By Ray Birch
WASHINGTON—What will the regulatory relief bills and other measures that are part of the transportation authorization bill just signed into law by the president mean to credit unions?
NAFCU and CUNA see immediate and long-term benefits for credit unions, with manpower and money savings and less red tape being the most significant benefits near-term, and then, further down the road, the ability to make more loans.
Last week Obama signed into law the transportation bill—better known as the Highway Bill—which includes a number of credit union-backed provisions:
- HR 601, the “Eliminate Privacy Notice Confusion Act,” which would clarify that consumers will receive privacy notices after opening a new account and when their providers’ privacy policies change.
- HR 1259, the “Helping Expand Lending Practices in Rural Communities Act,” which would provide assistance in dealing with the CFPB’s definition “rural area,” particularly as it relates to the ability-to-repay mortgage rule.
- Language giving authority for privately insured credit unions to become a member of a Federal Home Loan Bank and also requiring a Government Accountability Office report that looks at private insurance.
“This is very significant for credit unions,” said CUNA’s chief advocacy officer Ryan Donovan. “In 2006 there was a financial services regulatory relief act signed into law and it had four to five provisions for credit unions. My sense is that this latest package is as significant, and possibly even more so, than the 2006 legislation. And I say a little more significant because we can point to the privacy notice provision as something that should have an immediate impact on about every credit union. So that is a big deal.”
Privacy Notices
Both Donovan and Quincy Enoch, NAFCU’s associate director of legislative affairs and military liaison, agreed that the privacy notice provision, which eliminates FIs from having to send privacy notices every year—requiring them only to send notices when there is a change in privacy policy—is the most significant of the provisions today.
Donovan reiterated that this provision should touch almost every credit union, except perhaps in states where state law takes precedence.
“There may be some states that will have to change their laws,” said Donovan, who believes the provision became effective as soon as Obama signed the bill.
Credit unions, banks, insurance companies have been required to send annual privacy notices since about 2000, Donovan explained, adding that privacy policy changes typically happen infrequently.
Ryan Donovan, CUNA
“CUNA has estimated that credit unions sent more than one-billion privacy notices to their members since 2000,” said Donovan. “Do the math—the time and money spent on each piece of mail. That begins to add up to a cost that is not insignificant.”
Enoch feels just not having to pay the annual postage is a sizeable benefit.
“That expense, as well as having to make sure the changes to the policy in the statement are correct and to get each piece out the door, it’s a burden CUs had to face each year,” said Enoch, who termed the process “onerous. The costs for sending out the annual mailing is money that cannot be used to make more loans or improve services.”
Rural Area Provision
Both Donovan and Enoch stated that the impact of the rural area provision on CUs, which they say is harder to quantify than the impact of the privacy notice change, in the long run may have the biggest effect of all Highway Bill rules.
The greatest potential for benefit comes when the credit union is near a metropolitan area but the local area has a greater rural focus, said Donovan. He explained that in areas that may be rural in focus but not designated as a rural area, businesses can now apply to the CFPB to request the area be designated as rural.
Both Enoch and Donovan feel there are many opportunities for areas across the country to achieve the designation change, since interpretations of rural are often very subjective—and in the past the CFPB simply made the decision on an area’s status.
Donovan and Enoch explained that the CFPB has exemptions and accommodations from CFPB rulemaking for institutions doing business in rural areas.
Changing an area from metropolitan to rural can improve the ability of credit unions to serve members and make more loans--particularly as it relates to the CFPB’s ability-to-repay mortgage rule (qualified mortgage definition), easing restrictions around appraisals, escrow accounts and balloon payments, for example.
“One of the things credit unions were able to get into Dodd-Frank in 2009 was this notion that the CFPB should take into consideration the impact its rules have on credit unions and small banks in rural areas,” said Donovan.
Quincy Enoch, NAFCU
Enoch added that NAFCU felt members of Congress believe there are many areas across the country that are clearly rural but have not been designated as rural by the CFPB.
FHLB Now Open To Privately Insured
Giving authority for privately insured credit unions to become a member of a Federal Home Loan Bank should help the approximately 150 privately insured CUs make more loans.
Donovan pointed out the change has been a long time coming.
“This bill has been around for many years and we have finally removed the barrier preventing privately insured credit unions from joining the FHLB, giving them another tool in their toolbox,” said Donovan.
Donovan reiterated that the Highway Bill is a major victory for credit unions and thanked the “thousands of advocates” who worked on the legislation for years.
“So let’s pause for a moment,” said Donovan about reflecting on the passage of the significant regulatory relief legislation. “But then let’s get back to work on the many other credit union regulatory relief efforts under way.”