Top Regulatory Priorities

While talking points are provided for each of the issues, the best communication method is to tell your credit union’s story. Be prepared to share with regulators how each of these issues have affected — or will affect — your credit union, your members, and your community.

The Credit Union Difference

Credit unions are the original consumer financial protectors. They are not-for-profit, member-owned, and community-centered financial institutions. They are focused on serving their members and helping them reach their financial goals.

Credit unions are focused on serving a common field of membership based around characteristics such as employer or industry, membership in an organization, or the member’s community. Credit unions serve members from diverse socioeconomic backgrounds in both rural and urban areas.

Presently, a collective of 13.6 million members in California and Nevada opt to partner with credit unions for their financial needs. Credit unions invest in the financial wellbeing and stability of all communities. The unwavering commitment of credit unions lies in ensuring members gain access to secure and affordable services tailored to their distinct requirements, fostering the attainment of their financial objectives.

Highlighted below are some further noteworthy distinctions:

• The surplus net income of credit unions is distributed equally among all members.
• Credit unions provide members with financial literacy and counseling.
• Nationally, credit unions generate annual savings of $13.6 billion for their members.

Regulatory Philosophy

The regulatory approach of California and Nevada credit unions and regulators should prioritize collaboration on safety, soundness, and consumer protection while also recognizing the need for flexibility to accommodate the unique operational dynamics of credit unions in each state.

Regulatory burden remains a significant challenge for credit unions. We advocate for federal financial regulators to assess the impact of regulations on the credit union industry and consumers. Streamlining current regulations, eliminating outdated and inconsistent requirements, providing appropriate exemptions for credit unions, and restraining future regulatory demands are necessary actions.

Credit unions often serve as the best option for consumers and small businesses seeking affordable and equitable financial services, as their customers are also owners. This fundamental distinction — where credit union customers are member-owners — is absent in the for-profit banking sector.

National Credit Union Administration (NCUA)

Call Report Amendments for Overdraft and Non-Sufficient Funds (NSF) Fee Data Fields

NCUA Chair Todd Harper mentioned at a recent Brookings Institution event that the National Credit Union Administration (NCUA) is considering mandating credit unions with assets exceeding $1 billion to report overdraft and non-sufficient funds (NSF) fees separately. While specifics were not provided, he noted that the NCUA is reviewing the Paperwork Reduction Act to amend the 5300 Call Report for data collection. This indicates a forthcoming rulemaking process with public comment opportunities, although formal rulemaking under the Administrative Procedures Act may not be required.

• In April 2023, the California Department of Financial Protection and Innovation (DFPI) issued its first annual report on income from non-sufficient funds (NSF) and overdraft charges, encompassing data from all state-chartered banks and credit unions.
• Just because a regulator disapproves of a practice (such as an overdraft fee), this doesn’t automatically deem it unsafe or unsound.
• Every credit union overdraft program is different. Credit unions evolve their programs to meet the needs of their members, not the other way around.
• The DFPI’s report, mandated by California’s Senate Bill 1415, is statutory but offers a narrow perspective, failing to present the full scope of services provided by a credit union for its members.

What to Share:

• Gather positive stories from your credit union members highlighting the advantages of your overdraft program. Additionally, share details about the program itself, your outreach efforts to promote responsible usage among members, and any relevant data or statistics demonstrating its effectiveness.

Our Message to NCUA:

• The NCUA should provide the opportunity for public comment on amendments to the call report.

Third-Party Vendor Examination

NCUA Chair Todd Harper continues to push for congressional amendments to the Federal Credit Union Act (FCU Act) to provide the agency with direct supervisory authority over third-party vendors. Citing ongoing concerns about the National Credit Union Share Insurance Fund (NCUSIF), we expect this will remain a priority of Harper’s throughout 2024.

• The NCUA has effectively managed any risk associated with third-party vendors within the agency’s current regulatory authority.
• Credit unions are required to perform due diligence on their third-party vendor relationships, and this due diligence is already subject to supervision by the NCUA.
• Furthermore, we are concerned about an increase in the agency’s budget that will certainly be required to obtain/train qualified examiners.

What to Share:

• Discuss your current vendor due diligence processes and procedures.
• Discuss how vendors (or Credit Union Service Organizations) allow you to expand member services that your credit union might not otherwise be able to provide.
• Discuss how additional redundant reporting and examination requirements could impact member service.

Our Message to NCUA:

• Narrowly tailor any additional vendor due diligence requirements to primarily focus on safety and soundness of the credit union movement.

Consumer Compliance Examinations

NCUA Chair Todd Harper has indicated that the agency may pursue a dedicated consumer compliance exam program for large credit unions not yet examined by the Consumer Financial Protection Bureau (CFPB).

• The NCUA’s primary mission is ensuring the safety and soundness of the credit union system. Expanding consumer protection examinations may divert focus from this core objective.
• The NCUA already possesses effective tools such as risk-focused examinations and compliance hotlines to address consumer concerns within credit unions, suggesting additional exam activity may be redundant.
• Credit unions’ member-ownership structure and not-for-profit status inherently promote pro-consumer behaviors, minimizing the need for extensive consumer protection examinations that could increase expenditures without commensurate benefits.

What to Share:

• Illustrate the credit union’s dedication to providing financial education and empowering members to make informed decisions, reflecting proactive measures to enhance consumer protection and financial wellbeing.

NCUA’s Balanced Relationship with the Consumer Financial Protection Bureau (CFPB)

Credit unions are best positioned to succeed when policy decisions are made by a regulatory agency that has significant familiarity with the characteristics that differentiate them from other financial service providers.

• The NCUA and CFPB have distinctly different missions but have often focused on the same issues.
• Fostering a culture of collaboration between the NCUA and the CFPB is important to promote innovation and access to financial services while ensuring that robust consumer protection measures and data privacy standards are balanced and fair for credit unions.
• The NCUA should remain focused on safety and soundness and leave consumer protection priorities to the CFPB, as duplicative regulations will only serve to stifle access, innovation, and member optionality.

What to Share:

• Demonstrate how regulations designed for larger institutions disproportionately impact your credit union.

Our Message to NCUA:

• Consider the disproportionate impact that one-size-fits-all rulemaking has had on the credit union industry during these past several years, and consequently, consumers.

Consumer Financial Protection Bureau (CFPB)

Consumer Financial Products or Service Fees (Overdraft and Non-Sufficient Funds)

In January 2024, the Consumer Financial Protection Bureau (CFPB) proposed two new rules: one restricting overdraft fees and the other prohibiting non-sufficient funds (NSF) fees on certain declined transactions. The proposals are the CFPB’s latest moves to further President Joe Biden Administration’s “junk fees” agenda.

• The proposed rules represent a particularly aggressive use by the CFPB of its regulatory authority with potentially significant implications. By targeting large institutions, the CFPB is setting an industry standard on overdraft fees. If the rule is finalized, consumers will expect credit unions to offer similar rates on overdraft protection.
• Overdraft protection is a helpful safety net that consumers choose to use and count on as a safeguard and convenience. For many consumers, it is a lifeline — one they must opt-in to using. Overdraft protection fees should not be grouped together with other fees in the overly broad term of “junk fees.”
• Services have costs, and ensuring those services are safe, reliable, and sustainable should not be put in jeopardy by government-mandated pricing.

What to Share:

• Gather positive stories from your credit union members highlighting the advantages of your overdraft program. Additionally, share details about the program itself, your outreach efforts to promote responsible usage among members, and any relevant data or statistics demonstrating its effectiveness.

Our Message to CFPB:

• Any legislative or regulatory restrictions would inhibit the ability of credit unions to help members resolve short-term financial difficulties.

Rules on Open Banking

In October 2023, the CFPB issued a proposal on personal financial data rights (also known as open banking). The proposal is intended to accelerate a shift toward open banking. It establishes a comprehensive regulatory framework, providing consumers and their authorized third parties with rights to receive structured, consistent, and timely access to consumers’ personal financial data held by financial institutions. The proposal aims to do this by imposing limitations on authorized third-party collection, use, and retention of that data.

• The proposal, as drafted, creates a significant risk of competitive harm. Credit unions would not only have an obligation to share valuable analytic data about their members; they would also be required to subsidize third-party access to this data by building and maintaining access infrastructures.
• The proposal may inadvertently create new opportunities for hackers and fraudsters to compromise consumer financial data and funds.

What to Share:

• Describe the overwhelming cost and implementation challenges to your credit union. Additionally, describe how this proposal will make it difficult, if not impossible, for many credit unions to effectively compete in the current financial services marketplace, potentially diverting resources and attention away from their primary mission — which is meeting the financial needs of their members.

Our Message to CFPB:

• The CFPB should delay the proposed rule and allow the opportunity for a more collaborative engagement with a broader range of stakeholders beyond those consulted for this initial proposal.

Federal Reserve Board (FRB)

Background and Context

In October 2023, the Federal Reserve Board (FRB) issued a proposed rule to amend Regulation II that would drastically change the debit card interchange fee cap. Under the proposal, the base component would: decrease from 21 cents to 14.4 cents; the ad valorem component would decrease from 5.0 basis points (multiplied by the value of the transaction) to 4.0 basis points (multiplied by the value of the transaction); and the fraud-prevention adjustment would increase from 1.0 cent to 1.3 cents for debit card transactions subject to the interchange fee cap. Importantly, the proposal also includes a formula that would periodically adjust the interchange fee cap based on data voluntarily reported to the FRB by debit card issuers. If adopted, this formulaic approach would result in automatic revisions to the amount of the interchange fee cap every two years, without any public comment.

• When debit interchange regulations went into effect in 2011, significant unintended consequences followed that negatively impacted consumers. A study by the Federal Reserve Bank of Richmond found that after the rule went into effect, 98.8 percent of merchants maintained or increased prices on goods and services.
• The FRB should reassess the proposed rule to account for its potential impact on institutions with assets below $10 billion. While technically exempt, smaller financial institutions are likely to be affected, as seen in 2011.
• The proposal to automatically update the interchange fee cap every two years without the ability to comment on adjustments is concerning. This approach lacks transparency and does not ensure the accuracy of the data used by the board for adjustments.

What to Share:

• Describe how a decrease in interchange revenue will impact your credit union. Provide personal perspectives, such as the expense to operate and manage a debit card program.

Our Message to FRB:

• The FRB should study the true cost of interchange and take into consideration how financial institutions with $10 billion in assets or less may be affected by the proposed rule.

Central Bank Digital Currency (CBDC)

The FRB released a discussion paper in January 2022 titled “Money and Payments: The U.S. Dollar in the Age of Digital Transformation.” The paper summarizes the current state of the domestic payments system and discusses different types of digital payment methods and assets that have emerged in recent years, including stablecoins and other cryptocurrencies. It concludes by examining the potential benefits and risks of a Central Bank Digital Currency (CBDC), identifying specific policy considerations.

• Regarding the issue of CBDC, we continue to advocate for credit union operational stability and continuity, as well as member rights and privacy.
• Any CBDC must utilize an intermediated model that preserves the direct relationship between consumers and financial institutions.
• Deposit substitution and its cascading effects must be sufficiently mitigated to prevent reduction in the credit supply to maintain access to affordable credit, as well as to ensure safety and soundness of the financial system and the overall economy.

Our Message to FRB:

• Implementation of a CBDC should not proceed without congressional authorization and a clear structure and novel purpose.

Wellbeing and Inclusion

Credit unions provide accessible and affordable basic financial services to people of all means and encourage the equitable distribution of capital across all individuals, families, communities, and small businesses. Our mission enables us to continue the work of improving our members’ financial wellbeing and advancing the communities they serve.

• Credit unions have a strong commitment to serving underserved and low-income communities.

What to Share:

• Share stories on your credit union’s efforts and successes in promoting financial inclusion and community development, such as providing affordable loans, financial education, and outreach programs.

Our Message to FRB:

• Credit unions play an important role in providing financial services in the marketplace, especially to low-to-moderate income households.