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'Scary' CFPB always top of mind for credit unions

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'Scary' CFPB always top of mind for credit unions

TheConsumer Financial Protection Bureau may have taken a hit in court this week,but the regulator continues to wield its power over credit unions, which inmany cases consider it "scary" and too powerful.

TheU.S. Court of Appeals for the District of Columbia Circuit, in a 2-1 ruling,found the CFPB's structure to be unconstitutional as it is an independent agency with asingle director instead of a committee leadership structure. The justicesstated that the agency should be brought into the executive branch, subjectingthe CFPB topresidential oversight, similar to the Department of Justice or TreasuryDepartment.

Thatruling brought an immediate and joyful reaction from the two largest creditunion advocates. The National Association of Federal Credit Unions asked for animmediate moratorium on any CFPB rulemaking not already implemented and saidthe bureau should also consider ceasing and desisting all rulemakings until theissue is resolved.

AndCredit Union National Association President and CEO Jim Nussle applauded theruling saying it will establish a check and balance and bring accountability tothe director's role. "This ruling confirms CUNA's concern that thestructure of the CFPB is flawed and that an unchecked, independent director whoanswers to no one can't lead to good public policy. CUNA continues to support afive-person commission for the CFPB instead of its current structure," hesaid in a press release.

NAFCUalso said it supports pending legislation that would move the bureau from asingle director to a five-person commission.

FormerNational Credit Union Administration board chairman Michael Fryzel said in aninterview that five members would probably be too many and that athree-person board would work better. Three members would give the board theopportunity for regulatory adjustment as the party in power changes inWashington, he said. But either option is preferable to the single director,according to Fryzel. "He can do whatever he wants with no oversight. Noneat all," he said.

Barelya panel discussion or session during the National Association of State CreditUnion Supervisors summit last week in Chicago did not at leasttouch on the CFPB. Allyson Baker, a partner with Venable LLP, said she has noclients that are not scared of the CFPB's enforcement office."There is no other way to say this but that it scares the hell out ofeverybody I know," she said. That is in part because the bureau is a bitdifferent from other agencies in that it has independent litigating authorityin federal district court, meaning it does not have to team up with theDepartment of Justice to prosecute a case. Baker said the agency has also showna willingness to pursue individual decision-makers within financialinstitutions as part of its cases. "And that sends a very scary andpowerful message across the industry," she said.

Alsoduring the summit, Rep. Randy Hultgren, R-Ill. called the CFPB"bureaucracy gone wild" and said it is marked by "arrogance thatis not healthy."

NASCUSPresident and CEO Lucy Ito said if nothing else the recentWells Fargo & Co.incident means that the CFPB is not going away. She said the question now iswhat trickle-down effect the Wells situation might lead to in terms ofadditional regulatory pressure on credit unions.

Fryzel, the former NCUA chairman, said the CFPB was successful incatching Wells Fargowhen other regulators had been unable to do so. "So kudos to them,"he said. "And now maybe they can start to realize that one size doesn'tfit all and that credit unions should be exempt from certain things." Thatlist would include the paydaylending rule "because credit unions should not be held to thesame standards that big banks are held to," he said.

Fryzelsaid the NCUA created its own Office of Consumer Protection in part to showthat it could handle such regulation without additional regulatory oversight.There are not that many such complaints about credit unions anyway, he said,and the NCUA is able to more than adequately handle those that do crop up.

Onthe same day the ruling on the CFPB's structure was issued, the CFPB hitNavy Federal CreditUnion, the largest credit union in the U.S., with $28.5 million inreparations andpenalties for making false threats about debt collection to itsmembers and unfairly restricting account access when members had a delinquentloan. Navy FCU is correcting its debt-collection practices and will pay roughly$23 million in redress to victims, along with a civil money penalty of $5.5million.