Give credit unions carve-out from CFPB? NCUA says ‘yes’

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J. Mark McWatters, the acting chairman of the National Credit Union Administration, urged the Consumer Financial Protection Bureau on Wednesday to exempt credit unions from two regulatory requirements that have long plagued financial institutions.

McWatters, who was appointed in January by President Trump, sent a letter to CFPB Director Richard Cordray asking for credit unions to be exempt from some of the expanded Home Mortgage Disclosure Act requirements. He also asked for regulatory relief from unfair, deceptive and abuse acts or practices, known as UDAAP.

"I believe the bureau could alleviate the compliance burden of credit unions with respect to [HMDA], as well as [UDAAP] requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and do so without sacrificing consumer protection," McWatters wrote in the letter to Cordray.

It is unusual for one federal regulator to ask for an exemption from another federal agency.

"This is a pretty bold step; it's meaningful," said Ryan Donovan, chief advocacy officer at the Credit Union National Association.

In October, the NCUA's former chairman, Rick Metsger, said in a comment letter that the CFPB should exempt credit unions from its proposed payday lending rule. The two credit union trade groups also have fiercely lobbied Cordray for a broad exemption from all CFPB rules.

Dan Berger, the president and CEO of the National Association of Federally-Insured Credit Unions, called it "vital that the bureau recognize that putting member-owned, not-for-profit credit unions under the same standards as the Wall Street banks that caused the financial crisis is counterproductive and harmful for the 107 million members credit unions serve."

The CFPB declined to comment.

McWatters, an attorney who served as counsel to House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Tex., said the bureau should exercise its exemption authority under the Dodd-Frank Act. That authority allows the CFPB to exempt any class of persons, service providers, or consumer financial services from certain regulations.

The issue has bubbled up in various contexts, with Cordray over the years suggesting that if Congress wanted to exempt credit unions from Dodd-Frank it would have done so.

HMDA data collection and reporting has been a thorn in the side of the financial industry. The CFPB added 25 data points to its expanded HMDA requirements, which take effect on Jan. 1, 2018.

McWatters asked for an exemption from 14 of the data points, which are the ones the CFPB asked for through its rulemaking authority; the other 11 were mandated by Dodd-Frank.

The data collection "create a significant burden on credit unions," McWatters said.

He also asked Cordray to raise the minimum asset levels and transaction volume requirements for HMDA, which also could potentially exempt some credit unions. Currently, institutions are required to collect HMDA data if they originate at least 100 open-end lines of credit and 25 closed-end mortgage loans in each of the previous two years.
HMDA data is used for fair-lending compliance and enforcement.

McWatters said the low asset and volume thresholds put a burden on small financial institutions. All filers must change forms to collect the added data, revise their systems for storing and reporting the data, and retrain or hire additional staff.

The case for credit unions' exemption from the CFPB's UDAAP authority is a bit more complicated because the Dodd-Frank eliminated the NCUA's authority to issue regulations under the Federal Trade Commission Act.

Moreover, the NCUA already has prohibitions against false advertising and other unfair or deceptive conduct, but there currently is no specific standard for abuse.

"The bureau could go far to extend relief to credit unions and ensure greater protection to consumers by providing much-needed clarity with respect to UDAAP, either through regulations or guidance," McWatters said. "The bureau should promptly issue clear transparent guidance that is reasonable, objective and specifically tailored for the credit union community."

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