At a recent speech before a convention of the Credit Union National Association (CUNA), new Sen. Elizabeth Warren (D-Mass.) made the pitch that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was achieving its goal of reining in Wall Street while “level[ing] the playing field” for credit unions.
On the law’s creation of the Consumer Financial Protection Bureau (CFPB), which Warren first proposed and then organized as an adviser to President Obama, Warren proclaimed: “The agency works for consumers. It also works for the lenders and small financial institutions, like credit unions.”
Yet at a Wednesday congressional hearing, those who manage credit unions begged to differ with Warren’s assessment. They maintained that credit unions were struggling against a sea of red tape from both the CFPB and from other provisions of Dodd-Frank sold as going after “big banks,” such as the Durbin Amendment’s price controls on debit card interchange fees.
“Although I recognize the need for appropriate regulation, too often credit unions end up paying the price for abusive practices perpetrated by non-credit union entities,” testified Mitch Reiver, general counsel for Melrose Credit Union in Queens, New York, at the hearing before the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit.
We continue to endure this reality every day as the Consumer Financial Protection Bureau conducts its rulemaking process with the intent of preventing another financial meltdown, but also with the result of burdensome regulations being issued on institutions that did not play a role in causing the crisis. A seemingly unending rulemaking process stemming from the CFPB, coupled with outdated and duplicative regulations already in statute, result in credit unions spending more resources on compliance and less on other services that benefit our membership.
Similarly, Robert D. Burrow, President and CEO of the Bayer Heritage Federal Credit Union in Proctor, West Virginia, pointed to a survey by the National Association of Federal Credit Unions that 94 percent of its members had seen compliance burdens increase since Dodd-Frank’s passage. Burrow added: “Furthermore, a March 2013 survey of NAFCU members found that nearly 27% had increased their full-time equivalents (FTEs) for compliance personnel in 2013, as compared to 2012. That same survey found that over 70% of respondents have had noncompliance staff members take on compliance-related duties due to the increasing regulatory burden.”
In addition to the direct compliance costs imposed by Dodd-Frank, panelists also pointed out the indirect of effects of Dodd-Frank in reducing credit union revenues, most notably from the Durbin Amendment’s slashing of fees that banks and credit unions could charge retailers to process debit cards. Pamela Stephens, president and CEO of the Security One Federal Credit Union in Arlington, Texas, testified that “interchange income, an important source of non-interest revenue for credit unions, has been under pressure as a result of the debit interchange provision included in the Dodd-Frank Act, and is likely to diminish.” She explained that, “Given the headwinds facing credit union earnings, a number of credit unions and their members may face a protracted period of reduced member service, disadvantageous member pricing and very slow growth.”
Stephens pointed to a recent Federal Reserve report that found that interchange income was going down for credit unions of all sizes, even though many were technically exempt from the direct price controls of the Durbin Amendment. As I have pointed out previously, this exemption is largely meaningless for community banks and credit unions, because even though they are exempt from the direct “price cap, they are still subject to the measure’s other mandate forcing banks to allow merchants to ‘route’ transactions through another bank’s network, a provision that functions as a backdoor price control. Smaller banks also fear that retailers could steer customers toward big banks’ cards directly subject to the cap.”
Credit unions have widespread, bipartisan support. Warren’s speech in which she praises them demonstrates this. I have urged center-right activists to go against the bank lobby and support bipartisan legislation — with support from everyone from Sen. Rand Paul (R-Ky.) to Rep. John Conyers (D-Mich.) — to lift barriers that restrict credit union lending to their members’ businesses.
But progressive supporters of credit unions must realize that some of the greatest burdens they now face are rules from Dodd-Frank justified as reining in Wall Street, but now devastating Main Street banks and credit unions alike. Hopefully, they will join groups like the Competitive Enterprise Institute in pushing for repeal of Dodd-Frank’s most onerous sections and ensuring accountability under the Constitution at new agencies such as the CFPB and Financial Stability Oversight Council.