Regulatory burdens stemming from the Bank Secrecy Act, Dodd-Frank Act and the Department of Housing and Urban Development, among others, add another layer of responsibility to credit unions’ day-to-day operations. Complaints of rising compliance-related costs are common, but just how much is compliance costing CUs, and how are they paying for it?

Credit unions have found themselves hiring new employees, implementing new software and bringing in third parties to conduct reviews and audits in order to ensure compliance. And many say the value derived from these investments is low.

San Diego Medical Federal Credit Union, which has $73 million in assets and serves around 6,300 members, is forking out between $4,500 and $5,000 per month to keep up with regulations and NCUA requests, according to Jonathan Zide, the credit union’s compliance officer and director of marketing and online services.

Zide said as the CU’s compliance officer he spends approximately 20% of his time poring over regulatory documents and implementing changes throughout the credit union, while frontline staffers devote around 10% of their time to related compliance work. Since the CU lacks the staffing to handle every compliance task on its own, it has also been forced to hire a shared compliance officer through the California and Nevada Credit Union Leagues’ CUSO, CURoots Cooperative.

“We simply don’t have the time, nor the expertise, to keep up with all of the changes and new requirements,” Zide said.

San Diego Medical FCU also implemented a compliance management software system, which enables the CU to automatically monitor wire transfers, large transactions and potentially suspicious activities. Software purchasing and maintenance costs have taken a hit on the credit union, and Zide said while the software’s automated processes save time for staff members, they’re still required to monitor and evaluate the results.

Third-party compliance reviews have also incurred costs for the CU. It’s had to hire outside companies to review its Bank Secrecy Act procedures and ACH and ATM processes. Zide estimates that in total, the credit union spends $3,500 per month, in addition to the burdens of increased labor, to comply with regulations.

As a result of NCUA requests, the credit union is also spending approximately $1,000-$1,500 per month on loan and investment portfolio reviews and an annual audit, Zide said. He added that the CU’s CEO and chief financial officer each now spend around 30% to 40% of their time complying with new NCUA requests–a significant change from several years ago.

“Although we are a leading credit union in regards to return on assets, the NCUA has significantly scrutinized us, like they have with many of our peers,” Zide said.

Mark Willer, chief operating officer for the $1.3 billion, 140,000-member Royal Credit Union said it’s hard to attach a monthly dollar amount to his Eau Claire, Wis.-based credit union’s compliance costs, but the increased costs are hurting members because the CU now spends less time on member service and new product development.

Willer delivered testimony on rising compliance costs at a House subcommittee field hearing in Wisconsin in October in which he listed specific actions his credit union has had to take in response to regulations. These include training and education for CU personnel, forms or form revisions to reflect rule changes, brochure development, new software programming, compliance reviews and audits. Royal CU has also hired a full-time compliance specialist and multiple third-party vendors to help ensure compliance with regulatory requirements, Willer said.

“These regulations have good intentions behind them, but they’ve become overwhelming,” Willer said. “They’re impeding our ability to serve our members to a certain extent.”

Willer argued that many regulations were developed to correct unethical practices in the financial marketplace. He also said some new requirements, such as multiple pages of disclosures in mortgage loan documents, have left members confused.

“You’ll get frustrated members saying, why do we have to do all of this?” Willer said. “Well, it’s because it’s imposed by the federal government. If I saw value in it for the member, it would be different, but I really don’t see any value.”

Pat Wesenberg, CEO for the $179 million, 22,000-member Central City Credit Union, said between hiring a full-time compliance expert, training staff and making updates to software, forms and procedures, her Marshfield, Wis.-based credit union has been spending roughly $18,000 per month on compliance.

“The tough thing about compliance is whether you’re a $20 million credit union or a large bank, the fixed cost is about the same,” Wesenberg said. “The burden is much heavier for the smaller institutions.”

Wesenberg, who also testified on compliance costs at October’s House subcommittee field hearing, said it’s the combination of regulations, not one in particular, that has incurred costs and taken time away from member service for Central City CU.

“The totality of regulations is worse than a single regulation,” she said. “Right now, I don’t see an end in sight. We’d much rather devote our attention to how we can help members during this tough economic time.”

Zide concluded that while bringing awareness to rising compliance costs is not likely to lower them, it might raise the point that CUs have not made any of their regulation-related changes by choice.

“I can only assume that more attention on the issue won’t decrease costs,” he said, “but hopefully it will trickle down to consumers so they realize that we aren’t all greedy bankers.”

Instant Insights /

CUs Tally Up the Rising Cost Of the Compliance Burden

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