Compliance Blog

Update on McWatters, MBL, and the Regulatory Moratorium

Written by Ann Kossachev, Regulatory Affairs Counsel

Good morning! A bit about me: I joined NAFCU's Regulatory Affairs team midway through last year and I feel like I'm really starting to find my place within the organization. Also, I've found several co-workers who are willing to indulge with me in some not-so-healthy lunch options!

Now let's get to the really juicy stuff. My apologies for the length, but a lot has occurred in the regulatory and political world recently! Also, feel free to share this advocacy-focused blog post with any relevant parties at your credit union.

The first week of Donald J. Trump's presidency was a whirlwind. I would like to discuss three very important events that have transpired in the past week and what they mean for your credit union. First, NAFCU would like to congratulate Mark McWatters on his designation by President Trump as the Acting Chairman of the NCUA Board. Second, last week, the National Credit Union Administration (NCUA) won a major victory when a federal court dismissed the Independent Community Bankers of America's (ICBA) lawsuit related to the recent member business loan (MBL) rule. Third, on the day of his inauguration, President Trump issued a memorandum imposing a moratorium on all new regulations from executive agencies until further notice. Phew, I'm already tired! Keep reading for more details.

Mark McWatters as Acting Chairman

On January 23, 2017, President Trump designated J. Mark McWatters as the Acting Chairman of the NCUA Board. The designation as Acting Chairman is not unique; just this week we have seen President Trump do this with two other top agency positions, including at the National Labor Relations Board and the Equal Employment Opportunity Commission. NAFCU is looking forward to continuing to work with Chairman McWatters in his new position. 

Dismissal of ICBA's MBL Lawsuit

On January 24, 2017, the United States District Court for the Eastern District of Virginia issued a decision granting the dismissal of a lawsuit filed by ICBA against the NCUA over its MBL rule. As a sign of industry solidarity, NAFCU and the Credit Union National Association (CUNA) filed a joint brief with the Court in support of the NCUA's Motion to Dismiss. The Court dismissed the lawsuit on procedural grounds, specifically, the suit was untimely and ICBA lacked standing because it could not show an impending harm to its members as a result of the MBL rule. Aside from these procedural defects, the Court opined that the MBL rule would still pass muster under federal law.

The Court's decision reaffirmed what NAFCU has believed all along - this lawsuit was nothing more than a frivolous attempt to distract from issues plaguing the banking industry, namely a lack of focus on serving their customers in favor of bigger profits. Credit unions, on the other hand, have always put their members first. Part of this effort includes the ability to better serve small, local businesses through a revised MBL rule. The new rule provides regulatory relief by removing unnecessary bureaucratic red-tape in the NCUA's approval process for routine lending decisions.

Perhaps the bankers feel threatened by the fact that credit unions consistently provide higher quality loans with greater benefits to small-business owners. Or the fact that credit unions are willing and able to provide business loans in times of crisis when banks do not want to help those in need. Whatever the issue may be, the bottom line is credit unions are not only more willing and able to lend money to small businesses, but they also provide superior service, lower fees, and better rates.

ICBA may choose to file an appeal and has said it is currently evaluating its options. NAFCU believes that, given the court's resolute opinion, ICBA will likely be hesitant to immediately appeal. NAFCU will continue to keep a vigilant watch on this litigation.

Regulatory Moratorium

On January 20, 2017, Reince Priebus, President Trump's Assistant and Chief of Staff, sent a memorandum to the heads of executive departments and agencies informing them of a Regulatory Freeze Pending Review. The memorandum explained that to ensure the President's appointees or designees have the opportunity to review and approve any new or pending regulations. However, the memorandum provides an exception for some regulations, including urgent circumstances relating to health, safety, financial, or national security matters.

The memorandum also called for any regulations already sent to the Federal Register to be immediately withdrawn and those regulations that have already been published but have yet to take effect to temporarily postpone their effective date for 60 days. To be clear, the memorandum is not an executive order it does not require affirmative action. It is simply a request from the White House to allow President Trump's appointees and designees the time to review regulations. This is nothing new in presidential transitions. The Chiefs of Staff to Presidents Bill Clinton, George W. Bush, and Barrack Obama all issued similar freeze memos.

NCUA

As far as the NCUA is concerned, it is an independent federal agency as established by federal statute. Independent agencies are not specifically addressed in the memorandum. However, even though the memorandum does not carry any binding force, the NCUA could choose to voluntarily abide by its provisions.  

But what would this even mean? Chairman McWatters is already a sitting NCUA Board member and has been supportive of recent NCUA proposals. It is also encouraging that Chairman McWatters stated, upon his designation, that he wants true regulatory relief to the extent permitted by law. 

CFPB

The CFPB is an entirely separate story. As to whether the moratorium applies to the CFPB hinges on whether the Trump Administration still considers the CFPB an independent agency in light of the D.C. Circuit's recent decision in PHH Corp. v. CFPB. In PHH, the court held that the Bureau's single director structure, only removable for cause, is unconstitutional. In its opinion, the court stated that the CFPB is no longer an independent agency and will instead now operate as an executive agency with its Director removable at will. The decision has not become effective because the CFPB has petitioned for rehearing en banc (i.e. the entire court), but the Trump Administration may still run with this decision and attempt to remove Director Richard Cordary without cause.

There is also a case brewing for President Trump to remove Director Cordray for cause under the Dodd-Frank Act. It was recently revealed in a new report from the House Financial Services Committee that the CFPB and Director Cordray may have violated the Administrative Procedure Act when issuing the 2015 rule authorizing the CFPB to supervise larger participants in the auto lending market. If Director Cordray were to be removed before the end of his term in July 2018, many in Congress believe he would likely explore his legal options.

Meanwhile, regulations currently in limbo include a number of recently proposed rules, including the much-debated arbitration proposal. It remains to be seen whether the final rules on prepaid accounts (set to take effect on October 1, 2017) and amendments to the mortgage servicing rules (effective October 19, 2017) will be delayed. If the Bureau decides to proceed with rulemaking as aggressively as it has in the past, Director Cordray could face even more harsh criticism and potentially removal.

Despite this legal gray area in terms of rulemaking, the CFPB has continued to forge ahead with its enforcement actions. So, we can probably expect more regulation through enforcement, as usual.

With all these changes happening at once, it is certainly an exciting time to be in Washington, D.C. Part of NAFCU's advocacy goals include providing our members with the latest scoop at all times, to make you feel like a true Washington insider. If you ever have any regulatory or political questions, please contact NAFCU's Regulatory Affairs team!

***

Get updated on recent and upcoming rules from credit union regulators

Live Webcast: Tuesday, January 31 | 2:00-3:30 p.m. ET

• Explore the Trump Administration's regulatory agenda
• Discover the priorities of a new NCUA Board
• Learn NAFCU's stance against a premium charge in 2017
• Catch-up on our efforts for a stabilization fund rebate
• Prepare for housing reform in the new year
• Get updates on the latest cybersecurity developments