By Emily Moré Hollis, CFA
Growth and Cost of Compliance are Taking a Toll
Credit unions have traditionally operated on a small scale, specializing in “relationship” lending. Years ago, the common bond of a credit union was advantageous because it reduced the cost of assessing the creditworthiness of potential borrowers, allowing credit unions to facilitate unsecured lending to members on reasonable terms. Over time, the cost advantages have increased. Today, larger institutions have more opportunities for diversification into non-traditional product lines, and the efficiencies can greatly enhance the bottom line.
But, credit unions are challenged to compete with rising technology costs, like remote deposit capture and mobile banking platforms, to provide the best member experience possible. Regulation has also burdened credit unions, especially the smaller ones, with expenses that didn’t previously exist. The challenges are intensified in low-rate and low-margin environments.
Rising compliance costs are even greater in the banking industry. New regulations include but aren’t limited to Basel III, the Bank Secrecy Act, Dodd-Frank Wall Street Reform, and the Consumer Financial Protection Act (which includes the Consumer Financial Protection Bureau and the Volcker Rule).