Election ’22: What’s Next and What It Could Mean for Credit Unions

Making sense of how the midterm results will impact the credit union industry, including the appointment of a new NCUA board member in 2023.

While majority control of both houses is still up in the air, when it comes to financial services legislation one thing is pretty clear: legislation making major changes to the current regulatory laws is highly unlikely.

No matter which party controls Congress, the partisan split in the Senate will be so close that Democrats are likely to be able to block bills even if they do not control the majority. It usually takes 60 votes to pass any legislation in the Senate and neither party will have that large of a majority.

And President Biden still has the veto pen if any de-regulatory bill passes both houses.

But if the past is any indication, that is not going to stop Republicans from trying.

The Current Situation

As things now stand, Republicans are poised to control the majority in the House. Control of the Senate may well depend on the Georgia Senate runoff between Democratic incumbent Sen. Raphael Warnock and Republican challenger Herschel Walker.

If Republicans control the House, it is all but certain that Rep. Patrick McHenry, R-N.C., will become chairman of the House Financial Services Committee. If Democrats control the Senate, Sen. Sherrod Brown of Ohio will keep the gavel at the Banking Committee. Should Republicans take over the Senate, the gavel is likely to be assumed by Sen. Tim Scott of South Carolina.

Reaction from Credit Union Groups

“Once again we will have a closely divided Congress where passing anything will be hard,” said Greg Mesack, NAFCU’s senior vice president of government affairs.

He added, “NAFCU believes that a divided government is the best case for the credit union industry. Divided government limit either party’s ability to move anything extreme or harmful to credit unions. In addition, a divided government also makes it hard to pass many bills without bipartisan compromise.”

“It’s going to be tough to govern,” said Jason Stverak, CUNA’s deputy chief advocacy officer.

It is unclear whether Republicans will try to return to one of their recurrent themes—rolling back provisions of the Dodd-Frank Act. When they last controlled the House, Republicans pushed through legislation sponsored by then-House Financial Services Committee Chairman Jeb Hensarling of Texas that would have eliminated various provisions of the law—with a particular focus on the CFPB.

Then-House Financial Services Committee ranking Democrat Rep. Maxine Waters of California did not mince words in staking out her party’s position on the bill.

“This is one of the worst bills I’ve seen in my time in Congress,” she said, as the committee prepared to mark up the legislation in 2017.

She added, “The bill is rotten to the core, and simply carries water for Trump and his buddies on Wall Street. The bill is also dead on arrival in the Senate and has no chance of becoming law.”

The legislation was never considered by the Senate, but a bipartisan compromise was reached on smaller regulatory changes. It remains to be seen if House Republicans will attempt to enact such an ambitious bill next year if they control the majority of the chamber.

For his part, Scott has cosponsored legislation that would require each federal regulator to establish a regulatory reform task force. It also would require agencies issuing a new regulation with an economic impact of at least $100 million to identify two regulations to be eliminated in an effort to offset the cost of the new rule.

One other thing is definite, however.

Discussing what is likely to occur on Capitol Hill next year, Stverak said, “oversight, oversight, oversight.”

With that backdrop here is a look at what is likely—and unlikely—to happen in the 118th Congress in areas affecting credit unions:

NCUA Board Nomination

The biggest issue facing the credit union regulator may be the nomination of a new board member during the summer of 2023.

The NCUA board currently has two Republicans, Rodney Hood and Kyle Hauptman, and one Democrat, Todd Harper. That partisan split is left over from the Trump Administration.

However, Hood’s term expires in August 2023—affording President Biden the opportunity to nominate a Democrat.

That nomination will require confirmation by the Senate, which could be a bit dicey if Republicans control the Senate.

Should Republicans control the House or Senate, GOP members also may try to rein in any efforts by Harper—and presumably a second Democratic member—to take a strong position on the impact that climate change may have on credit unions. Republicans have argued that it is up to individual credit unions—and not their regulator—to assess the impact that climate changes may have on their financial institutions.

Republicans also may oppose effort by NCUA board members to increase consumer protection enforcement at the agency.

Republicans vs. the CFPB

Oversight of the NCUA may take a back seat to Republican efforts to rein in an agency they despise—the CFPB. Republicans have made no secret of their hatred of the agency.

Director Rohit Chopra may soon find that he will spend more time on Capitol Hill than in his downtown office.

Congress may be forced to deal with funding for the agency. A federal appeals court has ruled that its funding—the CFPB draws funding from the Federal Reserve—is unconstitutional since it does not go through the appropriations process.

The bureau may appeal that ruling, however, if it remains intact, Congress may be forced to deal with the issue. And Republicans, who have tried to subject the agency to the annual appropriations process, may be more than happy to try that again.

“As Republicans have said all along, the CFPB’s ‘double-insulated,’ independent funding mechanism is unconstitutional and makes it wholly unaccountable,” McHenry said, following the appeals court ruling.

Past Republican efforts to force changes at the bureau became so acrimonious that House Financial Services Committee Democrats issued a report accusing GOP members of harassing the agency.

Republicans also have sponsored legislation or expressed a desire to:

–Stop the agency from regulating overdraft and other fees that Chopra and Biden have called “junk fees.”

–Transform the agency into a five-member commission rather than a single director.

–Eliminate the agency’s power to take action against a person or a financial services provider for an abusive act or practice in connection with a consumer financial product or service.

–Encourage the CFPB to roll back rules that they believe exceed the agency’s mandate.

–End cooperative consumer protection efforts between the agency and state attorneys general, which House Republicans have called collusion.

–Require a quantitative and qualitative assessment of costs and benefits of agency rules.