WASHINGTON–A credit union CEO shared with Congress here the kinds of changes credit unions want to see in the CFPB, and specifically outlined what passing the asset threshold for being regulated by the CFPB rules is going to cost her credit union.

During a hearing titled “A New Era for the CFPB: Balancing Power and Reprioritizing Consumer Protections,” held by the Financial Institutions Subcommittee of the House Financial Services Committee, Ana Fonseca, president and CEO of Logix FCU in California, said it is credit union members who are ultimately paying the price for the Bureau’s regulations.

In addition to Fonseca, others testifying before the committee included:

• Rebecca E. Keuhn, a partner with Hudson Cook, LLP
• David Pommerehn, general counsel and head of regulatory affairs with the Consumer Bankers Association
• Bryan A. Schneider, a partner with Manatt, Phelps & & Phillips, LLP
• Seth Frotman, former general counsel and senior advisor to former CFPB Director Rohit Chopra

‘Significant Burden’

Fonseca said her credit union’s journey to meet CFPB compliance as a $10 billion institution has placed a “significant burden on operations and has required extensive audits, significant costs, and substantial staffing increases.”

Specifically, said Fonseca during a Q&A after providing her prepared remarks, Logix FCU has spent five years preparing for CFPB regulation that it expects will cost the credit union approximately $4 million per year. She said LFCU has spent about $1 million to date in preparation. 

That figure does not include, Fonseca added, the costs from lost interchange revenue that will result from the caps on fees charged by $10-billion-plus institutions. 

“According to our own internal analysis, we face operational and financial challenges, including $517,000 for CFPB Exam Readiness Reviews, and annual compliance software costs,” Fonseca said. “We expect our compliance staffing will increase by at least 30 employees…With such a significant decrease in revenue, combined with a substantial increase in CFPB compliance-related expenses, our ability to deliver the superior value our members have come to expect over the past 88 years will be severely impacted.”

Comments to Committee

In her remarks to the subcommittee, Fonseca said credit unions such as Logix FCU, are “inherently different from the unregulated entities and bad actors that the Consumer Financial Protection Bureau (CFPB) was created to address. Our member-owned cooperative structure makes credit unions the original consumer protectors. Still, credit unions find themselves subject to the rules, burdens and costs associated with being regulated by the CFPB. For an institution like Logix, crossing the arbitrary $10 billion threshold that subjects us to greater CFPB scrutiny has a cost that takes millions of dollars away from programs to serve our members.”

Loss of Focus

Fonseca told the committee that in recent years the CFPB has focused less on its statutory mission and become more focused on changing the marketplace in a politicized fashion. “Change needs to come to consumer protection, and we believe the time for Congress to act is now,” said Fonseca.

The Recommendations

Fonseca said credit unions are recommending:

• Increasing congressional oversight of the CFPB
• Providing greater clarity on UDAAP
• Expanding and clarifying exemptions for credit unions from the CFPB
• Increasing CFPB usage of cost-benefit analysis and SBREFA panels
• Reforming the Civil Investigative Demand (CID) process

Other Points Raised

Other points made by Fonseca in her oral and submitted written testimony included:

• That statutory changes and clarifications should be combined with a renewed focus and commitment from the Bureau to be a data-driven organization that focuses on its specific statutory obligations to protect consumers from unregulated entities and bad actors operating in the financial system.
• Credit unions are frustrated with being regulated in the same manner as for-profit banks and non-regulated entities. “There are a number of statutory consumer protection provisions included in the FCU Act that the laws governing other types of financial institutions do not have. This is one reason why the industry was concerned about credit unions of any size being placed under the CFPB’s direct regulatory authority as part of the Dodd- Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). 
• The CFPB has placed even more stress on regulated financial institutions as part of its “junk fees” initiative, where it “targeted lawful standard fees charged by financial institutions that included sensible payment guardrails such as credit card late fees and valuable member-requested services like overdraft programs. This initiative has been mislabeled and mischaracterized for political purposes, with the CFPB referring to lawful payment incentives like late fees as ‘junk fees.’ These fees bear no resemblance to the type of hotel and resort fees referenced by others as ‘junk fees; and, in contrast, are all subject to comprehensive federal or state laws and regulations that include clear and conspicuous consumer disclosures.”
• Service fees for financial products enable credit unions to make financial services overall more affordable and more accessible for Americans, particularly those who are low income. ”It is important to recognize that fee income at credit unions remains at a 32-year low, as evidenced by recent data published by the National Credit Union Administration (NCUA) and America’s Credit Unions. It is important to note that this decline started before the creation of the CFPB.
• Credit unions were “dismayed to see a number of post-election, non-emergency rulemakings pushed out during the Presidential transition period. These rules seem to represent a transparent attempt by the previous Bureau leadership to rashly impose its regulatory agenda upon the American people without respect for the Administrative Procedure Act (APA), stakeholder feedback, or the bounds of its statutory authority.”
• Fonseca urged Congress to expand and clarify exemptions for credit unions from the CFPB, something credit unions have long requested.