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Impact of Dodd-Frank on Safety and the Soundness of MBLs

The Government Accountability Office (GAO) issued a report on September 13, 2012, on the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on Credit Unions and Community Banks. The report basically concludes that it is too early to tell what the total impact of the Act’s provisions on credit unions and community banks will be.

Requested by Senators Olympia Snowe (R-ME) and Mark Kirk (R-IL), the report examines changes credit unions and banks have undergone in the past decade and Dodd-Frank Act provisions expected to impact credit unions and community banks. “…[R]egulators and industry officials have noted that they expect that some of the Act’s regulations will increase regulatory requirements on community banks and credit unions and disproportionately affect them, relative to larger banks,  because of their size,” the report states.

The Consumer Financial Protection Bureau's (CFPB) final remittances regulation is one of the rules cited in the report.  “Industry associations (including Credit Union National Association) (parenthesis added) have questioned the ability of institutions that use open network (third party providers) to make remittance transfers… to continue to provide such services because of their difficulty in complying with the rule’s disclosure requirements.” Credit Union National Association (CUNA) continues to urge the CFPB to provide more flexibility to credit unions under the remittances rule. 

The GAO report provides a chart that attempts to list provisions that will impact banks and credit unions, but notably, debit interchange is not on the list, even though it is mentioned din the report.   The report states that “Unlike large banks, community banks and credit unions have generally not, on average, experienced a significant decline in their debit interchange fees as a result of the Federal Reserve’s implementation of section 1075 of the Dodd-Frank Act.”   However, the report also states, that “concerns remain about the potential for …interchange fees or fee income to decline over the long term.”

Of interest, the report repeats previous analysis the GAO developed that indicated member business lending contributed to 13 of 85 credit union failures from January 2008 to June 2011 (GAO 12-247). National Credit Union Administration's (NCUA) Executive Director, David Marquis, in a letter to GAO included with the report took issue with the agency’s analysis. “NCUA closely monitors commercial lending in our insured institutions, and we do not believe there is sufficient evidence to suggest member business loans pose a higher risk to credit unions or that a key driver in credit union failures is commercial loans,” Marquis said.