REGular Blog - Weekly Roundup: August 2nd

Happy Friday everyone! I hope you're staying cool as we roll into August. For this week's weekly round-up, we're doing some updates on some regulations that could impact credit unions and looking at how holdups in the legislative, judicial, and executive branches are impacting their progression. As we hit back-to-school season, what better time for a look at our three branches of government and their role in the credit union advocacy process?

Legislative: What's happening with CRA?

On Monday, Senator Elizabeth Warred (D-Mass.) introduced the American Housing and Economic Mobility Act, with a companion bill being introduced in the House as well. As the bill was being drafted, we learned that it was possible the bill could include expand Community Reinvestment Act (CRA) requirements to credit unions. America’s Credit Unions, the Cooperative Credit Union Association, Leagues, and credit unions joined together and engaged with Warren and other sponsors to ensure any potential CRA expansion was not included. Keeping this language out of the version of the bill that was introduced was an advocacy win for credit unions.

Executive: What's happening with NCUA and incentive comp?

In their July board meeting, the NCUA voted 2-1 to approve a proposed rule on incentive-based compensation. The proposed rule looks to curb compensation structures that encourage excessive risk-taking through incentive pay. Does this mean that credit unions can't give incentive comp to employees? No, and here's three reasons why:

First, the rule wouldn't flat out prohibit incentive compensation, but rather says you can’t offer incentive comp that encourages inappropriate risks by providing them with excessive comp, fees, or benefits, or that could lead to material financial loss. The rule adds some detail on how those terms are defined (excessive comp and material financial loss). You would also have to keep records of their incentive comp for 7 years and you would have to assess how the comp structure is compatible with effective risk management and controls. So it's not a flat prohibition of incentive compensation. Rather, it requires internal controls and documentation.

Second, the proposed rule only applies to financial institutions over $1 billion. Even then, most of the rule's additional prohibitions only apply to financial institutions with over $50 billion in assets - what the proposed rule calls Level 1 and Level 2 financial institutions. Only two credit unions fall into these categories.

Third, and most importantly, this is a proposed rule issued by six joint agencies. All 6 agencies have to approve it before it can get published in the Federal Register. The Federal Reserve and the SEC have yet to approve it, and seem unlikely to do so as presently constituted. If that continues to be the case, this won’t actually get published in the Federal Register and we’ll be in this limbo period where this won't advance any further - as we have been for over a decade now. 

We'll watch to see what happens with these other changes, but credit union's shouldn't rush into any sweeping changes to their incentive comp structure based on this proposed rule.

Judicial: What's happening with the credit card late fee rule?

We've been tracking the litigation surrounding the CFPB's credit card late fee final rule, which would lower the safe harbor for credit card late fees to $8. Almost all credit unions will not be directly impacted by the rule, since it only applies to issuers with at least 1 million active credit cards. However, even those not directly impacted by the rule will be impacted by market effects as competitors who are subject to the rule lower fees and consumer/member expectations shift.

Soon after it was issued, the CFPB was sued by a several trade associations in a Federal District Court in Texas. The filing resulted in an injunction - a delay of the implementation/effective date of the final rule. The CFPB has been attempting to transfer the case from Texas to the D.C. Circuit. There's been a lot of back and forth, with the District Court judge ordering the case be transferred to D.C. only to have the 5th Circuit Court of Appeals block the transfer. As of right now, the case remains in Texas, where Judge Pittman has shown skepticism about the Plaintiff's connection to his Court. 

One of the Plaintiffs in the case is the Fort Worth Chamber of Commerce. CFPB is arguing that that association does not have standing in the case, and that if they are dismissed, none of the remaining plaintiffs could establish that the Texas venue is proper, and the case should be transferred to D.C. for further proceedings. The Plaintiffs have until August 12th to respond. Then CFPB will file a brief by August 19th, with the Court hearing the motion on August 27th.

What this means for credit unions is that, at least for now, the effective date - the date by which large issuers must either lower their fee to the safe harbor or be able to justify why it is higher - remains on hold. 

The Process

In advocacy we often talk about "playing defense." While we sometimes will be advocating to get a law passed or a regulation enacted, much more frequently we are fighting to keep a harmful law or regulation from getting passed or enacted. It's a long process, and these three cases illustrate a snapshot of some touchpoints along the way. You can work with a lawmaker's office to prevent harmful language from being introduced. After a bill is passed into law that requires regulations to be enacted, you can work with regulators to oppose or amend a proposed rule. Finally, if a rule does get finalized, sometimes the only option is to head to the courts and try to delay or reverse the implementation of the rule. As you can see, right now we've got all three playing out with different regulations. It's always a busy time in credit union advocacy!

That's all for now - I hope everyone has a great weekend, and we'll be back again next week!