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Main Street Receives Relief from Overregulation

On May 22, 2018, the House of Representatives passed the Economic Growth, Regulatory Relief, and Consumer Protection Act in a strong bipartisan vote. For banks and credit unions with less than $10 billion in assets, this is a blessing that will benefit the people and businesses here in Southern Arizona. Tailoring regulatory requirements to suit the risk profile of the institution had been long overdue. Congressional Republicans and Democrats worked together to preserve credit union and local banking service and the diversification of the industry in order to keep communities economically robust and vibrant.

As a brief refresher, here is the history behind the regulation: When the subprime housing market began to collapse in late 2005, few at the time could foresee the abject calamity that would occur two years later. When the financial market discovered the problem, it had spiraled out of its control.

In response, legislators ushered in protections to prevent such a devastating disaster from happening again. Designed to address “too big to fail” financial institutions, the Dodd-Frank Act of 2010 universally applied the same regulations to smaller institutions that had nothing to do with the economic meltdown. In the ensuing years, large financial institutions became bigger while smaller banks and credit unions struggled with the costs and volume of government compliance. This took a toll on the smaller financial institutions, their members, and consumers.

The role of member and locally owned and operated financial institutions is different than that of larger banks. Regulating them in the same way made no economic sense and resulted in fewer options and cutbacks in competitive loan and deposit options available to customers. Another side effect was delayed investment in technology, which further hindered customer and member service. Smaller financial institutions began disappearing from Main Street, limiting consumer choice.

As a result of the new legislation, consumers are now getting the benefit of the changes. For one, mortgage lending that had been subject to higher costs and longer wait times has now been eased. Credit unions previously had to classify the purchase of a 1- to 4-bedroom, non-owner-occupied residential property as a business loan. Under the new law, credit unions have achieved parity with banks and can now classify these loans as residential real estate loans, which will help improve access to affordable housing and assist in revitalizing communities.

Certain mortgages are now regarded as “qualified mortgages,” allowing small banks and credit unions to expand the types of mortgages they offer, as long as they meet certain conditions.

These benefits to consumers help stimulate businesses in related industries, so it has a positive overall impact on entire communities.

The Economic Growth, Regulatory Relief, and Consumer Protection Act also provide security measures designed to shore up vulnerable areas such as senior fraud and cybersecurity. The legislation provides support for financial institutions to educate employees on how to identify and prevent the financial abuse of the elderly and requires the U.S. Department of Treasury conduct a study on the risks that cyber threats can pose to financial institutions.

All of this is good news to communities across the country. With less cumbersome regulation, small financial institutions such as credit unions can better fulfill the needs of their members and customers with better and more affordable financial products.

We hope this article clarified some of the details of this new legislation, and that it inspires you to consider community-based financial institution such as a credit union for future business and personal needs. Good things happen when we all work together!

Vantage West Credit Union is a $1.9 billion financial institution which serves a growing membership of nearly 150,000 via branches across Arizona and online channels, as well. Vantage West offers consumer and business banking services, and is federally insured by NCUA. Loans subject to approval. Mortgage options subject to change without notice. Certain restrictions and fees may apply. VantageWest.org

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