The CFPB’s track record of doing more harm than good

Credit unions play a vital role in providing financial services to more than 137 million Americans, but their ability to serve their members has been obstructed by the nonstop, burdensome regulations imposed by the Consumer Financial Protection Bureau (CFPB). Without CFPB reform and accountability, its relentless war on Main Street will force the credit union industry to continue to consolidate and leave millions of Americans without access to basic banking needs.

The CFPB was created in response to the 2008 financial crisis in an attempt to hold bad actors accountable and protect consumers from nefarious behaviors. However, my organization – the National Association of Federally-Insured Credit Unions (NAFCU) – vehemently opposed its creation, knowing that it would overstep its bounds. As predicted, its extreme overreach and reckless decision making under the guise of “protection” continues to crush credit unions and vulnerable Americans – the same people the Bureau is mandated to actually protect.

For nearly a decade, I’ve seen the financial services industry consolidate substantially. The most common reason I hear for why credit unions close their doors: regulatory burden. From both a cost and staffing standpoint, credit unions can’t keep up with the Bureau’s consistent behavior of implementing solutions in search of a problem and punishing them for the behavior of bad actors. Unlike big banks who have hundreds of compliance attorneys on the ready, many credit unions only have handful of employees altogether.

While these regulations affect every credit unions’ ability to provide financial products and services to their members, they hurt smaller credit unions the most. The result is fewer credit unions and less access to safe, secure, reliable, and affordable financial products and services – mainly in rural and desolate areas where big banks have abandoned the very consumers who need financial support the most.

Continuing its never-ending war on Main Street, the CFPB has recently taken aim at credit card late fees that will undoubtedly have wide-ranging ramifications and raise costs on all financial products and services – and justified it with a faulty “study” with no hard evidence to prove their action. The Bureau also took a small business lending data collection rule and carried it across the finish line, ignoring experts, stakeholders, and best practices along the way. These rules burden credit unions with unnecessary compliance costs, diverting resources that could be better utilized to serve their members. The CFPB’s dismissal of evidence and industry input poses a direct threat to the viability of credit unions and their ability to provide financial services.

To scale back unilateral decisions, NAFCU has long demanded the CFPB be reformed from a single director structure to a five-person commission. Currently, the CFPB is headed by a single director that serves a fixed five-year term. The Dodd-Frank Act established specific criteria for removing the director, stating that they can only be removed by the President for cause. This stringent requirement restricts the President’s ability to hold the director accountable. By forming a commission, multiple perspectives will be at the table when addressing real consumer protection issues. This structure limits turnover at the top and reduces the guesswork for all financial institutions when new administrations arrive in Washington and provides necessary discussion during the rulemaking process.

I would be remiss if I didn’t mention that the Supreme Court previously ruled provisions of the Bureau’s director structure unconstitutional and is set to review its funding structure later this year. The Bureau is currently not subjected to congressional appropriations, which is crucial for oversight and incentivizing the Bureau to focus on genuine consumer abuses. Congress could also assist in tailoring regulations to limit the burdens imposed on credit unions – a responsibility the CFPB has long-neglected.

When it comes to reforming the CFPB, it’s well past time for Congress to act. The CFPB is an unchecked bureaucratic nightmare that specializes in shoving hundreds of pages of non-tailored rules into the hands of overworked credit union compliance officers.

These common-sense reforms provide guardrails – allowing credit unions to keep their doors open and provide consumers with access to safe, secure, reliable, and affordable financial services. That is the definition of protection.

NAFCU was the only trade association opposed to the CFPB’s oversight of credit unions, firmly believing the NCUA should be the industry’s sole, independent regulator. While the CFPB is likely here to stay, we will continue to fiercely advocate for lawmakers to reform the Bureau and hold it accountable before it crushes the industry altogether.