REGular Blog: Weekly Roundup May 10, 2024

Happy Friday everyone! It's been another busy week in the world of regulatory compliance! Let's take a look at some of this week's headlines.

CFPB and Department of Transportation hold hearing on airline rewards, Apple FCU CEO serves as panelist

On Thursday, the CFPB and the Department of Transportation held a joint hearing on Airline and Credit Card Rewards Programs. Andy Grimm, President/CEO of Apple FCU, served as a panelist representing the credit union industry. Mr. Grimm discussed how increased regulatory burdens are harming credit union members and communities they are designed to help.  He highlighted how due to regulatory limitations credit unions have less income stream opportunities than big banks making them feel the pressures of restrictions on non-interest income more acutely. He also noted that in 2023 Apple FCU received less in interchange income than in 2022 despite more transactions.

Mr. Grimm also discussed the difficulties credit unions and smaller financial institutions face when trying to take part in the credit card rewards market. These challenges include compliance demands, economies of scale, advertising budgets, and arbitrary caps placed on credit union interest rates. He noted that Apple FCU’s credit card rates on its non-rewards cards are lower than those of most big banks but due to the extremely competitive credit card rewards market, it has difficulty competing in that area.

Other panelists included several smaller airlines who offer credit cards and airline miles, a representative of flight attendants, other financial institutions, and several policy professionals. Panelists discussed the lack of transparency in understanding the value of airline rewards, the difficulties in redeeming them, and whether the marketing around airline rewards is unfair or deceptive. 

Senate Banking Committee holds junk fee hearing, credit unions at the table

Also on Thursday, the Senate Banking Committee held a hearing on so called "junk fees" in the financial services industry. Karen Madry, President/CEO of Afena FCU, a $99 million credit union in Marion Indiana, was one of three panelists testifying in the hearing. In her testimony, she highlighted the credit union difference and that overdraft protection is a valued member service that can help them in a time of need. She stressed that credit unions offer overdraft protection responsibly and educate their members on how the program works. She warned the Senators that though her credit union is below the assets size thresholds of many of the CFPB's rules, there will be market effects and her members will expect the credit union to do the same. She stressed that regulatory overreach and burden hurts small credit unions like Afena, and urged Congress to take action before its too late.

Senate Banking Committee Chairman Sherrod Brown (D-OH) noted that he appreciates the way Ms. Madry runs her credit union and the transparent way they offer overdraft protection. He added that he sees the same practices from credit unions in his home state of Ohio, and he doesn't see credit unions as part of the problem here. 

Ranking Member Tim Scott (R-SC) asked Ms. Madry if her members are more concerned with the amount of fees or the overall cost of making ends meet. Ms. Madry spoke about her credit union's approach to lending, empathy, hardship extensions, and helping member's overall financial picture. Ranking Member Scott also brought up the law of trade-offs. Ms. Madry discussed the options her credit union was considering to account for the revenue reduction they would see should the overdraft rule be finalized and implemented.

Senate vote to include CCCA in FAA reauthorization package fails

On Wednesday, the Senate voted against including the Credit Card Competition Act (CCCA) S.1838 and other non-germane amendments in the Federal Aviation Administration (FAA) reauthorization bill. Both of Virginia’s U.S Senators, Mark Warner and Tim Kaine, voted against the amendment. The Virginia Credit Union League thanks Senators Warner and Kaine for not allowing this harmful legislation to be included in must-pass legislation. 

Your League is continuing to work with members of Congress urging them protect the current interchange system, consumers, small businesses and Virginia’s 100 member-owned credit union by opposing the CCCA. We urge credit union advocates in Virginia to continue sending emails to our Congressional Delegation asking them to remain opposed to the CCCA. You can send an email quickly and securely through our Advocacy Action Center.

NCUA, banking regulators re-propose rule on incentive-based compensation

We blogged earlier this week about a new proposed rule from the NCUA and the banking regulators that was released on Monday. The rule has to do with incentive-based compensation for certain financial institution executives and employees. The regulators previously proposed rulemaking in this area in 2011 and 2016, but the rules were never finalized. This year, regulators chose to re-propose the 2016 rule.

The intention of Section 956 of the Dodd Frank Act, which requires this rulemaking, was to prohibit certain incentive-based compensation practices that could encourage inappropriate risks. It's interesting that over 15 years after the 2008 financial crisis, which was not caused by credit unions, credit unions may be impacted by a rulemaking required by a statute put in place to curb the behavior that caused the financial crises. And yet here we are. This re-proposal is likely to receive numerous comments from the public and trade groups, as the 2011 and 2016 proposals did.