Credit union leaders and legislators indicated they do not seeeye-to-eye with the CFPB's director when it comes to the bureau's rulemakingauthority.

During the agency's semi-annual report to Congress on March 16,CFPB Director Richard Cordray said the CFPB is continuing to lookat its authority under the Dodd-Frank Act to exempt credit unions from its rulemaking. He cited instanceswhere the bureau has used some exemptions for small financialinstitutions.

Cordray's remarks followed scrutiny from some members of theHouse Financial Services Committee. Several Republican members ofthe House Financial Services Committee questioned the directorabout a March 14 letter penned by Reps. Adam Schiff (D-Calif.) and Steve Stivers(R-Ohio). In the letter, a bipartisan group of 329 members ofCongress called on the director to use the bureau's authority toexempt credit unions from its rulemaking.

Cordray admitted during the hearing that he received the letter,but had not yet read it.

Rep. Ed Royce (R-Calif.) was the first of several congressmen tobring up the letter. Citing both the letter and Section1022(b)(3)(a), which would permit such an exemption, he asked ifthe director had changed his view of congressional intent.

“On the question of exemptive authority, as it applies to yourability to exempt community banks and credit unions fromrulemakings, you argued in a recent speech that it was notplausible for you to use such authority to override Congress' ownjudgment on such a broad-based policy matter,” Royce said. “Does aletter from over three quarters of Congress change your view ofcongressional intent?”

Cordray answered thebureau routinely tailors its rules to take into account differentcircumstances of small lenders, citing the mortgage originationrule, the mortgage servicing rule and its remittance rule.

“We will continue to do it where appropriate,” he said.

He added that CUNA and NAFCU both sought to exempt credit unionsfrom the Dodd-Frank Act, but that notion was rejected.

The CFPB provided special provisions for small creditors andwill continue to do so when appropriate based on the facts, Cordrayadded.

“In terms of a broad overriding of what Congress made ajudgement about in that statute, which was not to simply exempt allcredit unions from everything to do with consumer protection, Ifeel that Congress has spoken on that,” Cordray concluded.

However, Daniel Caldwell, president/CEO for the Atlanta-based,$22 million 1st Choice Credit Union, said the CFPB's actions barelyregister for his credit union.

“We don't have the staff to keep up with a lot of theregulations that are out there,” he said, adding that most of theissues arising from the CFPB are problems associated with largerfinancial institutions.

The customer complaint database is a problem for the smallcredit union, however.

“If there's a complaint at the CFPB, we have extra reportingsteps,” he said. “They haven't been burdensome, but definitely beenmore time consuming. I try to keep up with at least the minimum wehave to keep up with. For us, there hasn't been anything thatreally has impacted us.”

JohnMcKechnie, senior partner at the Washington-based consulting firmTotal Spectrum, said, “The CFPB seems pretty dug in on theexemption issue, but that's OK; they seem pretty dug in on everyissue.”

Stivers, who co-authored the letter, illustrated his point ofthe of the one-size-fits all approach to regulations by providing achild's 2T-sized T-shirt to the director and asked Cordray to putit on.

“You wouldn't fit in it,” Stivers said, adding that a lot ofinstitutions are trying to make themselves smaller and servicetheir clients less.

Stivers added credit unions and small banks have discontinued orlimited access to some products as a result of some of the agency'srulemaking. That's the problem small financial institutions aredealing with, he continued, telling Cordray to take his authorityunder 1022 seriously.

“What are you going to do about it?” he asked.

The answer, apparently, is nothing, according to former NCUABoard Chairman Dennis Dollar.

“One of the things I have learned about regulatory thinkingduring my career is that when a regulator wants to enact aregulation, they always seem to see their authorization statute asvery elastic,” Dollar said. “Yet, when the regulator does not wantto take an action that might be less far reaching, theyautomatically begin seeing their authorization statute as a virtualstraight jacket.”

Cordray answered Stivers, saying there are facts that are beingignored, such as the record number of credit union members in theindustry and credit unions' share in the mortgage lending market.He added credit unions are doing better in a marketplace thatrewards responsible lenders.

“We have tailored our rules that give advantages to smallerlenders, because that is consistent with the data coming out of thecrisis that they had lower defaults coming out of other lenders,”he said.

However, the director's claim received scrutiny from industrytrades. NAFCU President/CEO Dan Berger called on his members tochallenge the director's assertion that credit unions were notmeant to be granted a blanket exemption.

“Unfortunately, the CFPB has failed to exercise this broad legalauthority,” Berger said. “We believe Congress intended to allowcredit unions to be exempted from certain rules. Director Cordray'sdenial that the tide of regulation is not contributing to thecontinued trend of credit unions being forced to cut back on memberservices, merge or go out of business flies in the face offacts.”

Dollar agreed and said it all boils down to what the agencywants to do.

“I thinkthe bottom line is that the CFPB doesn't want to be as flexible ininterpreting their exemption authority as they do in interpretingthe extensiveness of their regulatory authority,” he said, addingthat the bureau is exercising fairly typical regulatory agencythinking.

CUNA President/CEO Jim Nussle expressed his disappointment inCordray's statement.

“The director unfortunately seems comfortable with his ownnarrow set of facts that do not take into account a fullunderstanding of the damage the increasingly complex regulatoryburden is having on credit unions,” Nussle said.

With a number of Democrats' signatures on the letter, thepressure for Cordray to act is mounting.

McKechnie added the negative reaction from Democratic memberswas interesting.

“Several Democratic members and staff expressed doubts that theCFPB is legally correct on their interpretation,” he said. “Evenmore said they wished Mr. Cordray had not been that dismissive ofexemption authority, particularly in the face of the letter sent byover 300 House members.”

The director received some support on his position, however,from Rep. Brad Sherman (D-Calif.), who also signed the letter andonly asked that Cordray look at the regulations and ensure they donot have unintended consequences.

Political showmanship continued unabated on both sides of theaisle. Some Democrats used their allotted time to praise theefforts of the director, such as Rep. Keith Ellison (D-Minn.) whodid not question the director and argued that House Republicans areattempting to unwind the bureau.

“We are well aware of what it's all about,” Rep. Al Green(D-Texas) said. “Some want to eviscerate the CFPB.”

Dollar said his reading of the Dodd-Frank Act gives the bureaumuch more authority to focus on larger financial institutions andto shift focus away from smaller institutions.

“The regulatory default position is to regulate more and exemptless,” Dollar said. “The CFPB, even though they are a relativelynew agency with new statutory authority to interpret, is a classicexample of a regulator defaulting to more expansive authority –whether it is needed or not.”

Dollar added that the bureau should adopt a mantra to provideeffective, not excessive, regulation.

“The CFPB has shown no example where they have chosen to beself-restrictive in interpreting their own authority,” he said.