members of the committee to vote in favor of this important bipartisan legislation.
Despite the fact that credit unions had a stellar track record of performance during the financial downturn, in January of 2014, the National Credit Union Administration (NCUA) Board proposed a new risk-based capital system for credit unions. On January 15, 2015, the NCUA Board, in a 2-1 vote, issued a revised risk-based capital proposal. While the revised version addresses some changes sought by NAFCU and other outside stakeholders, including over 360 members of Congress, this costly proposal remains unnecessary and will ultimately unduly burden credit unions and the communities they serve.
As you know, in July NCUA Board Chairman Debbie Matz testified before the Financial Institutions and Consumer Credit Subcommittee on a number of issues pertaining to credit unions. Under questioning from Chairman Neugebauer and other members of the subcommittee, it became evident that it is highly questionable as to whether NCUA has done the kind of robust analysis this proposal deserves, especially given the cost of the proposal to credit unions and the impact it could have on consumer lending.
Perhaps the most fundamental question facing NCUA is whether or not the agency has the legal authority to promulgate the current proposal as drafted. This was a hotly contested issue among NCUA’s board members and resulted in the agency seeking a $150,000 legal opinion letter, ultimately paid for by credit unions, from an outside law firm. NAFCU believes there are several issues related to NCUA’s legal authority to issue the rule as proposed, including, the ability to prescribe separate risk-based capital thresholds for well-capitalized and adequately-capitalized credit unions. We believe these issues deserve greater clarity and scrutiny before the agency moves forward with any proposal.
Another key issue that would impact credit unions ability to lend to consumers is the hundreds of millions of dollars in additional reserves that credit unions will have to hold to achieve the same capital cushion levels that they currently maintain. Based on NAFCU’s analysis, credit unions’ capital cushions will suffer a $490 million hit if NCUA promulgates a two-tier approach. Specifically, in order to satisfy the proposal’s “well-capitalized” thresholds, today’s credit unions would need to raise an additional $760 million. On the other hand, to satisfy the proposal’s “adequately-capitalized” thresholds, today’s credit unions would need to raise an additional $270 million. This is a lending issue that must be explored or the government runs the risk of hampering the ability of credit union members across the country to gain access to credit.
Lastly, the current proposal is a costly experiment for credit unions. NCUA’s own estimate approximates that it will cost $3.75 million for the agency to adjust its Call Report, update its examination systems and train internal staff to implement the proposed requirements. If this proposal were to be finalized, NCUA also estimates credit unions would incur an ongoing $1.1 million expense to complete the adjusted Call Report fields. While NAFCU is still analyzing the true costs of this proposal, we strongly believe that NCUA’s projections do not reflect the actual amount the agency will spend implementing the proposed changes.
For these reasons, NAFCU strongly supports the bipartisan Risk-Based Capital Study Act (H.R. 2769), introduced by Representatives Stephen Fincher, Denny Heck and Bill Posey, that will stop NCUA from moving forward with their second risk-based capital proposal until completing and delivering to Congress a thorough study addressing NCUA’s legal authority, the proposal’s impact on credit union lending and capital requirements for credit unions compared to other financial institutions. The agency would not be able to finalize or implement the proposal before 120 days after the report goes to Congress.
Again, NAFCU urges members of the committee to stand with credit unions and vote in favor of this important bipartisan legislation.
H.R. 1266, the “Financial Product Safety Commission Act of 2015”
NAFCU strongly supports the bipartisan Financial Product Safety Commission Act (H.R. 1266), introduced by Chairman Neugebauer which would replace the sole director of the CFPB with a bipartisan five-person commission. This represents a shift back to the leadership structure originally proposed for the agency. Such a move would help improve CFPB rulemaking by ensuring debate and discussion about proposals that can incorporate multiple viewpoints. It can also help address the issue of streamlining the issuance of new rules, by establishing a public meeting agenda. As you know from previous correspondence, the cumulative and overlapping regulatory burden credit unions face is immense and anything that could be done to streamline regulations has the potential to bring significant relief.
NAFCU was the only credit union trade association to oppose the CFPB having jurisdiction over credit unions when the creation of the agency was considered in the wake of the financial crisis that credit unions didn’t cause. While NAFCU maintains that credit unions should be exempt from all aspects of the CFPB, changing the structure of the commission and having a diversity of opinion at the top of the agency could make a meaningful difference for NAFCU members.
H.R. 957, the “Bureau of Consumer Financial Protection-Inspector General Reform Act of 2015”
In an effort to support measures to bring greater accountability and transparency to the Consumer Financial Protection Bureau (CFPB), NAFCU also supports the Bureau of Consumer Financial Protection-Inspector General Reform Act (H.R. 957) introduced by Representative Stivers. This bipartisan legislation would put into place a process to establish an independent Inspector General for the CFPB. The position would be appointed by the President and then confirmed with the advice and consent of the Senate. Given the incredible amount of power the CFPB has, this seems like good public policy that is consistent with the operations of other federal financial regulators.
Finally, we hope the committee will continue its efforts to address regulatory relief for community financial institutions such as credit unions. There are a number of additional areas where credit unions need relief including additional capital reforms, field-of-membership improvements and requiring regulators to perform robust cost-benefit analyses of regulations. In particular, we would urge the committee to act on pending credit union bills such as H.R. 2287, the National Credit Union Administration Budget Transparency Act and H.R. 2473, the Preserving Capital Access and Mortgage Liquidity Act of 2015, in future markups.
Again, thank you for considering these important pieces of legislation. NAFCU looks forward to all three pieces of legislation outlined above gaining favorable consideration in the Financial Services Committee and being discharged to the full House for additional consideration. If you have any questions, or if my colleagues or I can be of assistance in any way, please do not hesitate to contact me or NAFCU’s Director of Legislative Affairs, Jillian Pevo, at (703) 842-2836.
Sincerely,
Brad Thaler
Vice President of Legislative Affairs
cc: Members of the House Financial Services Committee
The National Association of Federally-Insured Credit Unions is the only national trade association focusing exclusively on federal issues affecting the nation’s federally-insured credit unions. NAFCU membership is direct and provides credit unions with the best in federal advocacy, education and compliance assistance. For more information on NAFCU, go to www.nafcu.org or @NAFCU on Twitter.
