ACUMA ONpoint
ACUMA ONpoint
Policy Crossroads: Credit Union Challenges in an Uncertain Regulatory Environment
Financial regulation is undergoing a seismic shift, creating unprecedented challenges for credit unions and mortgage lenders. Our expert guest, Leah Dempsey, a Shareholder with Brownstein Hyatt Farber Schreck, walks us through the complex policy landscape reshaping credit unions' operations.
The CFPB stands at a pivotal moment following a DC Court of Appeals decision that could enable significant staff reductions. While the Bureau has already fulfilled many statutorily mandated duties, this ruling raises questions about its capacity to undertake planned initiatives like payday loan rule revisions and review market participant thresholds. The legal battle continues with potential appeals, creating regulatory uncertainty for financial institutions navigating compliance requirements.
Meanwhile, "debanking" receives renewed attention through a recent executive order addressing discrimination against legally operating businesses in banking relationships. Dating back to Obama-era policies that identified disfavored industries, inconsistent application of these guidelines resulted in legitimate businesses losing access to financial services. Credit unions should review their membership policies to ensure they don't categorically exclude industries or individuals without proper cause.
Perhaps most dramatic is the unprecedented leadership vacuum at the NCUA, where legal maneuvers have left Chairman Kyle Hauptman as the sole board member – a situation never before seen in the agency's history. This extraordinary circumstance raises profound questions about decision-making authority and regulatory guidance, particularly for emerging areas like cryptocurrency. Credit unions face significant operational challenges amid this leadership uncertainty.
The potential IPO for Fannie Mae and Freddie Mac adds another layer of complexity, with discussions accelerating about releasing the GSEs from conservatorship. Questions persist about government guarantees, implementation timelines, and the impact of complex financial arrangements from the conservatorship period. These decisions will fundamentally reshape mortgage markets and lending operations.
Subscribe now to stay informed as these critical policy developments unfold, and join us next time for more expert analysis on the issues that matter most to credit unions and their members.
The views and opinions expressed in this podcast do not necessarily reflect the views or positions of Acuma, its board of directors, its management staff or its members. The podcast discussion presented is conversational in nature and for general information only.
Speaker 2:Hello and welcome to Actors On Point Podcast, the policy series where we focus on policy issues impacting the credit union mortgage industry. I'm your host, peter Benjamin. Before we get to our episode, just a quick word from our sponsor.
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Speaker 2:Joining us today as our resident expert is Leah Dempsey, shareholder with Brownstein Leah, how are you doing today?
Speaker 4:I am doing well.
Speaker 2:That's good, leah, it's good to see you in the office today. I know, I know it's been kind of sort of crazy in DC as of late. I mean not just on Capitol Hill and everything that's coming out from a policy standpoint, but literally crazy in DC with all the things that are happening on the streets. But we're not here to talk about that, so let's focus on the policy issues that are impacting our members. First up, I think we want to talk about the CFPB. What is happening over at the CFPB?
Speaker 4:Sure, and I will just say on the issues we're not talking about, I live in Capitol Hill and my children are outside with their chalk painting rainbows on the front porch. I didn't see any. I didn't see any armed guards. So we can talk about that more another time. But I think you know at the CFPB a lot is going on there.
Speaker 4:Last week we got a decision out of the DC Court of Appeals related to the attempted firings of CFPB staff. We saw this happen early on in the administration where the Trump administration attempted to eliminate the vast majority of the CFPB staff. I think it was going to be around 1,400 employees. There was a lawsuit that led to an injunction stopping that from happening. Everyone's been waiting for several months to see what the outcome of that would be and last week, on Friday, of course, a vacation, august holiday we get some news, as we typically do in DC to to throw a wrench in our August, that they are reversing that injunction and the CFPB, you know arguably at this point could move forward with eliminating staff members if they wanted to, staff members if they wanted to.
Speaker 4:But a few caveats around that. We do think they're going to probably see an appeal to that decision. Very likely they're going to have a request to go unbonk in the DC Court of Appeals, which basically means a larger panel of judges would take up the same issues and the DC you know the court is pretty heavily populated with Democrat appointed judges, so I think everyone is waiting to see if we see additional activity there. We also know that Judge Bergman has had a strong opinion on this matter and you know the injunction was just one part of the case to be litigated, so we'll probably see some additional activity in the trial as well. They got a very good ruling out of the Court of Appeals, but probably just another step in a legal battle that's probably going to continue on.
Speaker 2:So random question. So obviously we've seen the CFPB make you know dramatic staff a dramatic staff reduction. Make you know dramatic, you know staff, a dramatic staff reduction. Are there signs that they continue, that they plan to make even more staff reductions? You know the CPV as we know it today. Is it the CPV that we will see tomorrow or the next day or next year, however you want to frame it up? That does this. Does this case, this lawsuit, whatever you want to call it, set the precedence for dismantling the cpb completely? I mean, where do we go from here and how we operate under the CFPB and the regulations we have to operate within? I mean because, obviously, yes, there's the deregulation, there's all the things that we have going on, but there's still staff that has to perform the duties within the CPB, right? So what does that look like?
Speaker 4:Yeah Well, I would just say first, from a legal standpoint, the dissent in the decision, you know, made a big deal about the fact that the CPB has to carry out their statutory duties. So they need to have enough staff to do that, and I was actually talking to a friend at another law firm about this this morning. The interesting thing about that is the CFPB has already carried out a lot of their statutory duties. On the rulemaking side they really only had a few statutorily mandated rulemakings and most of those were the mortgages that they already took action on in their first deck existence. 1071 is another one that's statutorily required and we've seen some of the litigation and activity on that. Some of their supervision functions are statutorily required but a lot of their enforcement activity is not statutorily required. So, long story short, a lot. They've already done a lot of what Dodd-Frank tells them to do. So there certainly could be an argument that a pretty small staff could carry out the rest of the statutorily required activities of the CFPB. You know, that's the legal, that's my legal thought process of it. You know, you know, practically speaking, would it be a problem if, rules or not, people to address things like you know bad actors out there through enforcement activity. I think, yes, you're going to probably want to have enough staff to address many.
Speaker 4:You know some of the many things that industry is is seeking feedback on right now and and some of the changes that they've been asking for through rulemaking. They just indicate it in their rulemaking. So they put out their rulemaking agenda on friday and then it aired from the internet like an hour or two later, which is kind of odd. And this was not just a CFPB, this was the unified agenda for all agencies. But before that happened, a lot of people wrote down what it said and there was one that indicated they're going to reopen the payday loan rule. So we know that's a pretty big undertaking to readdress that rule. They're also going to be taking a look at the larger market participant thresholds for credit reporting agencies, the debt collection industry, money markets, and you know that is not something that can get done on its own without staff. So there's certainly some activity that they've indicated they want to do that is going to require some staff to move forward.
Speaker 2:All right, interesting All right. So we also really want to talk about the recent stuff on debanking. Let's focus on that.
Speaker 4:Yeah, so that. So this has been a big, a big part of the Trump administration. President Trump has been clear that he himself was debanked and shortly after January 6th and you know, named some of the banks that he believes he was targeted by. Targeted by it's also beyond that. It's been a larger issue for many industries, dating back to the Obama administration, where the FDIC and the OCC and some of the banking regulators basically came up with a list of businesses that were disfavored but not necessarily illegal. Illegal Payday loans were on that. The debt settlement was on it. A few other regulated industries were on there Guns, I think, like I don't know if I could say this on the podcast like the porn industry was on there.
Speaker 2:Oh, you're fine with that.
Speaker 4:I don't know if that's regulated. That's another area of law. We need someone else to look into that piece. But it was something that it kind of took a life of its own and I will say one example of that is debt settlement is very different than what debt collection is. They're two totally different industries. But some examiners interpreted the debt settlement being on the list to mean debt collection was on the list, and I know many clients in the debt collection industry lost their banking relationships. So it was not only that they had this list, but different examiners were interpreting it in different ways and it just became a problem that a lot of people were talking to Congress about.
Speaker 4:And the OCC under the first Trump administration was actually going to do a regulation on. It called fair access to banking, and it got pulled when the Biden administration took over. Really, president Trump's announcement last week essentially said people should not be picking winners and losers in the banking system. If people are legally operating businesses that are regulated, they shouldn't be categorized differently by banks, and he outlined a host of other things that he thought were important. The OCC comptroller basically said they're going to do another rulemaking on this issue as well. This wasn't ever really as pervasive in the credit union industry. It was much more of a banking industry issue, but it's still something that credit unions should take a look at because to the extent that they were, you know, looking at certain businesses or not including members for you know certain reasons that that could now be something that, with this executive order, they are you, they are penalized for by the NCUA or through, like the private plaintiff's bar or something like that.
Speaker 2:So this is always so. Was this just focus on businesses? Was this ever attached to individuals personal? You know that there was a lot of reports of certain Republicans being debanked.
Speaker 4:But you know really for the the the issue with the banking regulators and the FDIC and the OCC, that was a little bit different, where it was really more targeting certain industries like the gun industry, and then on top of that there was some problems with people getting involved in certain political ways or religious leanings or things like that.
Speaker 2:Okay, okay. So I mean that aspect right, you know whether it's, or even the criminal record aspect, right, if you focus on, you know, january 6th, you know that right there. You know, potentially, you know the debanking process for at least accrediting and why they may not be, may not allow someone to become a member or cancel the relationship with someone. Right, because of the criminal record. But at the same exact time, I guess that does play into the complaint or the reasoning for why this banking thing is coming up, right, am I going down that path?
Speaker 4:I mean, I think you're right that there's a little. There's a little bit of a gray area because, for example, the crypto industry they were also part of this group that there was some discrimination against were also part of this group that there was some discrimination against. But then there were people like sam bankman, freed out there that probably should have been discriminated against because he was like defrauding people and taking tons of money. Um, ended up, you know, being a really bad thing. So to the extent that he was being debanked, that was probably not a bad thing.
Speaker 4:But I think that the message that this executive order is trying to send is that you shouldn't be eliminating the whole industry. You shouldn't just say everyone in the crypto industry is a bad person and they shouldn't get a banking relationship. And they shouldn't get a banking relationship. If there is you know, really under like AML review or you know some of the other required reviews a real reason that someone is a problem or a red flag. That's still, I think, a safe way to deny banking relationships, but it shouldn't be under any categorical classifications, just as certain industries.
Speaker 2:Okay, appreciate that All right. So next up, I know this is going to be near and dear to us within the credit union industry. I think it impacts us not just on the mortgage side but the credit unions as a whole, the NCUA. I mean, this has been nothing, but you know, I don't want to say turmoil but craziness happening over there. There's been some movement happening over with the NCUA and recent lawsuits. What's happening with, you know, the NCUA lawsuit.
Speaker 4:Yeah, so this the latest on this one, and this was kind of strange timing in that, as you, as everyone probably saw, the Democrat board members were reinstated just basically the day before the NCUA board meeting, the board meeting. They were back for a few days and then, um, their case got appealed and they actually, um are now able to be fired again. So they're they're no longer you know, in the current state of the litigation currently no longer board members. Uh, the way the way things stand right now, um, this, this is going to be the same as the CFPB case. It's going to continue on in the appeals phase and we're going to probably see, um, you know, several more rounds of this before we get a final decision. Uh, there's also obviously, the FTC hanging out there with some similar questions, because they have a multi-member commission and they fired all the democrats at the ftc as well, um, so this, this is for for credit union members, I think.
Speaker 4:Going back to crypto for a second, which we were just talking about, um, you know that we've had all these new stable coin laws pass and the Genius Act is now a law, but there's some questions hanging out there whether Kyle Hopman, as the chairman, on his own can put out additional guidance on things like stable coins, because the Democrats are not in place, and it's unprecedented for this to be the case. We've never seen this happen in the history of the NCUA before. So all of the legal authorities without a fully functioning board just are uncharted territories that no one everyone can have opinions on it, but no one for sure knows how a court will rule on some of these things until it happens. So credit unions are definitely navigating all of that right now, waiting to see, you know one, the opinion on what happens with the Democrat board members, but also just some of the actions the NCUA might be taking without um, if there's going to be any repercussions for that in the future as well.
Speaker 2:I mean it's how much so? How much longer does the NCOA stay like this? I mean with with Hoffman still being the only person over there. I mean how much longer? I mean it's, there's two ways you can approach that question. You know, still being the only person over there, I mean how much longer. I mean it's, there's two ways you can approach that question. You know there's the idea of how much longer can it be like this? I mean, you know the kind of philosophical idea of, okay, well, hoffman was supposed to be out at the end of this month, I think right, or at some point in August. But then you have the idea of okay, well, this lawsuit's going on and what that means is there's three seats that are basically up in the air. I mean, I think, speaking as a credit union person, we need sound direction, right direction, right, you know credit unions, you know how much longer can it be like this? Or it's part of I think we, we kind of essentially need three board members right in play, or do you have any insight?
Speaker 4:it's, it's, it's. I think the whole thing with all the agencies is very complicated. I mean, the ftc is also in the same boat where they have a multi-commissioned board where, you know, the funny thing is at the CFPB. This is something Republicans have been pushing for for a long time. They've been pushing to have a bipartisan multi-member board at the CFPB, who have a bipartisan multi-member board at the CFPB and that's part of their part of legislation. That's on the Hill and has been for the past 10 years. And then NCUA kind of already has that. Obviously they're, they're set up a little bit differently than the average board, because it was, you know, other agencies, like the Democrats, don't stay on and stay in the majority of having two to one when a Republican wins. So that is, that's a little bit different and maybe something that Congress would want to take a look at at some point.
Speaker 4:But it is it's. It's a little bit complicated and arguably maybe hypocritical for Republicans to be against a board at the NCUA but then, in the same vein, be advocating for that in the past at the CFPB and someone that works very closely with many people on that side of the aisle. We're going to definitely see swings back. The pendulum always comes back when Democrats take over at some point, and you know they're probably going to do the same thing as the Republicans. Now that that precedent has been set and fire all the Republicans on the board and to your point, if that just continues to happen over and over for many years, that's becomes a really real problem, with uncertainty in the marketplace and the ability to operate.
Speaker 2:It's a vicious cycle. It really is, really is All right. Last one a vicious cycle. It really is, really is all right. Last one, last topic, which I think you know as the mortgage professional in me, it's just watching it like a soap opera, this ipo, uh, with the gses. I mean I don't want to say give me a break, but but I mean, come on, man, I mean shed some light on this IPO thing.
Speaker 4:Yeah well, and I will say I wish I could shed more light than I probably am about to, but it's definitely something that over the past three weeks, the discussions about the GSEs being spun out of conservatorship had a little bit gone quiet, even though we knew things were coming from the administration. The president indicated that, and then there was this announcement two or three weeks ago about this IPO. There's also a lot of discussion about a merger with Fannie and Freddie. Merger with Fannie and Freddie. All of this has a lot of factors that have to be taken into consideration, a lot of things that could impact stock price, a lot of things that could impact the mortgage market and all you know. All these individual pieces together really add up to many, many decisions that the Trump administration would have to be making if this is really going to happen by the end of the year.
Speaker 4:I will say also that these things also often take a pretty long time. Even if they move forward with an IPO plan by the end of the year, that's not to say it might not take another half a year or year to actually happen. So it feels like things are happening quickly, but it really could arguably be more like things happening within the next year or so, but it is something that a lot of you know of highly skilled professionals need to be involved in. A lot of people think that the Treasury is going to take the lead on this and that Secretary Besant and people working in the Trump administration are going to be working closely on this together, but you know, sadly there's not a ton of details or information out there yet that people can really wrap their hands around as we're hearing these rumors.
Speaker 2:So as part of this IPO, is he still saying you know, an implicit guarantee, like it were? What does, what's he saying with this IPO? Or has he pivoted back to explicit?
Speaker 4:That was. That's a good question. I know that that is the big question on a lot of people's mind. I think the latest is more the implicit guarantee, not explicit.
Speaker 2:That is a question that they have never they haven't really given a firm response on yet and something that people are definitely taking a look at. I mean more to come right. I mean this, like you said, I mean this although it feels like it's moving ahead, it's still going to really take a while for this really to unfold and I guess the answers are going to come from a lot of people who are a lot smarter than me and we'll just see. We'll just see, sit back and watch, eat some popcorn. We'll go from there.
Speaker 1:Well Leah.
Speaker 2:Go ahead. Oh sorry.
Speaker 4:I was just going to add, like things, like you know, fannie Mae has warrants that they had as part of the conservatorship, and things like that that are really going to impact potentially the stock price and all of that, so that those are the types of things that not only we're on considering, like the housing side of this. Um, there's those like more detailed questions, even beyond the question of implicit versus explicit. So to your point um, I think we need to get our popcorn ready and, um, you know, also, to the extent that stakeholders, I think at some point are going to be part of these conversations, really because they have to be Credit unions, are going to want to make sure they're, at least you know, part of that conversation, to the extent that anyone is, because everyone's going to be impacted in some ways by this if it actually happens, in some ways by this, if it actually happens.
Speaker 2:Hands down. Well, Leah, thank you so much, Appreciate your time today. As always. We appreciate everything that you and the rest of the Brownstein team does for Acuna and our community and we hope to see you soon.
Speaker 4:Thanks everyone.
Speaker 2:And to quickly close out, thank you again to Loan Vision for sponsoring today's episode and to all of you. We know your time is valuable. Thank you for tuning in to the latest episode of Acuma's On Point Podcast. We hope you enjoyed it. Until next time. Be well, my friends.
Speaker 1:Thanks for listening. We'll see you next time at the Acuma On Point podcast. If not already, be sure to subscribe and give us a five-star rating For more great episodes and information. Be sure to visit us online at acumaorg and to get the latest updates head over to our LinkedIn page. Thank you.
