Consumer Finance Insights
March 7, 2016

CFPB Confirms Credit Unions Will Remain Subject to Regulations

On February 23, 2016, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray delivered prepared remarks (click link for full text) regarding CFPB regulation of credit unions to the Credit Union National Association.  The crux of Director Cordray’s remarks was that the CFPB has affirmatively decided not to exclude credit unions from CFPB regulations.

Director Cordray’s message was unwelcome news for credit unions, who have long protested their inclusion among the list of CFPB-regulated financial institutions and have argued that they should not be subject to CFPB regulations.  Credit unions have been open about their concern that these regulations pose onerous burdens for credit unions and are harmful to consumers.  See CUNA Refutes Director Cordray’s Comments on Impact of CFPB Regulations, Credit Union Nat’l Ass’n (Dec. 3, 2015) (CUNA); NAFCU Statement on Impact of Dodd-Frank and CFPB on Credit Unions, Nat’l Ass’n of Fed. Credit Unions (July 23, 2014) (NAFCU).

In response to this opposition, Director Cordray fell back on the CFPB’s mandate, noting: “Congress said that all financial institutions have to play by the rules, and we have to enforce them.”  In further support of the CFPB’s decision to continue regulating credit unions, Director Cordray argued that credit unions have—in fact—veritably thrived under CFPB regulations.  For example, Director Cordray noted that “credit union membership hit record highs in the past year,” saw loans for new vehicles increase by almost 17 percent, and “originated 39 percent more mortgage loans for home purchases in the first nine months of 2015 than the same period of 2014.”  

Yet credit union leadership has challenged the alleged positive impact of CFPB regulations on credit unions in the past.  For example, last December, CUNA argued that CFPB regulations increase the cost of providing financial services to consumers, which has in turn harmed consumers by reducing the breadth of services offered and eliminating certain credit unions altogether—thus reducing consumer options.  In its December remarks, CUNA observed that “almost half of the credit unions that offered remittance services prior to [the adoption of the CFPB’s remittance regulation] have either stopped offering them or purposefully limit the number they do”).  This echoes the NAFCU, which observed in July 2014 that following the “establishment of [the CFPB], more than 800 credit unions have closed their doors.”  Moreover, as CUNA noted in a recent regulatory briefing, credit unions oppose being subject to these regulations because, in their view, the CFPB’s regulations are more appropriately addressed to large banks and unregulated financial providers.

Following Director Cordray’s announcement, several lawmakers expressed their disagreement with the CFPB’s position and stated their immediate intention to “send a joint bipartisan letter to the CFPB asking it to make more exemptions for credit unions and community banks.”  Ian McKendry, CFPB Should Exempt Small Banks from Certain Rules: Lawmakers, Am. Bankr. (Feb. 24, 2016).  These lawmakers echoed credit union leadership’s belief that these regulations have a prohibitive impact on credit unions and should not be even-handedly applied to both large and small financial institutions.

Given the conflict between the vociferous opposition to credit union inclusion and Director Cordray’s overwhelmingly positive account, the distilled impact of the CFPB’s regulations on credit unions remains unclear.  Nevertheless, as of February 23, 2016, the CFPB adopted the affirmative position that—for better or for worse—credit unions will remain subject to CFPB regulations.  Industry participants should continue to keep an eye on this issue as further developments may follow in light of lawmakers’ response.