July marked the four-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was meant to reform and stabilize our financial system.
So, has it?
“Since the implementation of the Dodd-Frank Act and establishment of Consumer Financial Protection Bureau (CFPB), more than 800 credit unions have closed their doors,” said Dan Berger, president and CEO of the National Association of Federal Credit Unions (NAFCU). “Compliance costs have taken a serious toll on credit unions that do not have the resources that big banks do — and the regulations keep coming.”
According to Mark Robey, senior vice president of regulatory affairs for the Mountain West Credit Union Association, credit unions in Arizona want to work with consumers and small businesses to provide affordable credit and attractive savings to help stabilize the economy.
“But the mortgage requirements under the Dodd-Frank Act and the rules issued by the (CFPB) make it more costly for creditors to make loans,” Robey said. “Moreover, the ‘Ability to Repay Rule’ required by Dodd-Frank and issued by the CFPB encourages creditors to make mortgage loans only to borrowers with a debt-to-income ratio of no higher than 43 percent. That can cut borrowers out of a home purchase if they don’t meet that threshold, even if the borrower can actually afford to repay the loan.”
Since its enactment, the 849-page Dodd-Frank has imposed $21.8 billion in compliance costs while producing regulations that require nearly 60 million hours of paperwork with which to comply, according to estimates by the American Action Forum. These compliance costs can be devastating to small community banks and credit unions.
“In order to help credit unions avoid being susceptible to penalties and compliance violations, it will be necessary to add additional staff, training, hardware, software etc.,” said Robert D. Ramirez, president and CEO of Vantage West Credit Union. “All of that further impacts the bottom line. This could hit smaller credit unions particularly hard or possibly force them to limit or exclude mortgage options.”
To help ease the regulatory burden on credit unions, the NAFCU has issued its “Five-Point Plan for Regulatory Relief,” which includes administrative improvements to the National Credit Union Administration (NCUA), capital reforms, structural improvements, operational improvements and data security reforms. To see NAFCU’s complete Five-Point Plan, visit nafcu.org.
Ramirez stressed that while financial institutions should have learned lessons from the financial crisis, consumers should take responsibility, too.
“The (Dodd-Frank Wall Street Reform and Consumer Protection Act) calls for a provision to create an Office of Financial Education,” Ramirez said. “However, the regulation does not do enough to require or even encourage consumers to share the burden of responsibility of gaining full understanding of the loan requirements prior to entering into the loan agreement. It would be helpful if there were a reduction in the number of regulations that impact our ability to serve our membership, and instead did more to encourage members to be proactive in taking advantage of financial literacy opportunities to ensure they were fully informed about the risks and benefits of entering into a loan agreement.”
Now that even lawmakers from President Barack Obama’s own party see the financial reform legislation as a destabilizing force, credit union officials say it’s time to re-examine Dodd-Frank.
“Lawmakers and regulators agree that credit unions were not responsible for the financial crisis,” Berger said. “It’s time to say ‘enough is enough’ and end the rampant overregulation of credit unions.”