With the election now decided and the Republicans in control of the White House, Senate and House of Representatives, just about every call I have had with a credit union client since then has asked for me to project what the impact will be of the election results on the overdraft fee issue that we have discussed in so much depth over the past several years in our Client Updates.

With the caveat that this is politics and any prediction can be washed away by a compromise or quid pro quo agreement at the White House or on Capitol Hill, it is our belief that the election results and the upcoming changes in the leadership of federal financial institution regulatory agencies will have a dramatic impact on (1) whether there will be an overdraft regulation finalized and scheduled to go into effect and (2) if so, how far reaching it will be and when it would go into effect.

Let’s remember these basics on the overdraft fee regulation that has been proposed by the Consumer Financial Protection Bureau (CFPB) to impact all financial institutions with over $10 billion in assets. Essentially this rule would fix at somewhere between $7 and $11 at the federal level the fee that could be charged for honoring an overdraft up to the limit set by the financial institution. The rule would also extend the option to establish a line of credit program for overdrafts with disclosures that, frankly, no financial institution will utilize because the return on a $200 short-term overdraft loans will not come close to covering the risk of a single $200 overdraft being written off as uncollectible.

Since this rule is coming from the CFPB, let’s look at the impact of the election on that agency. Then we will move over to NCUA which possibly could, although current Chairman Harper indicates is not his intention, follow suit with the CFPB by enacting a copycat overdraft rule to apply to credit unions with less than $10 billion in assets.

There is little doubt that President Trump, as of his inauguration on January 20, 2025, will immediately remove the Democrat holdover agency heads that were appointed by President Biden. Among those will, without question, be the very activist head of the CFPB, Rohit Chopra.

If Chopra is still the Director of the CFPB by the end of the day on January 21^st, it will most likely be because something fell through the cracks on the president’s desk or some major quid pro quo on appointments, nominations and confirmations is being negotiated between the President, the Republicans in Congress and the Democrats in Congress.

Seeing that a bipartisan agreement in Washington on nominees and appointments is about as unlikely in today’s partisan environment as Franklin Graham bowing toward Mecca at prayer time, it is safe to assume that Mr. Chopra will be fired by President Trump in the first few days of his administration.

And with a 53-47 Republican majority in the Senate, his nomination for the next CFPB Director is fairly certain to be confirmed within a matter of weeks and probably on the job by the end of February or possibly early March.

Can Rohit Chopra get an overdraft rule finalized, approved and implemented before he leaves the third week of January? No way.

Chopra could conceivably, if he short circuits the federal Administrative Procedures Act and doesn’t take the time to address the thousands of comment letters submitted when the overdraft fee rule was proposed, do a rush job and finalize the rule before January 20, 2024.

But there is no way it can be implemented by then. Therefore, whatever implementation date is put on the last minute, lame duck Chopra overdraft rule could immediately be extended by a new Trump-nominated and Senate confirmed CFPB Director.

Because Chopra knows this, it is our belief that he will not jeopardize the rule for the next potential Democrat that becomes CFPB Director in 2029 or later after a future presidential election by short-cutting the regulatory approval process now.

However, if he does, the certainty of a delay in implementation is 100%.  An overdraft fee final rule from CFPB becoming effective in 2025 as Chopra initially indicated he wanted to do is now out of the question.

In fact, the next CFPB Director – nominated by President Trump and confirmed by a Republican Senate – would likely go beyond merely pushing the effective date back a year or two. The incoming Trump appointed CFPB Director could then (1) repeal the overdraft rule if Chopra approves it before he leaves office, (2) delay its effective date until 2028 giving time for the rule to be challenged in court because of its being federal price fixing not authorized under federal law for the CFPB or because Director Chopra did not follow the Administrative Procedures Act when he approved it in a rush before he left office.

Without the protection of the Chevron Doctrine, the odds of a lawsuit brought against any overdraft price fixing rule by CFPB being successful is quite high. It would be a certain victory if a new CFPB Director or a new Trump-appointed Attorney General’s Justice Department chose not to defend the lawsuit because they did not agree with the rule to begin with.

Basically, although several of the above referenced scenarios will have to play out, our prediction is that it is highly unlikely that an overdraft rule will be implemented by the CFPB during the next four years. 

Of course, if there is no CFPB overdraft rule put into place before 2029, then it is equally certain that NCUA – particularly under a new Republican Chairman who should be designated to replace current Chairman Todd Harper – will not approve a copycat rule.

So, unless something extraordinary happens such as both houses of Congress passing an overdraft fee restriction law (very unlikely in a Republican controlled Congress and with a Trump veto likely even if they did) or a mega-deal is reached between Trump and the Democrats to leave some of their appointees in place in return for some of his (very, very unlikely), credit unions should not have to worry about an overdraft rule from the CFPB until at least 2029.

And, if a Democrat is elected president in 2028 and a new CFPB Director is put in place in 2029 following that election, it will take another year to go through the rulemaking process again and set another date for implementation. Therefore, our thoughts are that it would be 2030 or 2031 before an overdraft rule is implemented by CFPB.

If the above timetable holds, that means NCUA would not be able to get around to a copycat overdraft rule until 2031 or 2032. 

That is a huge change from just a few months ago when every expert, including us, was projecting a 2025 CFPB overdraft rule with an effective date of year end 2025.  Yes, elections matter. And things change depending upon who wins.

A couple of other issues impacting credit unions will have the outcome and timeline changed as a result of the election.

Number one. Vendor regulatory and supervisory authority for NCUA is most likely dead at least until 2029.

Even though the authority for NCUA to examine any of your credit union’s vendors at their discretion has not passed in either a Democrat controlled or Republican controlled Congress over the past twenty years of agency requests, NCUA has kept pushing hard for it. Vendor authority has been a top priority for Chairman Harper in every congressional appearance and request the agency has made during his tenure as chairman.

President Trump is certain to designate Kyle Hauptman, the sitting Republican on the NCUA Board, as NCUA Chairman within days of his inauguration. 

While he will only have a matter of months to serve as chairman since his term expires in August 2024, it is important to recognize that a Chairman Hauptman will then become the spokesperson for the agency on Capitol Hill – not Chairman Harper any longer.

As chairman, Kyle Hauptman will be also able to (and will be expected by the Trump administration as a part of his designation as chairman) replace the political appointees that Chairman Harper has put in place at NCUA with his own. The next Republican chairman who will come along later this year when Hauptman’s term expires and a new Trump nominee to become NCUA Chairman is confirmed will be able to put his or her team in place as well.

In other words, under a Chairman Hauptman and the chairman who follows him the lobbying staff of NCUA will work for a Republican chairman who appointed them. Mr. Hauptman is not a supporter of NCUA vendor authority, nor will certainly be the Republican chairman that follows him.

With a new lobbying team put in place at NCUA under Hauptman and his successor later in 2025, NCUA will no longer be on Capitol Hill pushing for expanded authority over your credit union vendors. 

Congress has not granted NCUA vendor authority over the past several years when a chairman like Chairman Harper has pushed it extremely hard with a full-time appointed staff working for him to try to influence Congress. With a Republican chairman not pushing it at all and a staff working other issues on Capitol Hill rather than vendor authority, Congress is practically certain not to be giving an agency like NCUA this type of expanded authority over other businesses not in their area of expertise. 

In addition, getting the Community Reinvestment Act (CRA) applied to credit unions is a non-starter in a Republican majority Congress. And, even though Todd Harper and Tanya Otsuka will still be a Democrat majority on the NCUA Board even after a Republican is made chairman, the Republican chairman can and likely will stymie any effort to override him by his two Democrat colleague by going to the Republican House and Senate to seek them to reverse the action of his own Board through the Congressional Review Act (ironically, also referred to as CRA).

Just as with Rohit Chopra at CFPB if he tries to ramrod last minute rules through his agency before he leaves office, Harper and Otsuka will find themselves in the crosshairs of the Trump administration if they try to push overreaching regulations in either the waning days of the Biden term or during the early days of the Trump administration. 

If CRA through regulation is largely off the table with a new Republican chairman, so likely is an increase in the operating ratio of the share insurance fund that Chairman Harper has been talking about for the last several years.

While he could certainly make a move to get the NCUSIF equity level increased from 1.37 to 1.5 for the normal operating level of NCUA in the 2025 budget before he leaves the chairmanship, Chairman Harper would bring some serious scrutiny on himself and the agency with such a lame duck move in his final months. 

Most likely, Todd Harper is politically savvy and is wise enough not to make himself a target of the Trump administration by doing so in his lame duck days. Therefore, if the NCUSIF equity level is not raised in the final days of the Harper chairmanship, it is almost certain not to be raised by Chairman Hauptman or his Republican successor later in 2025.

CFPB and NCUA are independent agencies. As they should be. Federal regulatory agencies impacting financial institutions should not be totally under the control of any administration or have a political agenda that they follow to curry favor with an administration. 

But, that said, they are still subject to congressional oversight and administration appointment authority. That has to be kept in mind when holdovers at either agency try to, in effect, override what the new administration wants to see done from a regulatory perspective in the next four years.

There are only two areas where the incoming Trump administration may bring to the table issues that credit unions might find concerning.

One is whether a major negotiation takes place between the Democrats and the Republicans on a tax cut bill that somehow puts credit union taxation on the table to offset some tax cuts on the other side of the ledge.

A tax cut bill is a certainty to be proposed by President Trump who wants to see his 2017 tax cuts extended and several other proposed tax cuts incorporated (such as no tax on tips, Social Security or overtime as was promised during the campaign). The Democrats are likewise certain to want there to be some additional taxes added to counter some of the tax cuts that they will argue impacts the federal government’s ability to meet the needs of the American people.

So, as always, a tax bill will involve a lot of give and take. Credit unions are strong politically on both sides of the aisle, so we do not feel it is likely that taxation of credit unions will be on the table to offset some of the tax cuts. However, when the tax code is up for revision, credit unions will have to be vigilant to protect the tax exemption.

Also a potential danger zone is the new Department of Government Efficiency (DOGE) that President Trump is establishing with Elon Musk and Vivek Ramaswamy in charge.

These two government outsiders will be proposing the reform, merging, expansion and elimination of agencies and departments of the federal government in the name of efficiency. 

Of course, one person’s inefficiency is another person’s favorite son.

Could the DOGE propose eliminating NCUA and merging it with the FDIC, possibly combining the two insurance funds? Or could there be a new consolidated fund set up under the Department of the Treasury?

It is unlikely that there would be enough savings in elimination of NCUA to have the administration want to take on the credit union lobby’s political grassroots strength. But anything is possible when the goal is to “make the federal government more efficient” and, as Elon Musk said, “eliminate $3 trillion is unnecessary and overlapping expenses.”

Credit unions may have problems with NCUA’s regulation and supervision at times. But we can assure you from our Washington experience that, despite those occasional areas of NCUA overreach, credit unions do not want to be regulated and examined by the banking examiners at FDIC or – even worse – a new regulatory agency for banks, thrifts and credit unions under the Treasury Department.

So, taxation and the future of independent credit union regulation will have to be watched as possible issues that could require industry advocacy action. With over 140 million members (voters) today, it is quite certain that credit unions could defeat either of these proposals if they were to come on the scene in Washington.

But it would be a fight. And credit unions must be ready for that fight if it arrives.

However, in the overall analysis, the regulatory environment is about to get less intrusive for credit unions over the next four years – especially on the overdraft, NCUSIF equity level and CRA issues discussed above.

Until next time.

 

Dennis Dollar