It took a ride on a transportation bill for credit unions and the people who lobby for them to finally get some regulatory relief they’ve been seeking for years.
The three riders approved last week in Congress eliminate the requirement for annual privacy notices, open the door for more credit unions to access the Federal Home Loan Bank system, and direct the CFPB to establish a process for designating “rural” in ways that could allow credit unions to offer more products and services in many areas.
The proposals were attached to the $305 billion, five-year funding package called the Fixing America’s Surface Transportation (FAST) Act. President Obama signed that into law on Friday.
The three relief measures have enjoyed bipartisan support in various measure over the past several sessions, “but what I’ve been saying for the past four or five years is that it would take getting these attached to a moving vehicle to get them through Congress, and that has proved difficult,” says Ryan Donovan, chief advocacy officer at CUNA. “This is the culmination of a great deal of work on these very different issues.”
It’s also a notable accomplishment, Donovan says, given the legislative reluctance of late to put riders on bills of this broad scope. Jim Phelps agrees. “This is the most significant regulatory relief for credit unions that Congress has passed in nearly a decade,” says the senior vice president of advocacy at the Cornerstone Credit Union League, which represents Texas, Arkansas, and Oklahoma. “We hope this is just the beginning.”
Jeremy Empol of the California and Nevada Credit Union Leagues also is impressed, noting that the bill is 99% percent transportation and 1% credit unions and community banks.
“How many trips to Washington, DC, for the Governmental Affairs Conference and Hike the Hill events have credit union leaders done hoping for some glimmer of relief? This is as significant a policy win as it is a political win, and affirms that credit unions have a seat at the congressional table,” says the CCUL's vice president of federal government affairs.
The timing seems particularly apt as the financial services industry marks the fifth anniversary of the Dodd-Frank Act.
This is the most significant regulatory relief for credit unions that Congress has passed in nearly a decade. We hope this is just the beginning.
“Now’s a good time to step back and look at how the pendulum may have swung too far, and to recognize the unintended consequences of how one size does not fit all,” says Vincent Hui, senior director and risk management lead at Arizona-based Cornerstone Advisors.
He says the pendulum is swinging back and lawmakers are taking the opportunity to strike a better balance between protecting consumers and enabling credit unions to fulfill their mission of building community and member value.
Opinions vary on which of the three measures is the most significant, but, as Christopher Roe, senior vice president for corporate and legislative affairs at CUNA Mutual Group says, “Regardless of the merits of each, this represents that Congress is willing to embrace measures to help alleviate the regulatory burden on small financial institutions.”
Here are some industry leaders’ takes on each of the three relief provisions:
Privacy Notices: Requiring updated privacy notices to be mailed out only for new accounts or when the policy changes, not every year, is something that should benefit every credit union.
“This has been a burden since the requirement was implemented,” says Cindy Williams, vice president of regulatory compliance at PolicyWorks in Des Moines, IA. “Some credit unions have not moved toward e-delivery and spend large amounts of money in just mailing the notices, not to mention printing costs.”
Electronic document preparation and delivery isn’t free either. Roe at CUNA Mutual and others also note the “common sense” nature of the privacy notice change, which had been given legislative approval in the past but fell short of final passage.
“Customers are frustrated with these annual notices which are unread and tossed away,” he says. “Besides saving trees, paper, and postage, any small step to simplify the process for credit unions is helpful.”
FHLB Access: As director of communications for the National Association of State Credit Union Supervisors, Pat Keefe naturally points to allowing FHLB access for privately insured credit unions as a highlight. There are about 130 of them and they’re all state-chartered.
“It’s my understanding that this corrects a drafting error going back a few years,” Keefe says. “It ensures that credit unions of all charters – or, at least those in the mortgage-lending area – have parity in accessing credit for home loans.”
Callahan & Associates chairman Chip Filson also notes the parity angle. “It really levels the playing field for private insurance in credit unions, since the last great decision was receipt of a federal tax exemption some 10 years ago,” Filson says.
One thing to keep an eye on is a GAO study of private insurance at credit unions that is contained in the legislation. Any time that the GAO studies credit unions, in any way, that’s something that the credit union system should be watching closely.
“This gives them another liquidity option, especially now since the Central Liquidity Facility has been effectively dismantled by the NCUA and the NCUA does not recognize the FHLB as an authorized liquidity source,” he says.
The Callahan chairman adds, “It’s another reason why credit unions may want to refocus on private insurance as a viable option, since it would effectively remove them from the dual regulation that NCUA is now doing and give them just the state regulator to deal with.”
The FHLB green light comes with a yellow, however. Keefe at NASCUS advises, “One thing to keep an eye on is a GAO (U.S. Government Accountability Office) study of private insurance at credit unions that's contained in the legislation. Anytime the GAO studies credit unions, in any way, that’s something that the credit union system should be watching closely.”
CFPB And What’s Rural. The Consumer Financial Protection Bureau has now been told to create a petition process for determining whether an area should be designated “rural.” While the dust still has much settling to do, it appears the end result could be rule relief when it comes to jumbo and Qualified Mortgages, international remittances, and other products and services that remain to be seen.
“Now is the opportunity to have a discussion about how you want to serve these potential new members,” says Hui at Cornerstone Advisors. “These are products and services that people in these areas need, and their options have been limited.”
Hui also says that while taken together, the three relief measures are not likely to have a huge financial impact on credit unions, it may prime the pump for more. He says to keep an eye on the effort being led by Sen. Richard Shelby (R-AL) in the Senate Banking Committee. The bill is formally titled The Financial Regulatory Improvement Act of 2015. Here are the details straight from the committee’s website.
“Hopefully we’ll see the same bipartisan support for Shelby’s and other proposals that provide an opportunity for broader regulatory relief,” Hui says.