The Dodd-Frank Wall Street Reform and Consumer Protection Act: Compliance Implications for Credit Unions

Compliance—it can quite possibly make or break credit unions.  In recent months, Congress and Statehouses have teamed up to roll out a myriad of new legislation creating new and burdensome requirements applicable to many financial institutions including credit unions.  In particular, the recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank Act) is certain to produce a large volume of new regulations and reporting burdens[1].  The by-product of such massive legislation will undoubtedly increase regulatory costs and competitive pressures.  Without effective and efficient compliance programs in place, credit unions will either fare poorly in the periodic safety and soundness examinations and/or become financially overburdened by the inability to control costs associated with inefficient compliance programs.

This new era of regulation will require many credit unions to revolutionize their compliance programs.  Unlike larger banks, credit unions do not have a large amount of resources to dedicate to large and involved compliance programs[2].  Accordingly, credit unions must consider new and cost effective approaches for navigating through such legislation as the Dodd-Frank Act.  Failure to establish an efficient and cost-effective compliance program will likely result in the diversion of too many resources to compliance related issues rather than meeting members’ needs.

The goal of this Article is to demonstrate the need to evaluate your compliance program and determine whether it is capable of handling the new financial services regulations.  If you are not convinced and/or believe that your current compliance program will suffice, please consider the significant regulatory and legal consequences that will stem from the Dodd-Frank Act.  A brief explanation of the reach and the volume of regulations that will result from the Act will illustrate the importance of an efficient and competent compliance program.      
The Dodd-Frank Act is over 2,300 pages in length and was originally designed to address the issues related to the financial meltdown[3].  The Act, as passed, reaches far beyond its original purpose.  What is known is that there are more than 60 studies to be performed, more than 50 committees to be formed, and more than 5,000 pages of regulations still to be written[4].  Accordingly, much uncertainty still remains as the Act leaves an extraordinary number of matters to be addressed through rulemaking and other regulatory action.

Highlights of the key provisions of the Act are as follows: (1) A new risk-based approach to financial services regulation; (2) new regulation of systemically risky institutions; (3) increased bank supervision; (4) limits on bank investment and related activities; (5) heightened regulation of mortgages; and (6) heightened focus on consumer protection.  

The heightened focus on consumer protection is one area of the Act sure to burden credit unions’ compliance departments.  One of the sections of the Act that focuses on consumer protection is Title X.  Title X creates the Bureau of Consumer Financial Protection (Bureau), which is housed within the Federal Reserve System[5].  The Bureau’s primary supervisory and enforcement powers extend to depository institutions with over $10 billion in assets and certain non-depository institutions[6].  With regard to depository institutions with assets of $10 billion or less, prudential regulators are vested with exclusive authority to enforce the provisions of federal consumer financial law[7].  The Bureau, however, maintains a secondary role in supervising depository institutions with assets of $10 billion or less[8].  For example, the Bureau may require reports from smaller insured depository institutions.  In the event of a material violation, the Bureau has the authority to notify the prudential regulator and recommend appropriate action[9].

The Bureau is tasked with enforcing new and existing federal consumer financial protection laws and rules to ensure that the markets for consumer financial products and services are fair, transparent and competitive.  Therefore, the Bureau is granted exclusive authority to issue regulations, orders, and guidance implementing federal consumer financial law[10].  Below is a list and a brief explanation of the legislative changes implemented under Title X that the Bureau is responsible for enforcing.  Each of these legislative changes is applicable to depository institutions with assets of $10 billion or less and may be enforced by prudential regulators and monitored by the Bureau:

1. Tracking Provisions for Small Business Loans: Title X amends the Equal Credit Opportunity Act, requiring financial institutions to inquire whether a business applying for credit is a small business, a women or minority owned business, and to maintain a record of responses to those inquires.  The Bureau is required to issue guidance to facilitate compliance with this requirement[11].

2. Limitations on Arbitration Agreements: The new rule allows the Bureau to impose conditions or limitations on the use of arbitration agreements if the Bureau finds that such conditions or limitations are in the interest of the public and for the protection of consumers[12].

3. Model Disclosures: The Bureau has the authority to issue rules regarding information that must be conveyed in disclosures for consumer financial products or services.  The Bureau may promulgate model disclosures for financial institutions, which will provide a safe harbor for those using such a model disclosure.  The Act does not require prudential regulators to accept any promulgated model disclosures.  Accordingly, whether or not depository institutions with assets under $10 billion can rely on the safe harbor is to be determined[13].  
4. Consumer Rights to Accessing Information: Title X requires that consumers are provided with information concerning any financial product or service that the consumer has obtained from the financial institution.  Such information must be made available electronically and must include information such as costs, charges, and usage data[14].

5. Remittance Transfer Rules: Title X amends the Electronic Funds Transfer Act.  The new rule applies to transfers of currency where the designated recipient is in a foreign country.  It requires disclosures about the amount of currency being transferred, all fees charged for the transfer, and the exchange rate used to the nearest 1/100th of a point.  The rule also requires that the transferor receive a receipt at the time of transfer listing basic information about the transfer (i.e. intended recipient, promised date of delivery, and contact information).  The new rule also establishes a dispute resolution if the transferor contacts the financial institution within 180 days of the transferor and claims an error[15].  
6. Truth in Lending Act:  The Act amends the Truth in Lending Act (TILA).   TILA now applies to credit transactions and consumer leases below $50,000.00[16].

As briefly demonstrated above, the Dodd-Frank Act, specifically Title X, must be confronted with innovative/cost-effective compliance strategies.  Without a plan to handle this new era of financial reform, the administrative costs to credit unions will likely diminish their ability to provide valuable customer service by diverting too many resources to compliance related issues rather than meeting members’ needs. 

W. Cory Phillips is an Associate in Consumer Collections; Healthcare Collections and Governmental Collections Groups. He can be reached at (216) 685-1157 or


2 Id.
4 Id.
5 SS038 ALI-ABA 397.
6 Id.
7 SS038 ALI-ABA 397.
8 Id.
9 Id.
10 Id.
11 The New Consumer Financial Protection Bureau Will Impact Community and Regional Banks, Susan B. Zaunbrecher, National Law Review. 
12 Id.
13 Id.
14 Id.
15 Id.
16 Id.


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