The post-recession economy has spurred a lot of changes within the lending and housing finance industries, the repercussions of which have been felt in a variety of ways. Some of the fallout has been seen in the wave of government regulations and adjustments that have forced banks, credit unions and other private lenders to adjust the way they conduct business.
Since the housing market's 2008 downturn, which was partially a product of sloppy mortgage underwriting and irresponsible lending, a renewed emphasis has been placed on risk assessment and loss mitigation practices - as evidenced in particular by enactments such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and a smattering of other rule changes aimed at promoting increased accountability.
Regulating the regulators
Over the past year, however, it seems many lenders have reached the point where they're no longer willing to blindly adjust to rules and regulations that seem to be constantly in transition. In particular, calls for the restructuring and reorganization of the Consumer Financial Protection Bureau have gotten louder and more common. The primary concern surrounds the CFPB's apparent ability to operate with impunity, a trend that has increasingly drawn the ire of credit union and bank representatives who have begun to make their feelings known publicly.
In response to what the House Committee on Financial Services has termed a "regulatory onslaught," credit unions, in particular, are fighting back. Contending that in many cases their smaller compliance departments are ill-equipped to deal with mandates devised with larger banks in mind, members of the National Association of Federal Credit Unions were in Washington recently, calling for an all-out streamlining of the CFPB. Specifically, the NAFCU has called for a board of people - as opposed to the single, allegedly autonomous director currently in place - to be appointed as regulators for the CFPB itself. The theory is that no agency, particularly one with such sweeping influence on the U.S. financial and housing industries, should be overseen by one person.
"I cannot emphasize enough how burdensome and costly the unnecessary and duplicative compliance costs are to credit unions," Lynette Smith, president and CEO of Springfield, Va.,-based Washington Gas Light Federal Credit Union, told the house committee.
Smith and other bankers - many of them representing smaller, locally oriented credit unions - also referenced a 2012 survey of NAFCU members that revealed overwhelmingly negative responses to CFPB regulations. Nearly 95 percent of respondents reported an increased regulatory burden since the implementation of Dodd-Frank rules in 2010. Its members seek increased transparency from the bureau, and would prefer for it to be funded by congressional appropriations while better discerning between big banks, smaller banks and non-banks.
"Unlike non-banks, the banking industry already has a compliance culture and financial wherewithal to assure compliance with consumer regulations," said Robert Tissue, CFO Summit Financial Group in Moorefield, W. Va., during his testimony on Capitol Hill on behalf of the West Virginia Bankers Association. "Thus, there needs to be great transparency regarding the bureau's funding to assure that the focus is on closing the gaps on non-banks, including a break-out of bureau expenditures attributable to bank versus non-bank regulation and supervision.
While most agree that consumer protection is a necessary practice and that regulation is inevitable on a certain level, the lingering question remains that of who is regulating the regulator? And even if the massive overhaul many seek is unlikely, it seems disenchantment has become common enough among credit union and bank representatives that the CFPB will experience some form of structural change soon.