Read the mission statement on its Web site, and the government’s new financial consumer agency sounds innocuous at worst, and quite positive at best.
“The central mission of the Consumer Financial Protection Bureau (CFPB) is to make markets for consumer financial products and services work for Americans—whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products,” it says.
The establishment of the CFPB was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The statute was itself a reaction to the egregious behavior of major banks and Wall Street firms that led to the recent economic meltdown. The legislation, enacted in July 2010, is designed to prevent another significant financial crisis by creating new regulatory processes that enforce transparency and accountability while implementing rules for consumer protection.
Elizabeth Warren spent a year setting up the CFPB, but as it became clear that Republicans would stonewall her appointment to head the bureau, President Obama proposed that Richard Cordray, former Ohio attorney general, fill the top position. After Republicans voted against considering his appointment in a move to dismantle the CFPB, the President put Cordray in place with a recess appointment. That approach gives Cordray a term of only one year, as opposed to the five-year stint granted by a conventional appointment.
So why does the CFPB strike fear into the heart of a wide variety of companies and financial institutions—including the consumer’s friend, credit unions? The question is especially pertinent when you consider that the bureau will examine only three credit unions—$46 billion Navy Federal Credit Union, Vienna, Va.; $23 billion State Employees’ Credit Union, Raleigh, N.C., and $15 billion Pentagon Federal Credit Union, Alexandria, Va.
For all credit unions, the answer comes down to money—the potential costs involved in meeting a new round of regulations.
“While only credit unions over $10 billion in assets are required to go through a CFPB examination, all credit unions will be subject to their rulemaking authority,” explains Dennis Dollar, principal partner in Dollar Associates, Birmingham, Ala.
“There is no escaping the broad arm of the CFPB for credit unions,” he adds. “Can it be dealt with? Yes. Will it be costly? Yes again, and quite.”