January 12, 2010
In 2009, Congress introduced legislation that would create a new government agency called the Consumer Financial Protection Agency (CFPA). This is undoubtedly in response to the economic decline of 2008 and 2009.
ECFA appreciates the general intent and purpose of this bill as accountability has been ECFA’s cornerstone for over 30 years. However, the bill, as initially written, poses some unintended consequences for churches and ministries across the country.
In November of 2009, ECFA sent Representative Barney Frank a letter regarding specific concerns about the proposed bill’s expansive breadth. Specifically, the definitions of financial activity and financial advisor were drafted so broadly that they could include most churches and ministries.
The methods by which this bill quickly involves churches and nonprofits are 1) through donor communications, such as information on planned giving instruments, and 2) through financial related exempt purposes, such as basic financial literacy education or benevolence assistance counseling.
Donor communications. The donor communications issue relates to a charity informing a donor about certain giving options, such as planned giving instruments. Under this scenario the charity and its agents may be engaged in conduct that would come under the oversight of this new agency. These yet unknown regulatory requirements would impede a charity’s freedom in discussing these options with a donor, even if the donor has independent financial and legal counsel. There would also be an additional cost associated with the registration process.
The House of Representatives has adopted language that would exempt this fundraising activity from the new agency’s mandate. It is ECFA’s hope that the Senate will adopt a similar provision, but it has not done so yet.
Financial related program activities. The financial related program activities issue relates to churches and ministries whose tax-exempt program activities are financial related. For example, some churches and ministries provide basic financial education programs to individuals who would otherwise not be able to afford such education. The tools that a person might be equipped with through this process include the ability to manage a checking account, manage and track a personal budget, and responsible credit card use. Additionally, some churches have mandatory financial counseling for benevolence recipients in order to help a family plan for a solid financial future. These activities would all be subject to the bill’s oversight as currently drafted.
The full ramifications of this proposed legislation are still unknown, as this would be a new agency with a new set of rules to enforce. However, one thing can be certain: there will be an increased cost of compliance for churches and ministries that are subjected to this agency’s oversight. This increased cost of compliance comes at a time when charities have already been stressed through decreased giving, which in many situations has caused the layoff of employees, overburdening employees who remain at the charity.
This compliance will add another layer of responsibility for a charity, which will further detract from the charity completing their exempt purposes. One of the express purposes of this proposed legislation is to ensure that traditionally underserved consumers and communities have access to financial services. The unintended consequence here contradicts this purpose of the bill, as it is the churches and ministries across the country which bring these services to those who would otherwise not be able to afford such services.
Therefore, it is ECFA’s desire that Congress review these ramifications and develop a means to prevent the unintended consequences that could fall on churches and ministries.
Concerned nonprofits and donors can contact their Senator to voice opinions they have regarding this proposed legislation.
This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.