NAFCU Testifies Before House Financial Services Subcommittee on the Effect of Dodd-Frank on Small Financial Institutions

March 2, 2011

WASHINGTON – John Buckley, president and CEO of Gerber Federal Credit Union (Fremont, Mich.), testified today on behalf of the National Association of Federal Credit Unions (NAFCU) in a hearing on the effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act on small financial institutions and small businesses.

"The additional requirements in Dodd-Frank have created an overwhelming number of new compliance burdens, which will take credit unions considerable time, effort, and resources to resolve," Buckley told House Financial Services Subcommittee on Financial Institutions and Consumer Credit.

Specifically, Buckley addressed Sen. Dick Durbin's (D-Ill.) amendment to Dodd-Frank that requires the Federal Reserve to establish standards for determining whether a debit interchange fee is "reasonable and proportional."

"NAFCU strongly opposed Sen. Durbin's amendment which, in the eleventh hour, was changed on the Senate floor to include a toothless handwritten exemption for financial institutions under $10 billion in assets."

Furthermore, Buckley noted Federal Reserve Chairman Ben Bernanke's recent comments on the debit interchange rule and the possibility that the small issuer exemption would "not be effective in the marketplace."

"Chairman Bernanke pointed to two factors to support this assessment – first, that merchants will reject more expensive cards from smaller institutions, and second, that networks will not be willing to differentiate the interchange fee for issuers of different sizes," Buckley said. "These comments only reaffirm the validity of arguments that NAFCU member credit unions have been making."

Buckley added, "NAFCU strongly opposes the Federal Reserve's proposed rule that, with price caps for debit interchange, doesn't fairly compensate issuers for the costs involved in processing debit card transactions." He cited credit unions' charge-offs due to fraud losses and additional expenses in making their members whole again, much of which stem from the failure of merchants to protect sensitive financial information about their customers.

Buckley underscored some of the grim repercussions of the debit interchange amendment on credit unions based on a recent NAFCU survey:

  • Nearly 65 percent of responding credit unions are considering eliminating free checking to help mitigate lost revenue from the debit interchange rule.
  • Some 67 percent are considering imposing annual or monthly fees on debit cardholders.
  • Implementation of this rule could also lead to lower dividends and higher costs of credit, as 52 percent of respondents may consider reducing rates on deposit accounts and 25 percent will consider increasing rates on loans.
  • The amendment may lead to job losses, as nearly 19 percent of responding credit unions will consider reducing staff at their credit unions.
  • Nearly 21 percent will consider closing existing branches or postponing plans to open new ones if the capped rate becomes the default rate for all issuers. Buckley also addressed the Consumer Financial Protection Bureau. "NAFCU has long recognized the need for additional consumer protection in the financial services arena," said Buckley. "NAFCU supported additional regulation for bad actors on Wall Street. NAFCU also supported the National Credit Union Administration's establishment of an office dedicated for consumer protection. Given that credit unions were not part of the shadow banking system that helped lead to the financial crisis, it's perplexing that they were ultimately placed under the jurisdiction of the CFPB."

Buckley noted several other areas of concern regarding Dodd-Frank Act as well as that of earlier legislation that remain unresolved, including transition time, remittance transfer definition, unified mortgage loan disclosure, CFPB document access, member business lending, risk-based capital, community charter conversions and SEC broker-dealer exemptions.

In closing, Buckley emphasized, "Congress must act to stop the Federal Reserve from moving forward with proposed debit interchange regulations. This is an issue of fairness, and each stakeholder, including the consumer, deserves to have the debit interchange system studied by Congress before additional action takes place."

"With respect to the Consumer Financial Protection Bureau, credit unions remain at a loss as to why they have been placed under a new regulatory regime to begin with," Buckley stated. However, he stressed that credit unions welcome having an ongoing dialogue with the new agency and Congress on ways to reduce regulatory burden. 

"NAFCU urges Congress to enact a series of additional ‘fixes' to the Dodd-Frank legislation to help relieve the new regulatory burdens on credit unions."

NAFCU is the only national organization that focuses exclusively on federal issues affecting credit unions, representing its members before the federal government and the public.

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Contact: Patty Briotta|703-842-2820|