Small financial institutions are being hit especially hard by the rising cost of regulations, and the impact of more red tape is a threat to the existence of small town community banks and credit unions, witnesses told a House Financial Institutions and Consumer Credit Subcommittee on Wednesday.

“While any one single regulation may not be particularly burdensome, the layering of new regulation on top of old and outdated regulation can completely overwhelm small financial service providers like credit unions,” said Ed Templeton, president/CEO of the $630 million SRP Federal Credit Union of North Augusta, S.C.

Templeton pointed to results of a 2011 survey that showed almost two-thirds of credit unions said they have increased or were considering increasing fees on products or services due to recent regulatory changes.

William Grant, president/CEO of First United Bank and Trust in Oakland, Md., told the committee he estimates it costs his bank almost $3 million a year to comply with all the regulations.

“Instead of money being used to make loans to hardworking people and businesses in our communities, it is being spent on consultants, lawyers and auditors,” he said.

Templeton said compliance challenges not only come from the Dodd-Frank Act and the Consumer Financial Protection Bureau, but also the NCUA.

Templeton also testified that his credit union has seen its debit card interchange rate drop by almost two cents per transaction since its enactment. And, to comply with the new routing requirements, SRP had to re-issue hundreds of plastic cards at a cost of more than $2 per card.

Terry West, president/CEO of the $4.7 billion VyStar Credit Union, also shared how his Jacksonville, Fla.-based credit union is adjusting to new regulations on remittances.

“We currently originate about 140-160 international wire transfers a month,” he said. “We will need to revise forms to incorporate the receipt requirements. We will need to put into place the specific error resolution process required by the regulation, and conduct staff training. Obviously, staff in several departments is thoroughly analyzing what needs to be changed.”

The CFPB proposed a definition that would say any credit union that makes 25 or fewer international remittances a year would not be considered a “remittance transfer provider.” Credit unions were surprised at the very low number proposed, West said, which would only help a very, very small number of institutions.

“A major part of VyStar's membership is military personnel, civil service personnel and their family members who will want to initiate international wire transfers from their accounts. A credit union can be very small and serve, for instance, an immigrant population who will also want such a service,” he said.

Banking and credit union witnesses both expressed their support for H.R. 3461, the Financial Institutions Examination Fairness and Reform Act, sponsored by subcommittee Chairman Shelley Moore Capito (R-W.Va.) and Ranking Member Carolyn Maloney (D-N.Y.).

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Credit Union, Bank Leaders Tell House Panel That Regulatory Burdens Threaten Survival

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