America’s Credit Unions: Non-Interest Income Rules Are Choking Credit Unions
Credit unions will have to make up for lost income
Aggressive regulation of non-interest income by the National Credit Union Administration and the Consumer Financial Protection Bureau will result in cuts to member services, Carrie Hunt, chief advocacy officer of America’s Credit Unions, warned last week.
“Unfortunately, overregulation and attacks on products that provide necessary income to financial institutions, such as mis-characterizing avoidable and clearly disclosed fees as ‘junk fees,’ are making it harder for credit unions to survive,” Hunt wrote in a letter to the NCUA and a letter to the CFPB. “It is not one single action that ultimately overburdens credit unions, but rather it is the tidal wave of regulations and restrictions that are ultimately crushing the industry.”
Hunt wrote that the costs of basic financial services will increase to make up for the revenue lost by further regulation of non-interest income. She noted that in a recent survey of credit unions by the trade group, 85% of the institutions reported they would have to increase loan interest rates to offset a loss of non-interest income, 65% of the institutions said they would increase credit card rates and 71% said they would decrease share and savings rates.
The Biden Administration has called for greater regulation of what it calls “junk fees.” The CFPB has issued a final rule that would limit most credit card late fees to $8. That rule was blocked by a Texas federal court while the Supreme Court considered whether the agency’s funding mechanism is constitutional. The high court last week said that the funding mechanism is constitutional, so it remains to be seen if the agency will be permitted to implement the rule.
The CFPB also has issued a proposed rule that would limit overdraft fees at the largest financial institutions. In addition, the NCUA has begun requiring credit unions with at least $1 billion in assets to report their income from overdraft and nonsufficient funds fees.
Hunt warned that the CFPB’s proposed overdraft rule ignores the realities of credit union operations. “The proposed rule suggests a transition of overdraft services to a checking line of credit which presents a particularly impractical option for credit unions due to the statutory 18% interest rate ceiling mandated under the Federal Credit Union Act.”
She also argued that the CFPB’s final rule requiring credit unions and banks to report to federal officials their lending activity to women-owned businesses and minority-owned businesses would significantly increase credit union regulatory burdens.
Hunt further criticized the NCUA for increasing its budget each year. “Continuing on this trajectory of substantially increased budgets is unsustainable and will have serious consequences for the credit unions that fund the NCUA,” she wrote.