Financial regulators and Congress have done a poor job of tailoring regulations to the size of financial institutions, the Treasury Department said Monday, in calling for many of the changes long advocated by credit unions.
“As banking regulators are approaching the full implementation of Dodd-Frank, nearly seven years after its passage, regulation has proven to be insufficiently tailored to depository institutions based on the size and complexity of their business models,” the Treasury Department said in releasing its first report on redesigning the financial regulatory regime.
The report singles out the CFPB for particular criticism.
“The CFPB has brought a range of enforcement actions that allege violations of law for practices that are common among financial services providers and that had not previously raised concerns among other regulators,” the Treasury Department said.
The report calls on Congress to repeal the agency’s supervisory authority, returning all supervisory powers to the prudential regulators.
Credit unions and the NCUA have accused the CFPB of usurping many of the powers of the credit union agency in such areas as payday lending.
President Trump earlier this year directed Treasury Secretary Steven Mnuchin to lead an administrative effort to overhaul Dodd-Frank. The first report, released Thursday evening, covers depository institutions, including community banks and credit unions.
The Treasury Department said that subsequent reports will examine capital markets, the asset management and insurance industries, and non-bank financial institutions.
Some of the recommended changes can be made by regulation. Others will require action by Congress.
For credit unions, the Treasury Department recommends, among other things:
- Raising the scope of application for stress-testing requirements for federally-insured credit unions to $50 billion in assets;
- Repealing the rule requiring credit unions to satisfy a risk-weighted capital framework;
- Increasing coordination between the CFPB, the NCUA and state regulators in conducting examinations; and
- Raising the threshold for credit unions to be eligible for 18-month exam cycles.
In the report, the Treasury Department calls for financial regulators to conduct stringent cost-benefit analysis before rules are issued.
The report calls on the CFPB to adopt regulations that more clearly delineate its powers to take actions based on Unfair, Deceptive or Abusive Acts or Practices. Credit union trade groups have complained that the agency has not provided guidance on its UDAAP authority.
The report calls on Congress to make the CFPB director removable at will by the president or restructure the agency as an independent multi-member commission. The agency should also be subject to the annual appropriations, the Treasury Department said.
The House last week passed its own plan to overhaul Dodd-Frank. Known as the Financial CHOICE Act, authored by House Financial Services Chairman Jeb Hensarling (R-Texas), H.R. 10 would overhaul Dodd-Frank, making a myriad of changes to the financial regulatory regime. It would diminish the powers of the CFPB, require congressional approval of significant agency rules and subject financial regulators, including the NCUA and CFPB, to the annual appropriations process.
The legislation was more far-reaching than the Treasury Department’s recommendations.
Mnuchin applauded House passage of the bill.
On the Senate side of Capitol Hill, Banking Chairman Mike Crapo (R-Id.) and ranking Democrat Sherrod Brown (D-Ohio) have said they want to work on Dodd-Frank overhaul legislation on a bipartisan basis. The committee began a series of hearings on the issue last week.
