The escalating regulatory burden from the federal government is partially to blame for the declining number of credit unions, said Linda Sweet, president/CEO of the $56 million Big Valley Federal Credit Union, in testimony before Congress this week.
“The impact of this growing compliance burden is evident as the number of credit unions continues to decline, dropping by more than 800 institutions since 2009. While there are a number of reasons for this decline, a main one is the increasing cost and complexity of complying with the ever-increasing onslaught of regulations,” the witness for NAFCU told a House Small Business Subcommittee on Investigations, Oversight and Regulation hearing on Tuesday.
The topic of the hearing was the regulatory landscape for small financial institutions.
Sweet said smaller institutions are not able to keep up with the new regulatory tide ushered in by the Dodd-Frank law, causing them to merge out of business or be taken over.
“At Big Valley FCU, I have seen our compliance costs steadily climb from year-to-year, and skyrocket over the last few. Unfortunately, this is the same at many credit unions,” she said. “A recent survey of NAFCU members found that of those credit unions that are increasing their education budgets for next year, 84% cited increasing compliance burdens as the most important factor for this increase.”
Her credit union has started to outsource many of its mortgages since it cannot afford a loan officer with the qualifications required by new CFPB rules.
“In addition to requiring a member to turn elsewhere for a product we once offered them, they are faced with increased costs that often rise to several thousands of dollars. That certainly seems like an unintended and unnecessary cost to the consumer that the new agency was meant to protect,” she said.
“The thousands of pages of new mortgage regulation and guidelines from the CFPB is a prime example of the growing compliance burden our nation’s credit unions face.”
Only 4% of the credit unions that responded to a survey of NAFCU members this fall said they have seen a positive impact from CFPB’s regulations.
Sweet said some of NAFCU’s ideas for congressional action are outlined in the Regulatory Relief for Credit Unions Act of 2013.
“The NCUA should have authority to grant parity to a federal credit union on a broader state law, if such a shift would allow them to better serve their members and continue to protect the National Credit Union Share Insurance Fund,” said Sweet, noting that she is pleased this idea is part of the bill.
“The NCUA should have the authority to delay the implementation of a CFPB rule that applies to credit unions, if complying with the proposed timeline would create an undue hardship. Furthermore, given the unique nature of credit unions, the NCUA should have authority to modify a CFPB rule for credit unions, provided that the objectives of the CFPB rule continue to be met,” she recommended.
Sweet advocated for Congress to require the CFPB to conduct a cost-benefit analysis of all new regulations after they have been in effect for three years.
“The regulators should be required to revisit and modify any rules for which the cost of complying was underestimated by 20% or more from the original estimate at the time of issuance,” the California credit union executive said. “Credit unions did not cause the financial crisis yet all credit unions are subject to the same CFPB rules as larger for-profit mega banks.”
NAFCU also suggested changes to the Central Liquidity Facility such as removing the subscription requirement for membership and eliminating the CLF borrowing cap so it is able to meet the needs of the credit union industry.