Consumer Financial Protection Bureau: Hurting Community-Based Credit Unions

By SBE Council at 19 February, 2014, 3:47 pm

from SBE Council’s Center for Regulatory Solutions (CRS) –

CFPB Compliance is “Duplicative, Burdensome, Costly”

As a product of the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) is an affront to openness, transparency, and government accountability.  The CFPB, in contrast with other agencies, such as the Securities and Exchange Commission and Consumer Product Safety Commission, is headed by a single director, who can be removed by the President only for “neglect of duty” or “malfeasance in office.” The bureau’s budget comes not from annual Congressional appropriations process, but from the Federal Reserve, removing an essential check by the legislative branch.  What’s more, its rulemakings are insulated from review by the White House Office of Management and Budget, thus making the President virtually powerless to exercise control over its decisions.

The following chart, courtesy of the House Committee on Financial Services, neatly captures the radical structure of the CFPB by comparing it to other independent regulatory agencies:

Given its virtually unlimited authority, it’s no surprise the CFPB is drowning small businesses and their workers with new rules and compliance costs.  Just consider testimony from Lynette Smith, President and CEO of the Washington Gas Light Federal Credit Union, based in Springfield, Virginia, before the House Subcommittee on Financial Institutions and Consumer Credit.  As Smith noted:

I cannot emphasize enough how burdensome and costly the unnecessary and duplicative compliance costs [from CFPB rules] are to credit unions. A survey of National Association of Federal Credit Union members from late last year found that 94% have seen their regulatory burden increase since enactment of the Dodd-Frank Act in 2010. With thousands of pages of CFPB rules and proposals to interpret and ultimately comply with, the regulatory onslaught continues for credit unions.

Smith explained further that:

Credit unions, many of which have very small compliance departments, and in some cases a single  compliance officer, must comply with the same rules and regulations as our nation’s largest financial institutions that employ countless numbers of lawyers and compliance staff. The impact of increased regulatory burden is also evident as the number of credit unions continues to decline. There are 700 fewer credit unions today than there were before passage of the Dodd-Frank Act.

Thankfully, there is a solution that will rein in the CFPB.  Introduced by Rep. Sean Duffy (R-Wis.), H.R 3193, “The Consumer Financial Freedom and Washington Accountability Act,” will reform the CFPB by subjecting it to proper Congressional oversight and make it accountable to the public.  The bill’s reforms include: (1) Eliminating the executive director position who has sole responsibility and replacing it with a commission, (2) Paying its employees according to government pay scale, (3) Preventing CFPB from accessing and using personal, nonpublic information about consumers without their consent, (4) Subjecting CFPB budget to the Congressional authorization and appropriation process, and (5) Requiring a financial implication estimate for any regulation promulgated by CFPB.

SBE Council is supporting H.R. 3193, the Consumer Financial Freedom and Washington Accountability Act, which will bring much needed accountability and transparency to CFPB’s operations and regulatory process.