Ask credit union CEOs what keeps them tossing and turning at night, and odds are the answers will focus on a growing flood of regulations and compliance issues.
The gripes: Lawmakers don’t seem to understand how the impact of regulations flows through the credit union staff. The requirements often seem overkill for credit unions. Compliance is costly in both time and money.
“It seems constant,” said Kirsten Williams, president/CEO of EP Federal Credit Union in Washington, D.C. “It’s exaggerated to say every week, but it seems like it. It’s cumulative.”
Williams cites all the rules aimed at fraud prevention. EP FCU recently installed software to help–and it’s expensive. Fortunately, there are some issues that don’t affect the credit union because of its $67 million size.
She would like to see lawmakers raise the current ceiling at which certain requirements click in, and be careful about one-size-fits-all rules. For example, EP FCU’s mortgage lending is handled by a third party. Even so, the credit union is responsible and must have certain policies in place.
The expanding regulatory burden prompted EP FCU to hire its first compliance officer about three years ago. They have also signed up with Compass 4 CUs to bring in outside expertise.
Compass 4 CUs is a CUSO started in 2010 that now serves more than 20 credit unions. The CUSO was the brainchild of Patty Kimmel, CEO of Belvoir Federal Credit Union in Woodbridge, Va. Belvoir FCU was looking for a way to generate noninterest income, and decided the credit union was doing a good job on compliance and could share its expertise with other credit unions.
At the time Gaye De Cesare was Belvoir FCU’s chief administrative office and headed compliance. Today she is president/CEO of Compass 4 CUs. While small credit unions could use help, mid-size credit unions seem especially attracted to the CUSO. Large credit unions also seek advice on specific issues and quick turnaround on reviews of areas such as marketing compliance.
Most small credit unions can’t afford to keep Compass 4 CUs on retainer. But Compass will work with them and direct them to free resources. Compass can also provide the required yearly bank secrecy act audit at a cost De Cesare said is generally below quotes from other firms.
“Compliance has become much more complex,” De Cesare indicated. “For a while it was under the radar. Credit unions were trying to comply, but it wasn’t a huge focus. Now they’re struggling to keep up.”
“A lot of the recent banking regulations apply to credit unions as well. We have a new regulator now with the Consumer Financial Protection Bureau. Credit unions are really having a hard time figuring out where the next thing is going to come from. When I started doing this we could see things coming two years out. Now we’re lucky if we get a couple months.”
This year the latest mortgage regulations are probably the most troublesome. In January seven new rules were finalized, and a couple more may be on the books in September. Some affect first mortgages, others seconds, so it’s difficult for a credit union to identify which rules actually apply.
If you’re looking for a break, De Cesare isn’t optimistic.
“I expect it will become more complex,” she predicted. “They keep talking about regulatory relief, but we haven’t really seen any. They not only don’t understand credit unions, they don’t understand financial institutions. Rightly so, their mission is focused on the consumer. There are a lot of problems that do need to be fixed, and I recognize that.”
Pioneer West Virginia Federal Credit Union, a $150 million credit union in Charleston, is another Compass client. Dan McGowen, executive vice president and chief financial officer, and Crystal Francisco, internal compliance officer, agree that compliance has become a major issue.
“Underlined and exclamation point,” McGowen declared.
“Any time we have a regulatory change, we have to ask how it is going to affect us operationally,” Francisco added. “What about the operating system? What about the forms we use? What departments will be affected and what resources will we need to make these changes? A lot has to happen. To me, that’s the biggest burden we face.”
“They need to understand how it affects us operationally, and the time and money involved. Stop and think about the consequences. Rules can actually work against consumers. Another part of it is we now have to educate back office and front line staff, and even members.”
Francisco believes lawmakers and regulators need to understand how each rule hits credit unions. McGowen suggested legislators and members of Congress need to stay calm, cool and collected and avoid over-reaction to the marketplace. He added that, while he is extremely complimentary of Francisco, even the best compliance officer can’t stay on top of everything. That’s where he figures an outside group like Compass comes in, with a number of clients and the ability to gain a big picture.
He pointed out the credit union is fortunate in being large enough to employ a full-time compliance officer.
“Heaven help those credit unions who are smaller. It’s tough,” McGowen said.
Larry Lucas is president of $180 million Ashland Credit Union in Ashland, Ky. He joins the chorus of those who believe compliance has become a gigantic factor for credit unions. However, he acknowledged much of it is needed.
“A lot of it becomes necessary because there are organizations that will take advantage of others,” he indicated. “Unfortunately, that’s the world we live in. Compass 4 CUs is in essence our external compliance officer. If we did it in-house someone would spend all their time training and reading. Five of us have gone to the CUNA school and are certified in compliance.”
On a very positive note, Lucas indicated the credit union has a good relationship with regulators. As a state-chartered institution, the credit has contact with both state and federal officials. Lucas considers them reasonable, and said he feels fortunate.