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President's Update

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October 27, 2022

Homework


Most news outlets are reporting that the Democrats have lost ground going into the mid-term elections.  So, what do they think will save them? 

I know! Let’s motivate consumers and rail against fees. 

Pretty brilliant strategy don’t you think? 

Who likes fees?  No one! 

Do you get the feeling we are back in high school and the class president is trying to get elected by promising to get rid of homework?  Who likes homework?  No one!

With that being said, I am about to assign everyone some homework.

First read this:
Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) | NCUA
 
Then read this:
brian_deese_transcript.pdf (economicclub.org)
 
And now this:
The President’s Initiative on Junk Fees and Related Pricing Practices (White House Release)

And finally, this:
CFPB Issues Guidance to Help Banks Avoid Charging Illegal Junk Fees on Deposit

Who is Brian Deese you ask?
I am asking everyone to get to know Brian Deese because as the head of the National Economic Council, and a strong player in both the Obama and Biden Administrations, he is the architect of changes impacting financial markets.
 
So, what does all of this CFPB nonsense really mean? 
My takeaway is that the CFPB is continuing to use scare tactics to change market behavior. 
  • They don’t want overdraft fees charged when it appears that there is money in an account.
  • They don’t want returned check fees for depositors.
Will we see more enforcement orders? 
Maybe.  The US Chamber and bankers are already suing the CFPB regarding another issue based on the way it uses its guidance.  The suit alleges the CFPB is treating the guidance it provides with the same weight and authority as the rules it sets, i.e, the weight of law. They are arguing that by doing so, the CFPB is exceeding the statutory authority granted to it by Congress and thus going well beyond the rule of law.
 
More litigation? 
What is the alternative?  Depending on the election, we may get actual rules.  So, I think we are in for a long road.  In particular, regarding returned check fees- I think we are going to see some litigation if the CFPB actually tries to ban almost all return check fees.

Let’s walk through this scenario in practical terms.
If I am a credit union and I charge a returned check fee to all members when a check gets returned, regardless of the circumstances, the CFPB is going to frown upon that.  So, the CFPB releases a bulletin and press release stating such blanket fee policies are likely illegal because they are unfair. They want a more tailored approach, for example only charging fees if a person deposits multiple bad checks from the same payor.

But, as a credit union, I look at my systems and determine a tailored policy as suggested by the CFPB is not feasible. I have 1-2 people in my payments department reviewing all returned checks and ACH exceptions and charging fees when appropriate. They do not have the time nor resources to comb through check histories to try to see how many checks from this person or that company the member has deposited in the past. Additionally, trying to build and disclose the circumstances where a fee would or wouldn’t be charged would be a huge hurdle, and any ambiguity could open up even more exposure to liability.

So, if charging a fee for all returned checks is likely a violation of UDAAP and building a tailored fee structure is not feasible to administer and too risky, then my only other option is to not charge fees for any returned checks.  But if I do that, I’m going to have to be quick on the trigger to cut off services if someone starts depositing bad checks. Something like 3 strikes and you’re out: First and second returned checks are ok but bring in a third and you lose check depositing rights, or we may even close your checking account. I think a consequence of this could be a lot more people losing check deposit rights and checking accounts.

This is yet again another absurd regulation by press release. While this one seems much more like political posturing than a reality, we won’t know for sure without a test case or an actual regulation.

So, what happens if we get regulation we don’t like, what can we do? 
Well, this is why elections matter. 

1. We could see Congress use the Congressional Review Act (CRA) again if the Republicans take the House and Senate.

This law empowers Congress to review, by means of an expedited legislative process, new federal regulations issued by government agencies and, by passage of a joint resolution, to overrule a regulation. Once a rule is repealed, the CRA also prohibits the reissuing of the rule in substantially the same form or the issuing of a new rule that is substantially the same "unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.” Congress has a window of time lasting 60 legislative days (i.e., days that Congress is actually in session, rather than simple calendar days) to disapprove of any given rule by simple majority vote; otherwise, the rule will go into effect at the end of that period.

Prior to 2017, the CRA had been successfully invoked only once to overturn a rule in 2001. However, In January 2017, with a new Republican president, the Republican-controlled 115th Congress began passing a series of disapproval resolutions to overturn a variety of rules issued under the Obama administration. Ultimately, fourteen such resolutions repealing Obama administration rules were passed and signed into law; a fifteenth resolution was passed by the House but failed in the Senate. Because of the shortness of legislative sessions during the 114th Congress, the 115th Congress was able to target rules issued by the Obama administration as far back as May 2016. In late 2017 and early 2018, Congress passed two resolutions repealing Consumer Financial Protection Bureau rules made by former President Obama's CFPB Director, Richard Cordray, who did not leave his post until late 2017.

2. We can push legislation to turn the CFPB into a commission.

Bing! Bing! Bing!  Yes, please.  This needs to happen.

You will notice that I have not even mentioned the Fifth Circuit case that deemed the CFPB unconstitutional due to the way it is funded.  I think we will see a fix on this one.  But that gives us a great opportunity to accomplish number 2!


Sincerely,
 
Carrie R. Hunt
President/CEO

P.S. How do you Credit Union? I would love to hear from you. Always feel free to shoot me a note or call.
Copyright © 2022 Virginia Credit Union League, All rights reserved.
President's Update. A publication of the Virginia Credit Union League.

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