Advocacy Briefing. Your Strongest Advocate

Transcription

1 Advocacy Briefing Your Strongest Advocate September 2016

2 America s Credit Unions

3 Credit Union Basics Credit unions are not-for-profit financial cooperatives with a mission to promote thrift and provide access to credit for provident purposes. Credit union memberships are now growing at more than two times the rate of U.S. population growth. Today, credit unions claim over 100 million memberships. Credit unions rank first among industries in the American Customer Satisfaction Index and reflect double the score of big banks on the Chicago Booth Kellogg School Financial Trust Index. Credit unions received among the highest marks for service in Consumer Reports that has ever been given to any industry. Compared to Banks: An ABA Competitiveness Survey revealed that only 1.9% of bankers viewed credit unions as chief competitors in business lending. It took 106 years for credit unions to grow to a total of $1.1 trillion in assets, while U.S. banks grew by a total of $1.1 trillion in just the past TWO years. Each of the nation s four largest banks is larger than the entire credit union movement. U.S. banks hold nearly 14 times the assets of credit unions ($15.6 trillion vs. $1.1 trillion). One-half of all U.S. credit unions reported less than $25 million in total assets. Overall, 2.8% of banks are this small.

4 Field of Membership The NCUA proposed needed changes to its field of membership (FOM) requirements in November We strongly support these proposed changes that will give greater flexibility to federal credit unions (FCUs) in providing products and services to consumers. NCUA s proposal includes several CUNA-suggested changes, including: Expanding the population limit in a rural district from 250,000 to 1 million; Allowing a Congressional district to serve as a Well Defined Local Community, Adding flexibility to the use of Core Based Statistical Areas by eliminating the need to serve the core and allowing areas to be combined; and Streamlining the paperwork process for groups with 3,000 or more potential members to be added to a multiple group credit union. While the banking lobby is opposed to these proposed FOM changes, we believe the proposal is consistent with the statute and would provide more flexibility for FCUs to better serve the consumers in their communities, advancing the laudable policy goal of enhanced consumer access to affordable financial services. Members of Congress should encourage NCUA to finalize a field of membership rule that enhances consumer access to credit unions. National Credit Union Administration and Congress

5 Reduce Regulatory Burden Since 2008, credit unions have been subjected to more than 190 regulatory changes from at least 15 different federal agencies, resulting in over 6,000 Federal Register pages to review and implement. Every time a rule is changed, a credit union must take time and resources to determine whether they are required to comply with the rule. If they are, they must expend further resources to understand the rule, update computer systems, forms, train staff and explain the changes to members. There are approximately 759 credit unions operating in the U.S. with one or fewer full-time employees. Nearly one-half (43%) of the nation s 6,200 credit unions operate with five or fewer full-time equivalent employees. The regulatory burden under which credit unions must operate impedes their ability to fully and efficiently serve their members. In 2014, the financial impact of regulation cost credit union members $7.2 billion. That s $2.8 billion per year more than it cost them in There is no doubt that regulatory burden is costing credit unions and their members. They re paying the price for misdeeds by large banks and unregulated financial providers. We believe the rules should apply to the abusers of consumers, not consumer-owned credit unions. These rule changes in most cases designed to rein in abuses that credit unions have never engaged in mean that fewer resources are being used to meet the needs of credit union members. Consumer Financial Protection Bureau National Credit Union Administration Congress

6 CUNA Supported Regulatory Relief Bills Credit Union Specific Regulatory Relief Credit Union Small Business Jobs Creation Act Raises the cap on credit union member business lending to 27.5% of assets. Credit Union Residential Loan Parity Act Exempts 1 4 Non Owner Occupied Residential Loans from credit union business lending cap. Preserving Capital Access and Mortgage Liquidity Act Corrects the disparity in the FHLB Act definition by providing credit unions parity with comparable sized banks by amending the Act to include credit unions in the definition of Community Financial Institutions. National Credit Union Administration Budget Transparency Act House Senate Shelby Bill H.R S H.R S H.R Yes H.R S. 924 Yes Directs the NCUA to establish a process by which the public, including members of the credit union community, may examine and comment on the agency s proposed annual budget prior to adoption. Capital Access for Small Businesses and Jobs Act Permits credit unions to accept supplemental capital provided it meets criteria consistent with the cooperative ownership structure of credit unions. Examination Fairness Financial Institution Examination Fairness and Reform Act (FIEFRA) H.R. 989 H.R S. 774 Yes Establishes an independent ombudsman to which financial institutions could raise concerns with respect to their examination; and, establishes an independent appeals process before an administrative law judge. Cosponsor these credit union regulatory relief bills and work with Leadership to ensure their enactment. Consumer Financial Protection Bureau National Credit Union Administration Congress

7 CUNA Supported Regulatory Relief Bills Consumer Financial Protection Legislation Community Institution Mortgage Relief Act Exempts mortgages made by institutions under $10 billion in assets and held in portfolio for three years from RESPA s escrow requirements; exempts mortgage servicers that service fewer than 20,000 mortgages annually from the requirements of Section 6 of RESPA. Mortgage Servicing Asset Capital Requirements Act Directs the Federal banking agencies to conduct a study of appropriate capital requirements for mortgage servicing assets for non systemic banking institutions. Financial Products Safety Commission Act Makes the CFPB an independent Financial Product Safety Commission. Consumer Financial Protection Safety and Soundness Improvement Act Allows FSOC to stay or set aside any CFPB regulation if it is inconsistent with safe and sound operations of financial institutions; requires CFPB to take into consideration the impact of its rules on insured depository institutions. Portfolio Lending and Mortgage Access Act Deems residential mortgages held in portfolio by the original creditor as a qualified mortgage. Mortgage Choice Act Improves the definitions of points and fees in connection with a mortgage transaction. Consumer Financial Protection Bureau Examination and Reporting Threshold Act Raises the examination threshold that brings an insured depository institution within CFPB supervisory purview from assets of $10 billion or more to assets of $50 billion or more. CFPB Advisory Boards Act Codifies the Credit Union Advisory Council (Passed the House). Community Financial Institution Exemption Act Except as provided for in the bill, provides an exemption for credit unions and small banks from CFPB reulations. House H.R Senate Shelby Bill H.R S Yes H.R S H.R H.R H.R. 685 Yes H.R S. 482 Yes H.R S H.R Consumer Financial Protection Bureau National Credit Union Administration Congress

8 Stopping Merchant Data Breaches S. 961/H.R provides: Retailers do not face the same strict data security standards that financial institutions are subject to under the Gramm Leach Bliley Act (GLBA). Millions of American consumers personal financial information has been compromised as a result of merchant data breaches in recent years, demonstrating the need for retailers to live under Federal standards similar to GLBA. Major merchant data breaches expose credit unions to significant monetary costs and reputational risk. Credit unions cover the costs of fraud, blocking transactions, reissuing cards, increasing staffing at call centers and monitoring consumer accounts. Strong national data protection and consumer notification standards with effective enforcement provisions. Recognition of robust data protection and notification standards that credit unions and banks are already subject to. Preemption of inconsistent state laws and regulations in favor of strong Federal data protection and notification standards. Ability for credit unions and banks to inform customers and members about a breach, including where it occurred. Shared responsibility for all those involved in the payments system for protecting consumer data. The costs of a data breach should ultimately be borne by the entity that incurs the breach. Ensure that merchants that accept cards for payment are held to the same data security standards as the credit unions and banks that issue the cards: Support S. 961/H.R. 2205, the Data Security Act of 2015 Congress

9 Protect the Credit Union Tax Status Credit unions are member-owned, democratically operated, not-for-profit cooperatives, generally managed by a volunteer board of directors, with a specified mission of promoting thrift and providing access to credit for provident purposes. Structure and mission has been the basis for the tax status for 100 years. Credit unions DO pay taxes: real property taxes, tangible personal property taxes (referred to as ad valorem taxes in some states) and payroll taxes. State chartered credit unions pay unrelated business income tax. In addition, all credit union members pay taxes on dividends (interest) that their accounts earn. Credit unions are participants in a competitive financial services marketplace. The removal of the tax status would eliminate credit unions and consumer choice, making access to mainstream financial services more expensive and less available for American consumers and small businesses. During and following the financial crisis, Americans saw credit unions as a safe haven in the financial services sector. Credit unions continued to lend to consumers, homebuyers and small businesses when other lenders were unable or unwilling to do so. The credit union tax status saves credit union members and nonmembers $10 billion each year. Congress should retain the credit union tax status in comprehensive tax reform legislation. Congress

10 Debt Collection Congress passed the Fair Debt Collection Practices Act (FDCPA) for the purpose of regulating debt collectors, and purposely excluded first party creditors, like credit unions, who have an entirely different relationship with consumers. In 2013, the CFPB published an advance notice of proposed rulemaking (ANPR) for the FDCPA. In response to the ANPR, the CFPB received thousands of comments, many of which expressed concern about including first party creditors within this statute. Credit unions that are collecting their own debts, unlike third party debt collectors who are operating for the purpose of making a profit. It is pertinent that any new regulations do not inhibit communications between credit unions and their member owners, and instead focus on bad actors in this industry. We strongly oppose any regulation of the debt collection efforts of credit unions and urge the CFPB to utilize a targeted approach that focuses on third-party debt collectors that engage in abusive and/or illegal collection efforts. Consumer Financial Protection Bureau and Congress

11 Examination Fairness and Frequency Examinations should be based on the laws Congress enacts and the regulations that NCUA promulgates, not on an examiner s interpretation of best practice or guidance. The appeals process for examination disputes should be fair and independent. Twenty-eight percent of credit unions reported dissatisfaction with their most recent exam. Excessive use of documents of resolution, applying "guidance" or "best practice" as if it were regulation, and examiners taking action to cover themselves stand out as the items that regularly receive the most negative ratings. We strongly support a fairer examination process that does not undermine the ability of credit unions to make business decisions and to operate in the best interest of their members. We also believe that through the implementation of new technology, examination frequency should be reduced for credit unions. Currently, credit unions are subject to a twelve month examination cycle; we believe the frequency could be reduced to 18 months or even longer. Support H.R. 1941/S.774, the Financial Institutions Examination Fairness and Reform Act, which will create an independent ombudsman to whom credit unions and banks could raise concerns about their exams, and create an independent appeals process under which they could dispute determinations made in their exams. NCUA should modernize its examination process to reduce the frequency of exams on well capitalized and well managed credit unions. National Credit Union Administration and Congress

12 Federal Home Loan Bank Membership Parity Federal Home Loan Banks (FHLB) are reliable, low-cost sources of liquidity. During the financial crisis they served as a key liquidity source for credit unions, ensuring that member service went uninterrupted. The Federal Home Loan Bank Act (FHLB Act) treats similarly sized credit unions and community banks differently with respect to eligibility to join the FHLB System. Under the FHLB Act, Community Financial Institutions are exempt from a requirement that 10% of assets must be dedicated to residential mortgage loans in order to access the liquidity provided by FHLBs. However, the FHLB Act limits the definition of community financial institutions to FDIC-insured banks with less than $1 billion. Credit unions are not insured by the FDIC (almost all are insured by the National Credit Union Administration); therefore, they cannot be considered Community Financial Institutions. Support H.R. 2473, which would correct the disparity in the FHLB Act definition to include credit unions in the definition of Community Financial Institutions. Congress

13 HMDA (Regulation C) Credit unions and other mortgage lenders are required by law to submit mortgage related data to the CFPB under the Home Mortgage Disclosure Act. The Dodd-Frank Act included additional data points that mortgage lenders are required to submit by law. In recent rulemaking, CFPB has proposed to add even more data points, nearly tripling the amount of data that lenders are required to collect and submit. Further, the CFPB has mandated these requirements for open end lines of credit. It is not just the amount of new data required but also the fact that many open-end lending programs were not designed to capture the information CFPB is now requiring. This presents a huge operational burden for credit unions. These requirements which go far beyond what Congress asked for in the Dodd-Frank Act place an enormous burden on small lenders. The compliance burden, costs, and greater legal risks will result in credit unions limiting the services and products available to consumers. CFPB should exempt credit unions or at a minimum raise the threshold for HMDA reporting from 25 closed end and 100 open end mortgages to more than 500. Consumer Financial Protection Bureau and Congress

14 NCUA s Member Business Lending Rule NCUA issued a final member business loans (MBL) rule designed to give credit unions greater flexibility and autonomy in offering commercial loans. The rule is as follows: o NCUA retains rigorous and prudential supervision of all credit union commercial lending activities. Safety and Soundness is a priority; o The rule does NOT allow credit unions to lend to non-members; o The rule requires increased oversight by credit union boards to ensure policies and procedures are consistent with the rules and principles of safety and soundness; o NCUA has budgeted for additional training for examiners to increase sophistication in MBL oversight. We strongly support the overhaul of NCUA s current MBL regulation. This new rule changes the current prescriptive regulation that contains many detailed requirements, to a principlebased regulation that gives more flexibility in the construction and operation of an MBL or commercial program. Congress

15 Expand Credit Union Business Lending Authority Credit unions could lend an additional $16 billion to small businesses, helping them create nearly 150,000 new jobs in one year, if Congress eliminates or increases the statutory cap on credit union business lending. Business Loan Growth December 2007 to June 2012 Sources: FDIC, NCUA, CUNA A study from the Small Business Administration (SBA) found that 80% of the additional lending created by raising the cap would be loans that banks would not have made. The 93% small business lending market share enjoyed today by banks would not be jeopardized. In the first 90 years of credit union existence, there was no cap on business lending. The current cap limits most credit unions to lending no more than 12.25% of their assets to small businesses-- without any economic, safety and soundness or historic rationale. Support H.R. 1188/S. 2028, and H.R. 1422/S.1440, exempting 1-4 Family Non-Owner Occupied Residential Loans from the cap. Congress should also correct the disparity in the treatment of loans made for 1-4 family non-owner occupied residences. If a bank makes a loan for this type of property, it is a residential loan; if the same loan is made by a credit union, it is a business loan. Congress

16 Mortgage Rules Credit unions are overwhelmed with the unprecedented amount of regulations that are now required for mortgage lending (HMDA, TILA/RESPA, appraisal rules, loan officer compensation rules, servicing rules, qualified mortgage/ability-to-repay rules, etc.). These regulatory changes have brought greater compliance and legal risk to credit unions. Consumers lose when the CFPB keeps credit unions from serving them. More concerning, many of these rules are forcing credit unions to stop offering certain products and services, and in turn are limiting consumers options for credit. Further, in many instances the rules are delaying closings and have not brought additional transparency to the borrower. The CFPB should focus on ending abusive practices and narrowly tailor their rules to not penalize responsible credit union lenders from helping their members. Enact the following bills: H.R Community Institution Mortgage Relief Act H.R / S Mortgage Servicing Asset Capital Requirements Act H.R Portfolio Lending and Mortgage Access Act H.R. 685 Mortgage Choice Act Allow all credit union mortgage loans held in portfolio to receive qualified mortgages status; Provide written guidance, compliance materials, and a safe harbor for the ongoing intricacies of TRID compliance; Increase the Small Creditor and Small Servicer Exemption Thresholds; and Exempt Credit Unions from escrow requirements for loans held in portfolio. Consumer Financial Protection Bureau and Congress

17 NCUA Budget Credit union member resources are used to fund NCUA. Now, several years after the financial crisis, the NCUA s budget continues to grow when credit unions remain very safe and sound, and at the same time that FDIC is reducing its budget. Credit unions would like to have input on the budget process at the agency they fund. For many years, NCUA hosted an annual hearing on its budget to permit stakeholders to weigh-in on the proposal. But, this practice was discontinued in Resuming budget hearings would be a very small yet significant step to ensure that credit unions, which fund the agency through yearly assessments based on asset size, have a meaningful opportunity to have their concerns heard. Support H.R. 2287/S. 924, the National Credit Union Administration Budget Transparency Act, which would require NCUA to hold an annual hearing on its budget. National Credit Union Administration and Congress

18 Overdraft Protection Services Credit unions offer overdraft protection services as a convenience and accommodation for their members, and members appreciate these services. The CFPB s rulemaking agenda indicates pre-rule activity for an overdraft proposal in 2016, but we believe new regulation on overdraft protection services is unnecessary. Consumers remain highly satisfied with overdraft products, as indicated by the low number of consumer complaints about overdraft. In 2015 out of the CFPB s 500,000- plus consumer complaints, only 1.5% pertained to overdraft. Further, credit unions, as member-owned financial cooperatives, provide these services as a courtesy and convenience to members. Members who do not want these services can opt-out at any time. Often consumers turn to overdraft as their best option during times of financial distress, and their other options are much worse. Other inferior alternatives to overdraft could include seeking a payday loan, or even worse an illegal offshore or online loan. As the CFPB considers what next steps it might take regarding overdraft services, we urge it to take into consideration the importance of overdraft services to consumers who do not want to be embarrassed at the point of sale and want the comfort of knowing a purchase or transaction, such as a mortgage payment, will be honored. We do not support new regulation of overdraft services that would limit the flexibility of credit unions to structure their services appropriately, including the regulation of overdraft fees. As the CFPB itself has noted on several occasions, the Dodd-Frank Act did not give it the authority to regulate fees, and we are hopeful this would include the reasonable fees that credit unions charge for overdraft protection. Consumer Financial Protection Bureau and Congress

19 Overtime Regulations A proposed rule from the Department of Labor (DOL) would raise the salary threshold to be eligible for overtime pay to the 40th percentile. This would be a change from $23,660 to $50,440 a year, and is projected to sweep in nearly five million more employees under the threshold, including numerous credit union employees who fall right within the new salary range. So many credit union employees suddenly will be covered under this rule that we worry credit unions will find it extremely difficult to find the extra resources to rapidly come into compliance with doubling the threshold, as opposed to if the DOL took a more incremental and measured approach to modifying the standards. For small credit unions and those in rural or underserved areas, a substantial percentage of their work force will fall under the new threshold. This could greatly impact their operations, and would create another expense and compliance burden on top of the unprecedented number of burdens credit unions are facing from their primary regulators. There could also be unintended consequences as result of the need to realign resources, such as shifting more positions to part-time, or eliminating other benefits. This would eliminate or lessen any benefits that employees would receive from this rule. Congress should work with the Small Business Administration Office of Advocacy to highlight to the DOL how this rule will detrimentally impact small business and those in rural and underserved areas. Congress should also consider using the Congressional Review Act to challenge this rule and force the DOL to provide a more detailed Initial Regulatory Flexibility Analysis (IRFA) to the public about the impact this rule will have on small institutions. Congress

20 Payday Alternative Loans We support efforts to curtail consumer abuse and provide stronger consumer protections in the short-term and payday lending industries. Predatory lending practices have no place in the financial marketplace, and credit unions have worked to find alternative solutions for providing assistance to low-income or underserved consumers in their communities. However, we do not believe CFPB rules should create duplicative regulatory burdens for credit unions who offer consumer-friendly alternatives to short-term, small dollar loans at both federal and state-chartered credit unions. In 2010, NCUA created a program that allowed federal credit unions to offer paydayalternative loans (PAL) to their members. Credit unions offering loans through this program currently must meet an extensive set of conditions, and have even argued that there should be fewer compliance burdens associated with the PAL program to allow them to tailor loans to the needs of their members. Adding an additional layer of regulation to these services when sweeping credit unions into the CFPB S payday loan rule will make it even more difficult for credit unions to participate in this market. We also fear that the CFPB s rule will sweep in, and add more regulatory burden, to similar programs offered by state-chartered credit unions. Credit unions make very little, if any, profit on these types of loans, so adding any roadblocks to participating, even if they are not extremely burdensome, could stop credit unions from offering these loans. A one-size-fits-all, extremely prescriptive rule for credit union consumer friendly alternative loans is not appropriate because of their unique relationship with members. The CFPB should exempt all credit union consumer friendly alternative small-dollar loans from its rulemaking. Consumer Financial Protection Bureau, National Credit Union Administration and Congress

21 Expand Credit Union Access to Capital Credit unions must meet a statutory net worth ratio of 7% to be considered well-capitalized, even though the requirement for banks is 5% and is set by regulation. Unlike banks, which may acquire capital from a variety of sources, credit unions only source of capital is retained earnings. All other U.S. depository institutions and most credit unions in other countries are permitted various forms of supplemental capital. NCUA supports legislation to allow credit unions access to additional capital sources, consistent with the ownership structure of credit unions. Credit union members would continue to control the governance of the institution because no voting rights will be conveyed to contributors of supplemental capital. CUNA has long supported the authority of credit unions to hold supplemental capital, as long as it does not dilute member ownership and is subordinate. In this difficult economic environment, it is imperative for credit unions to have adequate capital and the means to access supplemental capital should it become necessary. The advantages of supplemental capital are that it would provide stability, allow growth, permit product and service enhancements, and could meet a portion of statutory and regulatory capital requirements. Supplemental capital could also allow a credit union to build capital quickly if needed. Support H.R.989, the Capital Access for Small Businesses and Jobs Act, which would allow credit unions to access supplemental forms of capital to meet statutory capital requirements. National Credit Union Administration and Congress

22 Telephone Consumer Protection Act (TCPA) In July 2015, the Federal Communications Commission (FCC) released an Omnibus Declaratory Ruling and Order (Order) concerning the Telephone Consumer Protection Act (TCPA) that immediately went into effect. The TCPA is under the jurisdiction of the FCC and governs communications when using an auto-dialer to contact consumers on their cell phones. Some credit unions use certain calling devices to assist in the dialing process when contacting their members for a variety of reasons, such fraud, data breaches, and other pertinent account updates. These auto-dialers help limit human errors and can help financial institutions more efficiently reach consumers about their account information. While credit unions support the concept of preserving consumers rights to privacy on their cell phones and protecting financial information, the FCC s Order goes far beyond the scope or purpose of the TCPA which incidentally was enacted in 1991 before cell phones and mobile devices were commonly used. The Order disregards consumers preferences to use new technologies and modern forms of communication, and makes it more difficult for credit unions to communicate with their members. Additionally, this could create substantial compliance burdens and potentially subject credit unions to frivolous TCPA related class-action litigation. We urge Congress to consider the impact this Order will have on restricting consumers ability to receive timely account information, and understand that it will make it more difficult for credit unions to communicate with their members about fraud, data breaches, and other pertinent account updates. Consumer Financial Protection Bureau, National Credit Union Administration and Congress

23 Repealing the Durbin Amendment The Durbin Amendment was included as a last-minute addition to the Dodd-Frank Wall Street Reform Act with the intent that retailers would pass along an estimated $8 billion in savings per year to debit customers in the form of lower prices. Retailers promised they would pass any savings from the Durbin amendment on to their customers, but almost six years since the Amendment was passed, it is clear customers have seen no relief at the register. That means retailers have pocketed more than $36 billion to date. Another failure of this legislation is the increased cost to community banks and credit unions, which were intended to be exempt from this law. The Durbin Amendment intended to exclude small issuers from interchange fee-ceiling restrictions, but the law offers no such exemption from the costly and burdensome network routing and exclusivity provisions a process that involves substantial and recurring administrative costs on top of an already challenging cost environment. It is now clear that the only way to reverse the damaging impact on financial institutions of all sizes and customers is to repeal the Durbin amendment in its entirety. We support a well-regulated payment system based on laws that provide a frame-work for constant product improvement, but the Durbin Amendment did not serve any traditional regulatory purpose it simply enshrined into law a permanent economic benefit for one wellheeled industry. Support H.R to repeal the Durbin Amendment, and the Financial CHOICE Act, which includes repeal.