Dan Berger: Dodd-Frank is 'death by a thousand cuts' for small lenders

Dan Berger CEO NAFCU will b speaking at our 2016 Conference in Denver and I found this interview with him very interesting and thought I would pass it on.

In December, the Government Accountability Office (GAO) issued a report on the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act regulations on community banks and credit unions. While cautioning that it was too early to gauge the full impact of new rules, the GAO said surveys suggest the regulations have caused only “moderate to minimal initial reductions” in credit availability, adding that the data doesn't confirm a negative impact on mortgage lending. B. Dan Berger, president and chief executive officer of the National Association of Federal Credit Unions (NAFCU), said  the GAO report has greatly underestimated the burden of new rules on smaller institutions. He spoke with Scotsman Guide News about NAFCU's legislative agenda, and the prospects for regulatory relief and housing finance reform in 2016.

What is the place of credit unions in the mortgage market?

We have the fastest growing mortgage portfolio of all the financial institutions. We are a not-for-profit financial institution, so we don’t have a profit motive like some others do, with shareholders and dealing with Wall Street analysts. We can be in communities. We can be employer-based. We are all across the country. My trade organization represents every state as well as the territories. Credit unions are absolutely everywhere, providing not just mortgages but credit cards. Some do business lending. There is a big financial education component with credit unions. We cover the gamut. 

Could you talk about how Dodd-Frank regulations have affected credit unions?

It is hard to pinpoint any specific mortgage [regulation] or any rules that have been promulgated by the Consumer Financial Protection Bureau (CFPB) or the National Credit Union Administration (NCUA). It is death by a thousand cuts. When Dodd-Frank came out, they were trying to address — and rightfully so — a problem with predatory lenders and the bad actors out there. You had some of the subprime lenders that were taking advantage of folks, payday lenders that were taking advantage of folks, and going after some of the people who were committing fraud on Wall Street with the bonds they were bundling and securitizing and selling. Community-based financial institutions didn’t cause the financial crisis. We didn’t do any of that subprime junk. We didn't do any of that fraudulent bundling. When they created the CFPB, they created an extremely powerful agency that is not accountable to anybody. They are promulgating rules where they may want to target large financial institutions, Wall Street banks, etc., but there is mission creep. Any rule that gets promulgated, no matter what your asset size, it affects you. It is just a costly financial burden. 

Why do you say that burden has been greater on smaller institutions?   

Those costs include systems and infrastructure changes, software changes, document changes. All that stuff costs money. If you are a multibillion-dollar, in some cases, a trillion-dollar financial institution, you can afford those kinds of changes. Each time there is a change or an upgrade that goes on, that is a lot of money [for] a $50 million dollar financial institution. They are living on very thin margins to keep the lights on. 

What are some changes that you would like to see?

We really wish that the CFPB would utilize [an exemption clause in Dodd-Frank]. They have an ability to exempt folks as necessary from various regulations. Credit unions and community banks shouldn’t even be part of some of these rules. We would like to see things along the lines of a commission [to oversee the CFPB] instead of a single director. I think [if the CFPB] was part of the appropriations process, it would be helpful. Again, it is more targeting the bad actors as opposed to a huge brush that affects everybody. 

Changing the subject a bit. There was a flurry of debate late last year over the prolonged conservatorship of the government-sponsored enterprises Fannie Mae and Freddie Mac? Does NAFCU have a position on the future role of Fannie and Freddie?

We need liquidity if we want to make new loans. [Credit unions] sell loans to Fannie and Freddie, so having access to the secondary market is extremely important to credit unions. They have to have access to it for liquidity purposes, for interest-rate management purposes. From a credit union standpoint, it is extremely important that there are GSEs out there, or at least a GSE out there that has a government guarantee, to continue to provide liquidity to the system. 

Do you expect any meaningful reforms or regulatory relief this year?

I don’t see anything on the horizon for GSEs. Being a presidential election year with the Senate in the balance, I think it is going to be really difficult for anything like that to happen. Fannie and Freddie will probably be OK this year. There are just so many stakeholders involved in housing finance that it makes it extremely difficult to get a large section of the stakeholders on board in order to make any reforms. I don’t think anything will happen this year, but I would be surprised if it is not approached aggressively in 2017. Other regulatory reforms, whether it is the CFPB or [NCUA], we have a small window. We are hopeful. We are pushing every day. My lobbyists on the Hill are working to try to get some things moving, but the trouble is that it is an election year, so there is a shortened calendar. The members of Congress have a lot of important things that need to get done before they have to go out and shake hands and kiss babies.