The Corner Office: Reflections on Dodd-Frank

This article is part of Anthem’s member credit union leaders’ opinion series, which strives to stimulate discussion among the Northwest credit union system. The views expressed below are those of the author’s and do not represent the views of the Association or its staff.

By Chuck Garner

Dodd-Frank is one year old. Hooray, fully with tongue in cheek!

At over 2,300 pages the legislation is far reaching (should laws be so complex and cumbersome is another story!), promising to cure ‘too-big-to-fail, regulate exotic instruments, protect investors, and give shareholders a say in executive compensation. These sections of the law have minimal to no impact on credit unions, but two others do: the Durbin Amendment and creation of the Consumer Financial Protection Bureau (CFPB). These are far reaching and have already begun to have an impact on our operations and promise to do so for an extended time frame.

We feel that the worst part of Dodd-Frank is that it is supposed to be pro-consumer. We see so many unintended consequences coming from the law that consumers are not likely to realize the ‘protection’ that Congress intended. This result came about because too many in Congress do not understand how markets work and how unintended consequences can come about in spite of good intentions.

The first reform to be implemented is the Durbin Amendment covering interchange pricing. In the name of consumer protection, the amendment attempts to set prices for the market. Though some pricing adjustments have been made since the Fed’s first flawed proposal, credit unions had to spend a great deal of political capital in the process, with little result except to look bad to pro-consumer groups. Retailers indicate that the battle is not over and it could take some time for the final pricing to be set. Time will tell if this debacle will do more harm to the reputation of credit unions as many see our industry going against consumer sentiment. I think the bottom line for consumers is that checking accounts will cost the consumer more and we will see some criticisms for some time as Congress and consumer groups will view the cost changes as a form of gauging consumers.

Next, the CFPB just began operations. This is the section of the legislation that promises to affect credit unions the most. Though the CFPB does not have direct supervision and examination authority over credit unions, except for a small handful of credit unions due to asset size, the reach of the CFPB promises to include us. It may just be my perception but it seems that the bureau will operate leaning toward the ideal that financial institutions—credit unions included—need to be reined in. This principle has us worried.

As the CFPB rolls out its regulatory changes covering Truth in Lending, Truth in Savings, EFT, Equal Opportunity Act, and RESPA, we expect many additional costs. The costs will not only come in the reprinting of forms but also legal costs and staff training. With so many regulatory changes the risk of non-compliance will increase. And how much more time will our staff spend with confused consumers? We are concerned moving forward.

There are many questions about what the CFPB will do in the future. Will it decide that checking accounts, debit cards and credit cards need more regulation? Will it decide that fees and charges in these areas are “reasonable and proportional”? In the end will the CFPB put in place price controls for many of our products and services. We are formulating contingencies for this possibility.

Finally, the CFPB is taking over consumer complaints about products and services, including those against credit unions. It is expected that the bureau will give a great deal more attention to member complaints than NCUA has in the past. With the focus of protecting the consumer, we fear that the number of complaints that we will need to respond to will increase, taking much more time than in the past. For us, all complaints filed with the NCUA were resolved with no action taken by the agency. Again, we are concerned.

At the one year anniversary of Dodd-Frank, there are few things that are certain. One thing that is, though, is we can look forward to a great deal of change that will likely have far reaching effects on our operations including costs and income. It may create some changes in our relationships with members, which at this point are likely to include a period of greater distrust. In the end, we look at this entire legislation and the Consumer Financial Protection Bureau as over-reaching and bringing many unintended consequences to credit unions and consumers alike. As stated several times, we at OFCU have many concerns.

Chuck Garner is CEO at Oregonians Credit Union in Milwaukie, Ore.

 

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