USA credit unions welcome regulatory relief bill

Small banks and credit unions will be able to expand the types of mortgages they offer

With President Trump signing the Economic Growth, Regulatory Relief and Consumer Protection Act on 24 May, credit unions can expect a reduction in regulatory requirements for the sector.

A rollback from the Dodd-Frank reform passed by the Obama Administration in 2010 in response to the 2008 financial crisis, the legislation will primarily affect small and medium sized banks based in the USA.

The Credit Union National Association (CUNA) welcomed the legislation, which it described as a “monumental win for credit unions”.

The bill increases the threshold from USD $50bn to USD $100bn in assets for banks due to face higher regulatory scrutiny, stress tests and capital requirements. The threshold is due to increase further to USD $250bn after 18 months.

As a result, the number of banks under close scrutiny will fall from 38 to 12, with nearly all regional banks exempt from stricter regulatory oversight. Banking giants such as Goldman Sachs, Morgan Stanley, Citigroup or Bank of America will not benefit from this change due to their diversified global business models.

For credit unions, the bill will remove regulatory burdens affecting the sector. For example, small banks and credit unions will be able to expand the types of mortgages they offer benefiting from increased legal protection and exemption from certain disclosure rules and data requirements.

“From the moment a group of bipartisan Senators unveiled this bill, credit unions told them loud and clear that this is an essential piece of regulatory relief legislation that will improve access to mortgage lending, real estate loans and other products and services, while putting focus on senior abuse and cyberthreats,” said CUNA President/CEO Jim Nussle.

The bill means residential mortgage loans held by credit unions that have assets of $10bn or less, and have originated 1,000 or fewer mortgages in the
preceding year, will be exempted from certain escrow requirements

The act also amends the Federal Credit Union Act to require the National Credit Union Administration to hold public hearings on its draft annual budget. In addition, the bill spares small banks with assets of under $10bn from the Volcker rule ban on proprietary trading.

While the US has over 5,000 banks, the 13 largest account for 50% of the sector in terms of assets and deposits. The bill passed in Senate with 67 to 31 votes, with support from Republicans and some Democrats.

Mr Nussle added: “In mid-2009, at the peak of the crisis, just 2% of credit union loans were delinquent. That’s less than one fourth as many bad loans as the banks had on their books. Regulations are eating up one of every six dollars credit unions spend on operations each year – or $6.1bn in total. Some smaller financial institutions have been unable to shoulder these additional costs.”

President Trump said: “The legislation I’m signing today rolls back the crippling Dodd-Frank regulations that are crushing community banks and credit unions nationwide. They were in such trouble. One-size-fits-all – those rules just don’t work. And community banks and credit unions should be regulated the same way.

“And you have to really look at this. They should be regulated the same way with proviso for safety, as in the past, when they were vibrant and strong.  But they shouldn’t be regulated the same way as the large, complex financial institutions. And that’s what happened. And they were being put out of business one by one. And they weren’t lending.”

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