By Rouky Diallo
NAFCU’s award-winning industry experts discuss regulatory and legislative priorities to keep in mind when planning for this year
The credit union industry faced several unprecedented challenges in 2020, including a pandemic that changed consumer habits, fast-tracked operational changes, and upended the economy — all in the middle of a tenuous election year. Despite all this, NAFCU and its member credit unions pivoted, implemented strategies, and saw some significant steps toward regulatory relief.
The industry proved that not only is it resilient, but that credit unions stand ready and willing to help consumers by offering responsible, affordable products and services. We may not know how long this crisis will last, but credit unions will always be there to extend a hand to those in need, and NAFCU will be with you every step of the way.
NAFCU is prepared to push forward in 2021 with its mission of strengthening credit unions and advocating for priorities that enable the industry to provide more than 122 million Americans (and counting) with the best financial services options available.
To achieve this, NAFCU will rely on its five tenets, which include:
- creating a legislative and regulatory environment that allows credit unions to grow;
- seeking appropriate, tailored rules for credit unions and both legislative and regulatory relief from growing burdens;
- ensuring a fair playing field — through regulatory and legislative processes — so credit unions have as many opportunities as banks and nonregulated entities to offer provident credit to the nation’s consumers;
- supporting transparency and independent oversight of all regulators, including the bureau; and
- maintaining a strong, independent NCUA as the primary regulator for credit unions.
As NAFCU welcomes new lawmakers and a new administration to Washington and helps credit unions serve their members amid a recovering economy, the association’s government affairs team shares their insights into key issues that credit unions should be aware of this year:
REGULATORY RELIEF EFFORTS
Carrie Hunt, Executive Vice President of Government Affairs and General Counsel
In the wake of the coronavirus pandemic, NAFCU has continuously advocated for regulators and lawmakers to provide credit unions with relief and the ability to access every tool in the toolbox to serve their members. Can credit unions expect to see additional relief measures this year?
NAFCU continues to push for additional relief measures on many fronts, including relief from the current expected credit loss (CECL) standard. Sitting regulators who may lose their jobs or move to the minority have an incentive to finalize regulations. Accordingly, we saw the finalization of the qualified mortgage (QM) standard and the Federal Housing Finance Agency’s (FHFA) capital rule. The future of rulemaking out of the NCUA is much more uncertain.
Have the economic effects of the pandemic shifted the NCUA’s and CFPB’s approaches to regulatory policy?
I think that the NCUA has shifted focus because so much of what the agency does is focus on safety and soundness. For example, anytime there is economic stress, the NCUA puts more focus on the share insurance fund. In the past year, the NCUA has implemented many COVID-related relief measures. Likewise, the CFPB has implemented COVID-19 relief as well, and it has had to address an uptick in consumer fraud coming out of the pandemic.
POLITICAL CLIMATE
Chad Adams, Director of Political Affairs
How will the results of the election affect the ability of Congress to get things done this session?
Should Republicans retain control of the Senate — which will not be known until after the Jan. 5 runoff elections in Georgia — they will need to work with Democrats to achieve any progress if they hope to retain the Senate in the 2022 midterm elections. Likewise, to avoid being viewed as ineffective, President-elect Joe Biden will need to extend an olive branch to Republican senators if he hopes to sign any major legislation into law. Things will move slowly, as President-elect Biden will have to manage the expectations and attacks from the fringes of his own party. A Democrat-controlled House will continue to pass legislation that has little hope of passing a Republican-con trolled Senate. Any major legislation passed by the Senate will end up being negotiated through conference with the House, and under the watchful eye of the new administration. I expect things to work extremely slowly with both parties appealing often to the public to try to force their agendas.
How can credit unions help NAFCU welcome and educate newly elected lawmakers on the credit union message and key issues?
As with every new Congress, a newly elected member offers an excellent opportunity to develop a new credit union champion. If a credit union is in a state or district with a newly elected official, its leadership should make a point to introduce themselves and offer congratulations. That is a simple first step to developing a symbiotic relationship that could ultimately benefit your members and employees. It is as simple as calling the office and scheduling an appointment. As always, NAFCU staff is available to help you engage.
AGENCY OUTLOOK
Ann Kossachev, Director of Regulatory Affairs
How active can we expect the NCUA and CFPB to be regarding rulemakings this year? Are there any pending rulemakings credit unions should be aware of?
The presidential and congressional election results are the controlling factors in the strategic direction for rulemaking at all agencies, including the NCUA and CFPB. We expect to be on defense in 2021 and beyond as Democrat control at the agencies will bring a returned focus on consumer protection and a steady stream of rulemaking — a stark contrast from the deregulatory environment we’ve seen over the past four years.
With a Democratic NCUA chairman, we could see increased focus on consumer protection measures and more stringent exams. For example, board member [Todd M.] Harper has made it clear that he thinks the NCUA should be administering consumer protection exams for larger credit unions. Regardless of who is chairman, the NCUA rulemakings we want to see carried across the finish line include a final subordinated debt rule, a proposed rule creating a credit union off-ramp from the risk-based capital rule, and a proposal to establish a variable interest rate. However, these last two items may prove more difficult now.
Additionally, we hope to see a continued push for legislative changes to the Federal Credit Union Act to raise the member business lending cap, expand the general 15-year maturity limit, and allow all credit unions to add underserved areas to their fields of membership. These proposals are likely to see support from the NCUA board regardless of who is chairman, and we look forward to continuing our conversations with the board on these issues.
As for the CFPB, because the president may now remove the director at any time — resulting from last year’s Supreme Court ruling that the single director structure is unconstitutional — we could see a vastly different approach to rulemaking, supervision and enforcement. NAFCU expects that President-elect Biden will replace current Director Kathy Kraninger with a director who places increased focus on enforcement actions, including closer scrutiny of alleged unfair, deceptive or abusive acts or practices (UDAAP) violations, expanding consumer protections in areas like overdraft and credit reporting, and a revival of the payday lending underwriting requirements.
As part of the NCUA’s examination modernization efforts, the agency is expected to roll out its Modern Examination and Risk Identification Tool (MERIT) later this year. How will this affect credit unions?
The MERIT tool will replace the decades-old, legacy AIRES system, providing a sleek, user-friendly platform for use during the examination process. Hopefully, this will help ease exam-related burdens for credit unions, reduce instances of miscommunication with examiners, and improve access to important documents, including Q&As about the exam process. We have confirmed that the existing AIRES Questionnaire will be incorporated into MERIT, and we believe that existing links and references to guidance and relevant exam rules and requirements will also be incorporated.
The NCUA has started pilot testing MERIT with credit unions above $10 billion in assets and was planning to conduct broad examiner training in 2020, but that effort was derailed due to the pandemic. The agency’s current plan is to conduct more examiner training and fully deploy MERIT for all credit unions throughout 2021, with the hope of completely phasing out AIRES in early 2022. NAFCU will continue to seek updates from the NCUA about the progress of its transition to MERIT.
LEGISLATIVE PRIORITIES
Brad Thaler, Vice President of Legislative Affairs
What will NAFCU’s advocacy look like this year? In following recommended guidelines, how is the association working to engage with and meet with lawmakers?
NAFCU’s advocacy team will continue our active engagement with lawmakers on behalf of credit unions in the year ahead. While we don’t know what guidelines may look like, we will be active by whatever ways are possible — virtually or in-person when appropriate — to ensure that the credit union message is heard. The pandemic and closure of Capitol Hill in 2020 saw us shift to virtual engagement on a range of issues from the paycheck protection program (PPP) to Bank Secrecy Act (BSA)/anti-money laundering (AML) reform. We also saw great engagement from congressional leaders such as Senate Banking Committee Chairman Mike Crapo, R-Idaho, House Financial Services Committee Chairwoman Maxine Waters, D-Calif., Senate Minority Leader Chuck Schumer, D-N.Y., and more, with NAFCU’s first virtual Congressional Caucus.
With lawmakers limited in their ability to go out and meet constituents, many of them are looking for virtual feedback from their states and districts. This provides credit unions with an opportunity to “meet” with their congressional offices without coming to Washington, and this credit union engagement is an important part of our lobbying effort. We anticipate that these virtual meetings will continue even when the pandemic subsides, and we’ve worked with a number of credit unions to help set up these virtual meetings over the past year. Credit unions may reach out to the advocacy team at NAdvocacy@nafcu.org for help with setting up meetings with your congressional offices.
Enacted under the CARES Act, the paycheck protection program (PPP) was developed to help small businesses hardest hit by the coronavirus pandemic. Can credit unions expect to see any further developments with aid to small businesses this year?
The PPP has been a lifeline for many of our nation’s small businesses that have suffered from the economic impacts of the pandemic. Many have continued to struggle, even after initial PPP funding, as the pandemic has dragged on, and Congress recognizes this fact. Small businesses, much like credit unions, enjoy broad bipartisan support in Congress, and we expect efforts will continue to help them, whether through the PPP or other programs, as long as they feel the economic impact of the pandemic. This is one reason NAFCU stepped up our push for additional member business lending (MBL) cap relief in 2020. Many credit unions have seen an influx of new small business members thanks to the PPP, and those new members will be looking for additional loans in the future as they seek to recover and grow.
Now is not the time for artificial lending caps on MBL. We intend to keep up the fight to ensure that credit unions have the tools they need to help small businesses in the year ahead.
COMPLIANCE LANDSCAPE
Brandy Bruyere, Vice President of Regulatory Compliance
What are some of the top litigation risks and compliance challenges credit unions are facing right now?
Credit unions continue to face class action lawsuits alleging that overdraft and insufficient funds fees were improperly assessed. There are also some emerging risks. Class action lawsuits claiming violations of the Fair Credit Reporting Act are on the rise, and some credit unions have been sued. These suits often claim member data was inaccurately reported to consumer reporting agencies. We are also aware of a couple of credit unions that are facing claims that their indirect lending relationships with auto dealers violate state consumer protection laws due to the dealer markup on the interest rate.
In terms of compliance challenges, we have been in a deregulatory environment, but that is poised to change under a new administration. But given the economic climate, in the short term issues involving mortgage servicing rules are more likely to arise. As credit unions work to help their members, lending regulations can also pose challenges given the complex nature of that regulatory framework.
As credit unions adapt to the changing lending landscape, do you foresee any potential compliance issues? Are there compliance resources available from NAFCU?
Unfortunately, more consumers are struggling to make payments given the current economic climate. While many borrowers were eligible for COVID-19 mortgage relief, that will not last forever. This may mean an increased need to call borrowers, such as to meet regulatory obligations to contact delinquent borrowers or as part of collection efforts. The Telephone Consumer Protection Act has generated some risks here, although the Supreme Court is poised to hear a case this month that may resolve some ambiguities. NAFCU joined an amicus brief in this case.
Fair lending is another area to monitor. NCUA seems to be conducting more separate fair lending exams, and during regular exams it is taking a look at things like the credit union’s adverse action notices.
NAFCU has many resources to help credit unions stay on top of trends and changes to regulations. Our Compliance Monitor publication includes in-depth articles on key topics, and past issues can be a great research resource for members. We publish Final Regulations and Regulatory Alerts, which summarize new rules and proposals. Our Compliance Blog publishes three times a week and is free to the industry. All credit unions can purchase our Credit Union Compliance Roadmap, which covers the basics of the federal regulatory framework and includes research tips and related resources. Finally, NAFCU members can share ideas on our Compliance, BSA & Risk Network.
The California Consumer Privacy Act (CCPA) went into effect on Jan. 1, 2020. How has that affected credit unions that operate in California? What other data privacy/security issues are you monitoring?
With final regulations being issued for the CCPA, credit unions subject to the law worked on implementation throughout 2020. However, California moved the privacy goal posts again when California voters passed the California Privacy Rights Act in November 2020, adding significant compliance obligations to credit unions already working to overhaul their data governance systems. Credit unions in other states are also monitoring their state legislatures for new privacy requirements, and everyone is watching to see whether this new Congress will make a federal data privacy and security standard a priority.
ECONOMIC OUTLOOK
Curt Long, Vice President of Research and Chief Economist
As credit unions work to mitigate the effects of the economic headwinds caused by the coronavirus pandemic, what does the road to economic recovery look like? Are there any indicators that credit unions can watch for?
The first thing that must be said is that the performance of the economy thus far has exceeded all expectations. That partly reflects the fact that the initial forecasts incorporated severe tail risks due to uncertainties about the virus that have not materialized. But even modal forecasts turned out to be too pessimistic, most likely because the capacity for a large section of society to pivot to full-time remote work was underestimated. The economy began improving more quickly than predicted, and that improvement has been stronger than predicted. Considering what the economy will look like post-recovery, an important question concerns those industries that have been most impacted — restaurants, hotels, airlines, commercial real estate — and whether they remain viable in the same shape and form as prior to the crisis. If the answer is no, that could presage a longer, slower recovery as society shifts to alternatives. Ours is still a consumer-driven economy, so consumer confidence is an important bellwether for the recovery. While sentiment dipped in the second quarter as the country was instituting harsh measures to slow the spread of the virus, it remained much higher than in the depths of the financial crisis. The historically generous CARES Act surely played a large role in preventing consumer confidence from falling further than it did. Going forward, that should reassure policymakers that they have the levers to stimulate the economy if it is deemed necessary.
How much of a role does Congress play in economic recovery efforts? Could a new president/power dynamic in Congress impact the Fed, and how?
While it was controversial at the time and remains so in retrospect, it is clear the CARES Act played a very important role in supporting the economy when things looked dire. Clearly, the stimulus was not well targeted, which led to a surge in household deposits. But what the CARES Act lacked in precision it made up for with speed and scale. Although a Biden White House may be more open to another generous spending package, it remains to be seen whether Congress will follow suit.
In the absence of more fiscal support, the Federal Reserve takes on added importance. But while the Fed speaks confidently of its ability to provide additional support to the economy, its traditional avenues for achieving monetary stimulus appear close to tapped out. The Fed’s myriad liquidity facilities were critical at the outset of the crisis in keeping financial markets functional, but their structure may be too conservative to provide meaningful stimulus. The zero-lower bound binds the Fed’s interest rate policy, but the larger constraints are political. In theory, there is still a lot of ammunition the Fed could unleash, but that may be difficult to achieve without serious pushback from Congress.
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Rouky Diallo is NAFCU’s associate director of communications.
