The credit union lobby’s latest rallying cry will surprise policymakers and bankers alike, as it advocates to “ensure all financial providers operate in a fair regulatory environment, under the same rules and with the same consumer protection requirements.”
That sounds remarkably like the longtime position of the banking industry. Are credit unions seeking parity with banks regarding regulatory and consumer protection requirements?
Not quite. It’s aimed at those other “under-regulated and under-supervised entities” (read: fintech companies), not credit unions.
The $2.2 trillion credit union industry, which has increasingly moved away from its congressionally mandated mission of providing basic consumer financial services to those of “modest means,” should heed its own advice by adhering to the same standards as other financial institutions.
Despite their new messaging, credit unions are still lobbying against regulatory changes designed to bring forth some much-needed transparency to their industry and level the playing field with banks.
Earlier this year, National Credit Union Administration Chairman Todd Harper announced that credit unions above $1 billion in assets must report income from overdraft and nonsufficient funds fees. In addition to increasing transparency around credit union business activities, this will align the NCUA’s Call Report with that of the Federal Deposit Insurance Corporation as banks with over $1 billion in assets must already report this information. Why, then, do supposedly “pro-consumer” credit unions oppose this long overdue disclosure development?
Credit unions also continue to challenge NCUA’s multiyear bid for third-party vendor oversight, which would put the NCUA on equal footing with the other federal banking agencies. The Federal Reserve Bank of Atlanta recently noted that “the Financial Stability Oversight Council recommended that Congress pass legislation assuring adequate examination and enforcement powers to the NCUA” to oversee these service providers. Such authority would enable the NCUA to better protect credit unions and their 140 million members as “growing reliance on third-party services in the credit union industry poses a systemic risk to the credit union system.”
The more things change, the more they stay the same: credit unions want similar regulation for similar activity, so long as it doesn’t impact their existing carveouts.
Historically, field of membership and member business lending rules signaled credit unions’ focus on consumer accounts and loans in local communities; however, those guardrails have been weakened over time, leading to marked changes in how some credit unions operate.
And although credit unions have evolved and grown, their mission and structure have largely shielded them from even modest congressional or media scrutiny, until somewhat recently.
As Congress contemplates these issues, and whether the credit union tax exemption is justified by the community benefit it provides, these not-for-profit cooperatives ought to consider how greater accountability and transparency will benefit their members.
If they really want a level playing field with competitors, they should embrace the responsibilities that come with it.
