Written by Steve Van Beek
I have an irregular blog post series where I highlight specific examples of unnecessary regulatory burden. You can see past blog posts at the bullets below:
Regulatory Burden - Update the Regulations, Please! Today I want to look at another form of regulatory burden. And, I'm going to use three different regulators as examples (equal opportunity!) The general gist is that when credit unions look at the regulations - they should be accurate. When Congress changes the law, regulators have an obligation to update their regulations so that entities they regulate - including credit unions - can rely on those regulations. If the regulations aren't updated promptly, the result is a textbook case of unnecessary regulatory burden.
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Example 1 - Consumer Financial Protection Bureau. The CFPB has certainly been busy. However, I'd be shocked if they didn't notice that President Obama signed H.R. 4367 on December 20, 2012. This law removed the federal requirement for the "on the machine" ATM fee disclosures under the Electronic Funds Transfer Act (and implemented by Regulation E). If the CFPB did miss this, they should subscribe to the blog as they would see we were "hopeful" they would take swift action:
"Regulation E implements the EFTA and hopefully the CFPB will move very swiftly to amend Regulation E to ensure that everyone is aware of the change.
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Note: The removal of the requirement will occur after President Obama signs the bill and enacts it into law. Thus, credit unions' litigation and compliance risk will reduce at that point. The CFPB moving quickly to amend Regulation E and clarify the remaining requirement will be the icing on the cake. Hopefully we don't have to wait too many birthdays."
Well, here we are on March 12, 2013 and a look to Regulation E - 12 CFR 1005.16 - clearly shows the CFPB hasn't updated Regulation E to implement the amendments to the Electronic Funds Transfer Act.
Where is the Burden? The burden lies in the fact that if a compliance officer was reviewing Regulation E they would come to the conclusion that federal law still requires the "on the machine" disclosure. Which is wrong. The Electronic Funds Transfer Act was amended by H.R. 4367 to remove the federal requirement and the CFPB just hasn't found the time to update Regulation E.
An isolated incident? Must be due to the unique situations related to a new regulatory agency who was given so many mandates by Dodd-Frank. Keep reading, it gets worse.
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Example 2 - Federal Reserve Board. Dodd-Frank adjusted the "next-day availability" requirement under Regulation CC from $100 to $200. We blogged on this issue three times in 2011 and wondered why the Federal Reserve didn't issue a proposal to amend this one section of Reg CC:
"So, the Dodd-Frank change to Regulation CC - the one that bumps the $100 next day availability amount to $200 - when does it become effective? July 21, 2011. Some of you are thinking that you can wait, however, until the Fed finalizes its current Regulation CC rulemaking to comply. Wrong. Surprise, surprise, but the Fed buried this detail into its Reg CC proposal.
Section 1086(e) of the Dodd-Frank Act increases from $100 to $200 the minimum amount of funds deposited by check or checks on a given business day that a bank must make available by opening of business on the next business day pursuant to § 603(a)(2)(D) of the EFA Act. That provision of the EFA Act is implemented in § 229.10(c)(1)(vii) of Regulation CC, and the increase is expected to take effect on July 21, 2011, regardless of whether the Board and the Bureau have amended Regulation CC. See, 76 Fed. Reg. 16,869." [May 9, 2011 Blog Post]
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"Regulation CC. A change in Regulation CC from $100 to $200 for next-day availability. The Federal Reserve has proposed changes to Reg CC that have not been finalized. This change to $200 becomes effective though the Federal Reserve has not changed the language of Reg CC.
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Reality Check: Why didn't the Fed propose two different rules? Rather than confuse the entire financial industry, the Fed could have easily issued one rule to implement the Dodd-Frank change and a separate rule to propose its other changes to Reg CC." [July 20, 2011 Blog Post]
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"The letter is dated August 15. Which is interesting because the change to $200 became effective July 21, 2011.
Dodd-Frank was signed on July 21, 2010. The Reg CC proposal was released March 3, 2011. I'm still puzzled why the Fed did not propose two separate rules - with one proposal solely implementing the $200 change.
These are the types of headaches that do not get captured in any data on regulatory burden." [August 21, 2011 Blog Post]
A brief amendment to that last statement - these headaches do get realized by credit unions. Now, we need the regulators to realize the impact of their actions (or inactions).
Where is the Burden? A credit union searching the requirements for next-day availability under 12 CFR 229.10 of Regulation CC would find this:
"(vi) A check deposited in a branch of the depositary bank and drawn on the same or another branch of the same bank if both branches are located in the same state or the same check processing region; and,
(vii) The lesser of—
(A) $100, or
(B) The aggregate amount deposited on any one banking day to all accounts of the customer by check or checks not subject to next-day availability under paragraphs (c)(1) (i) through (vi) of this section."
And, if they followed that language - they would have a regulatory violation. Let me repeat that - if a credit union followed the language of Regulation CC - as published by the Federal Reserve in the Electronic Code of Federal Regulations - they would have a regulatory violation as the regulation is incorrect. If that isn't regulatory burden, I don't know what is!
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Example 3 - National Credit Union Administration. By now, everyone is aware that the unlimited share insurance coverage for noninterest-bearing transaction accounts expired on December 31, 2012. We blogged on this issue on December 18, 2012 and then again on January 2, 2013. We also had discussions with NCUA about updating 12 CFR 745.14 of their regulations to prevent confusion by credit unions - which we discussed in our February 7, 2013 blog post.
So, here we are on March 12, 2013 and the language of NCUA's 12 CFR 745.14 still hasn't been removed. Granted, this example isn't as egregious due to the inclusion of this language "(a) Separate insurance coverage. Through December 31, 2012, a member's funds in a 'noninterest-bearing transaction account' (as defined in § 745.1(f) of this part)" - however, it still makes a credit union researching 12 CFR 745.14 follow-up with whether this has been unlimited share insurance has been extended or not. It hasn't and NCUA should make that information clear by removing 12 CFR 745.14 from their regulations.
Where is the Burden? There were so many back-and-forths on the unlimited share insurance issue - including Footnote 1 of NCUA's Letter to Credit Unions 12-CU-14 - that it is understandable that credit unions would be unsure whether or not the unlimited coverage was extended. NCUA could ease this burden by updating their regulations.
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But, Regulating is Difficult. I'm sometimes told that I'm too harsh on regulators. That they have very difficult jobs. I get that. I'm not denying that fact (my wife works at a federal financial regulator and I know how hard she works). However, a basic job of a regulator is to make sure their regulations are clear and understandable. And, accurate. This last part is extremely important. Credit unions need to be able to rely on the regulations that are published by the regulators. If they have to second-guess whether the regulations are accurate, they cannot perform other tasks - such as serving their members.
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Summary. If you are ever looking for an example of regulatory burden to show your Congressman - this blog post is a good start. We have the following:
- One example where a federal regulator failed to promptly update their regulations after Congress explicitly amended the law to remove an unnecessary regulatory burden from financial institutions.
- One example where a federal regulator failed to promptly update their regulations after Congress explicitly amended the law to provide further protections to consumers.
- One example where a federal regulator failed to update their regulations after Congress failed to extend a provision that was explicitly designed to "sunset" after a specific period of time.
Now all we need is for a credit union to be written up because the examiner refuses to acknowlege Congress' changes.
Posted by: Rob Rutkowski | March 12, 2013 at 07:44 AM
Steve - nice job. Here's my reaction when someone says they are too busy to handle those types of details: Then you are too busy NOT to handle those types of details.
By not fixing those little things, I fear regulators create a good deal of confusion. And that's a big problem. Not a little one.
Posted by: Anthony Demangone (The old guy) | March 12, 2013 at 08:29 AM
Is it safe to say that regulatory burden is officially "excessive" . . . now that the regulators themselves are too burdened to keep up with the changes? : /
Posted by: DJ | March 12, 2013 at 08:51 AM
Great post, Steve! And while Rob and Anthony make good points, I think DJ hit the nail on the head. Maybe its time for all to back off a bit and realize the impact on everyone - including themselves.
Posted by: Joyce | March 12, 2013 at 09:06 AM