Regulatory Reform is Law - What Should We Expect Now?

August 4, 2010 — Amid filibusters, all-night conference debates and two years of hearings and mark-ups, a comprehensive regulatory reform bill, the Dodd-Frank Act, was signed by the President on July 21.

The Act requires 243 new rules, 67 one-time reports and 22 periodic reports. However, only some of the provisions impact state regulators and the credit union system. Below is a briefing of some of those areas. NASCUS continues to study the impact of the new law on the state credit union system.

Deposit Insurance

The bill makes permanent bank and credit union deposit insurance to $250,000 for insured accounts of the National Credit Union Share Insurance Fund (NCUSIF) and Federal Deposit Insurance Corporation (FDIC). It also temporarily insures non-interest bearing transaction accounts at credit unions and banks.

Interchange Fees The Federal Reserve is directed to set a "reasonable" rate for interchange fees for debit cards. Government issuers are exempt, as well as financial institutions under $10 billion in assets.

Consumer Protection The law includes a new Consumer Financial Protection Bureau (CFPB), to be housed at the Federal Reserve. All consumer protection statutes from the various agencies will now be managed by the new Bureau. The CFPB will conduct consumer protection examinations for financial institutions with more than $10 billion in assets, which excludes all but three credit unions. The Act states that the agency should be up and running within 12 to 18 months; the President is expected to appoint the CFPB agency head in the near future.

Financial Stability/Systemic Risk The Act creates a Financial Stability Oversight Council charged with identifying and monitoring systemic risk. The Council's voting members include the heads of the financial regulatory federal agencies, including the NCUA Chairman. State regulators are included on the Council as nonvoting members.

Executive Compensation The federal regulators (including NCUA) are directed in the Act to develop regulations that require disclosure of structures of incentive-based compensation arrangements. Institutions under $1 billion are exempt.

Credit Risk The law requires a securitizer to retain not less than five percent of credit risk for any asset transferred or sold via an asset-backed security unless all assets that collaterize the asset-backed security are qualified residential mortgages.

Derivatives and Swaps In this section, security-based swaps must be cleared through a derivatives clearing organization, unless one of the parties is under $10 billion in assets. These provisions also make it unlawful to engage in a security-based swap with a clearing agency not registered by standards identified in this Act.

Mortgage Regulation The Act directs the Fed to develop new regulations for mortgage origination standards, for instance, requiring verified income to determine the ability to repay, the prohibition of certain fees and advance disclosure of rate adjustments and re-sets of certain mortgages.