Financial institutions such as credit unions and fintechs should adhere to the same regulations as banks, according to the Federal Reserve's Bowman.
In a recent conference, Federal Reserve Governor Michelle Bowman called for credit unions, fintechs, and nonbank lenders to face the same regulation, guidance, and supervisory expectations as banks when involved in the same activities. This move comes as credit unions are increasingly acquiring smaller community banks, a trend that Bowman has expressed concern over.
Bowman emphasized the need for a level playing field, suggesting that some states have enacted Comprehensive Capital Analysis and Review (CRA) compliance for some nonbanks, and Chopra, the Director of the Consumer Financial Protection Bureau (CFPB), has discussed imposing CRA requirements on credit unions and other nonbanks.
The CFPB, under the leadership of acting director Russell Vought as of early 2025, has proposed stricter standards that would limit supervision of nonbank financial institutions, focusing on higher risks to consumers. However, Bowman stressed that for effective functioning, the banking system must include banks of all sizes, and insufficiently targeted regulation, supervision, and guidance can easily imperil the diversity of financial institutions, which is the greatest strength of the banking system.
Community banks are facing challenges in a changing landscape, with competition from local rivals, larger banks, payday lenders, and other nonbank credit sources. Bowman highlighted the difficulties these institutions face, including the screening process that often labels rural market transactions as potentially adverse to competition, leading to possible rejections or delays.
Bowman also touched on other areas of concern for community banks, including cybersecurity, third-party risk management, and consumer compliance. She advocated for digital banks, credit unions, and nonbanks to be factored into a revamped measure of market competition that comes with assessments of a proposed bank merger.
Increased regulatory scrutiny of bank M&A may increase the incentives for credit unions to acquire banks due to fewer delays and more regulatory certainty, according to Bowman. However, credit union-bank acquisitions might address succession planning but raise questions about long-term impacts on the banking system.
Bowman's concerns over the increase in credit unions buying smaller community banks are not without merit. The unique nature of credit unions, which are not subject to the Community Reinvestment Act and certain other banking regulations, could potentially impact the banking system's overall health and ability to support economic activity.
In conclusion, Bowman's call for equal regulation for credit unions, fintechs, and nonbank lenders aims to ensure a banking system that operates in a safe and sound manner, complies with consumer laws and regulations, and supports economic activity. The goal is to maintain a diverse banking system that includes banks of all sizes, fostering competition and promoting a healthy and resilient financial sector.
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