Bankers anxious as Trump mulls credit union regulator for CFPB

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WASHINGTON — The Trump administration’s consideration of J. Mark McWatters to lead the Consumer Financial Protection Bureau is stoking fears among bankers that he will show favor to credit unions once in office.

In his current position as chair of the National Credit Union Administration, McWatters has publicly advocated for cutting back the CFPB’s oversight of the credit union industry and supported separate measures that would allow such institutions to expand their lending footprint.

“The NCUA has developed a reputation for being a cheerleader for its industry,” said Camden Fine, president and CEO of the Independent Community Bankers of America.
Banking regulators, on the other hand, “have traditionally and still are basically impartial regulators of their industry,” he said.

But some observers said that if he leads CFPB, McWatters, a former adviser to House Financial Services Committee Chairman Jeb Hensarling, R-Tex., would take a more objective approach to regulation.

“Like Chairman Hensarling, his loyalty is to ideas, not to institutions,” said J.W. Verret, an assistant professor at the George Mason University Antonin Scalia Law School and former senior counsel to Hensarling. “The longstanding rivalry between banks and credit unions is irrelevant to McWatters’ candidacy for the CFPB.”

James Ballentine, executive vice president of congressional relations and political affairs for the American Bankers Association, sought to strike a more neutral stance.

“I am sure whoever steps into that role will enforce the law properly across the board,” he said.

Still, McWatters’ public record is a concern for bankers, particularly his lobbying for breaks for credit unions from the CFPB.

In a July letter to then-CFPB Director Richard Cordray, McWatters said credit unions with assets of more than $10 billion should be exempt from the bureau’s oversight.

“As not-for-profit, consumer-owned and -controlled financial institutions," McWatters wrote, federally insured credit unions "serve a unique, positive role for consumers in today’s financial services marketplace. I believe that role can and should be distinguished from the role played by for-profit, investor-owned and –controlled financial institutions.”

McWatters also called on the CFPB to clarify its authority to oversee unfair, deceptive and abusive acts.

Credit unions are hopeful that if McWatters is nominate and confirmed, he will follow through on his own recommendations.

“In both of those cases he put in writing very solid justification for it and I would hope it would carry over” to the CFPB, said Ryan Donovan, chief advocacy officer at the Credit Union National Association.

But, Donovan said, McWatters shouldn’t be prejudged by his tenure at the NCUA.

“I don’t think his time at NCUA would have very much bearing on how the financial services industry should view him,” Donovan said. “He is not partisan and he knows the law.”
Geoff Bacino, a former NCUA board member, said McWatters’ experience might provide additional insight into how CFPB regulations affect credit unions and other financial institutions.

“Having someone there that has lived it might bode well for the agency’s understanding of the impact of its actions,” said Bacino.

But Fine said he hopes that President Trump would instead consider a current or former bank regulator for the top CFPB post.

“I would hope that the administration would consider regulators, policymakers from the commercial bank regulatory agencies, current or former, that are more versed in the full body of regulations and maybe perhaps have worked more closely with CFPB since it was stood up,” Fine said.

He noted that there are differences in regulations of the two industries.

“Credit unions are not subject to all of the regulations that commercial banks are subject to” such as the Community Reinvestment Act, Fine said.

However, others speculated that if McWatters was nominated he might have a smoother path to confirmation, having already been confirmed by the Senate to lead NCUA and having been nominated by former President Obama to lead the Export-Import Bank in 2016. (His confirmation was blocked by Senate Republicans.)

“Certainly Mr. McWatters has the qualifications for the position and having been confirmed once, as well as going through the meet and greet process with numerous senators when he was being considered for a seat on the Export-Import Bank, his path to confirmation may be easier than others,” said former NCUA Chairman Michael E. Fryzel.

NCUA board

Nominating McWatters to lead the CFPB would also create another vacancy at the three-member NCUA board, leaving only Democrat holdover Rick Metsger. Metsger’s term expired in August, but has remained at the NCUA until his successor is nominated. He could opt to leave at any time.

As for NCUA, since there already exists a vacancy and an expired term it would be prudent, should the president nominate Mr. McWatters to be head of CFPB, to nominate a Republican to the expired term of Metsger and designate that person chairman while nominating a Democrat to the vacant seat of former Chairman [Debbie] Matz,” said Fryzel.

“Then when those three nominees are confirmed, the president can nominate a second Republican to the vacated McWatters seat. That process will ensure a smooth transition at NCUA.”

Bacino also pointed out that nominating McWatters to lead the CFPB would put Trump in a position to appoint all three board members at the NCUA.

“All of a sudden you get something ... that is historic,” said Bacino, who noted that the Trump administration would be able to “focus the direction” of NCUA based on the types of people it nominates.

“For credit unions who are looking at this from a long-term, big-picture perspective, that is the concern,” said Bacino.

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J. Mark McWatters Mick Mulvaney CFPB NCUA