Resources Are Available to Help Carry the Burden of Regulatory Compliance

• Oct 9, 2022
• By CUBN News Desk

More regulations are resulting in fewer credit unions. The number of credit unions in the U.S. has dropped 40 percent in the past 10 years. Most of this decrease is accounted for by the number of small credit unions merging into larger credit unions or the reduction in the formation of new credit unions. It is predicted that there will be another 40 percent drop in the number of credit unions in the next 10 years. Government figures indicate that the country is losing one credit union or community bank each day. NAFCU contends that the passing of Dodd-Frank alone has accounted for the loss of 1,250 credit unions. Regulations are straining human resources. It takes more staff just to meet the compliance demands for regulations passed since 2013. Continuity, a New Haven, Connecticut-based provider of automated compliance solutions, reports that credit unions needed 1.35 additional employees just to address the new regulations issued during the first three months of 2015. To address regulations and enforcement actions handed down in the past two years, credit unions would have had to add 14 additional employees.  Larger credit unions can accommodate this expense with moderate sacrifice. For small credit unions, however, it poses a significant strain on staff resources and profitability. Regulatory costs are massive. A CUNA study shows credit unions were hit with regulatory compliance costs of $6.6 billion in 2014. This same study confirms that compliance costs are reducing ROA by 49 basis points for an average-sized credit union. Compliance costs make up 20 percent of total operating expenses and 40 percent of staff expenses. Obviously, for small credit unions, the impact on the bottom line is significantly higher. Lost opportunity costs make the losses even greater. Credit unions cope with regulations that are not necessarily beneficial to consumers and “the financial system.” Large credit unions have enjoyed significant growth in their loan portfolios in the past three years. Small credit unions have not enjoyed the same revenue-sustaining loan growth as their larger brethren. In fact, Continuity reports that small credit unions are abandoning lines of business just because they cannot keep up with the time and cost it takes to comply with the rules governing those lines of business. These abandoned lines of business could well have contributed to the profitability of those credit unions. Regulatory compliance is indeed an expense. But it is not a cost with any form of “return-on-expense” that is associated with most other operational expenses. It can be argued that the real losers in an environment of onerous regulatory growth are the consumers as their community credit unions disappear and services are reduced. Furthermore, it is argued by many industry pundits that more regulation does not necessarily benefit consumers – contrary to reasons given for passing many regulations. In fact, many argue that it was poorly drafted and misdirected regulations that led to the 2008 downfall of many financial institutions, the “Great Recession” and “tax-payer funded bailouts.” In a final irony, the 2008 panic has led to still more regulations of questionable benefit and an additional regulator for financial institutions to cope with, the Consumer Financial Protection Bureau. More regulations and additional regulators ultimately could well result in a complete loss of autonomy for financial institutions. Fortunately, while....--> BY DENNIS CHILD Is the small size of your credit union getting in the way of your regulatory compliance? Staying viable under the present regulatory environment is proving a challenge for many CUs. But that doesn’t mean you have to lay down the gauntlet. Outsourcing could be the key to continued operational efficiency. There is mounting evidence that the present regulatory environment is making it almost impossible for mid-size to small credit unions to meet compliance expectations and stay in business. Regulatory burdens are harming credit unions in a couple of ways: (1) the cost of compliance is driving credit unions out of business and (2) failure to comply can result in the loss of a CEO’s job and/or the demise of a credit union. Small and mid-size credit un...

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