Compliance Blog

Apr 28, 2017

What Does the CHOICE Act Mean for Credit Unions?

Happy Friday everyone! The Legislative Affairs team is taking over the Compliance Blog this morning to bring you updates on the Financial CHOICE Act – a piece of legislation that has gotten quite a bit of news recently. At nearly 600 pages, the Act contains dozens of detailed provisions – some NAFCU is in favor of, and some not. To save you the trouble of reading through the entire bill and enduring the portions that aren't relevant to credit unions, I thought I'd write this blog to give you a brief summary of the salient parts, what to expect in the coming weeks, and what NAFCU is doing to make sure the bill helps your credit union.

But before we get started, I want to provide a bit of context. First introduced and passed in the House Financial Services Committee last year, the CHOICE Act is designed to replace large portions of the Dodd-Frank Act. Although the bill passed Committee last year, it never made it to a full House vote. Fulfilling his promise in this new Congress, Chairman Jeb Hensarling (R-TX) reintroduced the CHOICE Act on Wednesday as H.R. 10. This version contains several changes to last year's version – hence the informal moniker, CHOICE 2.0.

NAFCU is supportive of the Financial CHOICE Act as it contains a number of regulatory relief provisions for credit unions.   Issues we are pleased to see covered in CHOICE 2.0 include:   

  • CFPB Reform – Although not likely to elicit bipartisan support, CHOICE 2.0 would (1) maintain sole director, but make him or her removable at-will; (2) limit rulemaking authority to enumerated statues; (3) repeal UDAAP authority; (4) repeal supervisory authority; (5) repeal the consumer complaint database; (6) restructure CFPB as a civil law enforcement agency; and (7) repeal mandatory advisory boards. The bill would also change the name of the CFPB to the Consumer Law Enforcement Agency (CLEA), tasking it with the dual mission of consumer protection and ensuring competitive markets, with cost-benefit analyses of rules.

Overall, NAFCU finds these changes to be favorable, with some note. NAFCU believes that a board structure provides the most advantageous mechanism for any agency to approve regulations since it ensures debate representative of multiple points of view.  Accordingly, NAFCU believes a commission structure is the ideal way to govern the CFPB.  NAFCU also believes that enforcement orders should not take the place of regulation.

  • Repeal of Durbin Amendment – The provision eliminating the Durbin interchange price cap and routing restrictions in the discussion draft is among the most significant aspects of this legislation for credit unions. We wrote to the Committee, strongly urging it to maintain the repeal language throughout the legislative process. We also urge credit unions to take action to express support for this provision.
  • Capital 'Off-Ramp' – This “off-ramp” would provide relief from the post-Dodd-Frank supervisory regime and Basel-like rules, i.e., Risk-Based Capital (RBC). So long as a credit union retains a 10 percent net-worth ratio, it will be exempt from RBC requirements and risk-weighting. NAFCU is in support of this much simpler capital framework, but we will continue to push the Committee to make more capital concessions for credit unions in recognition of their inability to raise capital in financial markets.
  • NCUA Transparency and Independent Oversight – The discussion draft creates many opportunities for appropriate oversight of NCUA. First, NCUA's budget will have the opportunity to be reviewed in a budget hearing.  Second, an independent appeals process will be created for credit union exams.  Third, transparency regarding the overhead transfer rate will be ensured.
  • Cost-Benefit Analysis – NAFCU supports cost-benefit analysis, and in any final legislation wants to ensure that we have an effective regulatory environment where positive regulations may be easily implemented and negative ones may be quickly eliminated.
  • Mortgage Rule Relief – CHOICE 2.0 contains several provisions that would alleviate burdens from recent mortgage rules, including the Qualified Mortgage rule, HMDA, and TRID.

While NAFCU supports the legislation, there are some areas that we would like to see changed or improved upon as the bill moves through the legislative process.

  • Removal of NCUA being subject to Congressional appropriations – NAFCU feels is unnecessary given that credit unions fund the NCUA, and we would urge further revision of this provision to only require approval of NCUA budget increases above inflation.
  • Credit Union Exemption from CFPB Rulemakings - NAFCU would like to amend Sec. 1022 of the Dodd-Frank Act to explicitly detail that credit unions are a covered class for the purposes of CFPB’s rulemaking exemption authority. NAFCU’s proposed changes also ensure that the CFPB will take non-profit status into account when determining possible exemptions. Sec. 1022 is not currently contemplated in the CHOICE Act. This could also be address by adding the language of H.R. 1264, the Community Financial Institutions Exemption Act.  
  • 18-month exams - NAFCU would like to add language to clarify that NCUA should not interpret the CHOICE Act as curtailing the agency’s ability to establish exam cycles for credit unions over $1 billion in assets. The intent of the Act is to statutorily mandate an 18-month exam cycle for well-run federal credit unions under $1 billion in assets. However, NAFCU’s language would clarify that the agency maintains its current authority to determine exam cycles for federal credit unions not covered by the Act. 
  • 1-4 MBL Exemption - NAFCU has suggested pairing this language with the Thrift Charter Flexibility provision found in the bill, as that language would give thrifts relief from their business lending cap.
  • Underserved Areas - NAFCU has suggested adding language from the Financial Services for the Underserved Act which would clarify the ability for credit unions of all types to seek to add underserved areas to their field of membership.

The Committee held a hearing on the bill on Wednesday, and is holding another one at the request of Committee Democrats this morning.  A Committee mark-up of the bill is expected to commence Tuesday, May 2.  We expect that the mark-up will be a partisan fight, with Chairman Hensarling ultimately able to report the bill to the full House on a party-line vote.  The measure is then expected to come before the full House for consideration by mid-to-late May.

The 2.0 version of the Financial CHOICE Act is a broad package of reforms offered by Chairman Hensarling.  It is unlikely to garner any Democratic support, and it is possible that some Republicans will seek changes to the legislation throughout the process as well.  It remains unlikely that the Financial CHOICE Act will be considered by the Senate in its current form, as Senate Banking Committee Chairman Mike Crapo (R-ID) has indicated that he would like to find a relief package that can draw some Democratic support so it can get the 60 votes needed to avoid a filibuster on the Senate floor.  You may recall that NAFCU just submitted a list of regulatory relief and economic growth ideas to the Senate Banking Committee earlier this month.  It is expected that Chairman Crapo will work on his own bill later this year based on what he thinks will get the necessary votes in the Senate. 

Should the Senate pass a relief package, we would then likely see a House-Senate conference on relief ideas to determine whether an agreement is possible.  To win passage in both chambers, any final measure would likely have to be much more limited in scope. It is important to recognize that there are still a number of steps in the process before we get there.

I can assure you that NAFCU remains committed to seeking regulatory relief for credit unions through all possible channels, both legislative and regulatory.  We also welcome your feedback and thoughts on the new CHOICE Act and any legislative proposal affecting the credit union industry.  Please feel free to reach out to me at with your thoughts.

About the Author

Bradford Thaler, Vice President of Legislative Affairs, NAFCU

Brad Thaler

Brad Thaler has been with NAFCU since July of 1999, first as associate director of legislative affairs, and then, beginning in January 2002, as director of legislative affairs. He was promoted to vice president of legislative affairs in January 2011.

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