While four credit unions stand in arms reach of the $10 billionthreshold, five credit unions currently share that distinction.Credit unions that have crossed the asset threshold said planningfor enhanced scrutiny is key to meeting the expectations of theCFPB.

“Take the time to get ready, like two to three years,” ParkerCann, senior vice president of governance risk compliance andgeneral counsel for BECU, said.

The Tukwila, Wash.-based BECU has $14.5 billion in assets,according to its latest Call Report. The credit union crossed the$10 billion threshold in early 2012.

“We didn't have time to get ready,” Cann recalled.

Being prepared for enhanced compliance starts with anexamination by the CFPB, according to Dennis Dollar, president/CEO for Dollar Associates.

“The biggest thing is to expect a CFPB examination versus justhaving to live by their regulations,” Dollar said.

In addition, the larger credit unions are subject to the NCUA'sstress-testing model. Further, they are subject to the DurbinAmendment in that debit interchange decreases from an average of 42cents per swipe to about 24 cents, Dollar added.

PenFedCredit Union President/CEO James Schenck advised credit unionsapproaching the threshold to go to the CFPB's website and reviewthe Supervision & Exam Manual.

“It contains all the templates for the examination process, andthey adhere to that religiously,” Schenck said. “The first examwill likely be a baseline review that focuses on the ComplianceManagement System. The exam manual contains a full template thatyou can follow in preparation for the exam – use it, and you'llknow what's coming.”

Cann offered the same suggestion of reading the CFPB exammanual.

“It has most of their expectations but not all of theirexpectations,” Cann added.

The Alexandria, Va.-based PenFedhas $19.5 billion in assets, according to the NCUA's December 2015Call Report, but the credit union said it expects to surpass the$20 billion mark in the coming months.

Rounding out the remaining three credit unions above thethreshold are the Vienna, Va.-based NavyFederal Credit Union with $73.3 billion in assets; the Raleigh,N.C.-based StateEmployees' Credit Union with $31.8 billion in assets and theSanta Ana, Calif.-based SchoolsFirstFederal Credit Union with $11.7 billion in assets, according tothe latest figures from the NCUA.

Meanwhile, four credit unionsare closing in on the $10 billion threshold. According to NCUA CallReports, the Sacramento, Calif.-based TheGolden 1 Credit Union has $9.7 billion in assets. 

The San Antonio-based SecurityService Federal Credit Union has $9.2 billion in assets,according to its latest Call Report.

“In advance of reaching and surpassing the $10 billionthreshold, we engaged the services of external advisers to identifyadjustments to our compliance program prior to the arrival of theCFPB on our doorstep,” Jim Laffoon, president/CEO for SecurityService, said. “In general, the CFPB requirements will mandate somechanges to policy, procedure, technology and organizationalstructure. These tasks are not difficult, but obviously it takessome time, expense and effort – and if regulatory relief could beachieved, so much the better.”

Rounding out the four is the Mountain View, Calif.-basedFirst Technology Federal Credit Union with $8.6 billion inassets, followed by the Chicago-based AlliantCredit Union with $8.7 billion in assets.

“Once you get to the $10 billion threshold, you are just lookedat differently in the marketplace,” Dollar, who consults withcredit unions both above and below that asset line, said.

He explained that the enhanced scrutiny does not just come justfrom regulators – it also comes from a credit union's members andits competitors. Further, he said, “The litigious nature of societytoday becomes even more litigious when you become that size.”

He added that a large credit union's board is placed underadditional scrutiny and will more likely be named in any legalactions against the credit union.

“There's a psychological line, not only for you, but for yourmembers and your competitors and others when you get to thatpoint,” he said.

For credit unions preparing to cross the threshold, lowereddebit interchange could impact their bottom line. Dollar encouragedthose credit unions to begin a checking account promotion in orderto try to make up for, in volume, what they may lose in the actualfees. He said the good news is that 46% of credit union members usetheir credit union checking account as their primary checkingaccount.

The promotional efforts could bring the 46% penetration rate upto 55%.

“You can very likely make up that difference,” he said. “Therest beyond that is gravy.”

Laffoon recognized the difficulty that crossing that path maybring in regard to the credit union's fees.

“The impact of reduced interchange income is a tougher problemto solve both strategically and tactically,” he said. “Do we reducemember benefit from rewards programs to lower expense? Do weattempt to generate more revenue from a fee increase? Do we acceptthe reduced revenue and continue providing the same level ofservice? Do we shift our strategy to promoting credit? We arecurrently considering these and other strategic questions.”

In addition to being examined by the CFPB, credit unions withmore than $10 billion in assets continue to be examined andsupervised by the NCUA through the Office of National Examinationsand Supervision. Further, these credit unions continue to submitCall Reports to the NCUA.

SECU President/CEO Jim Blaine called the enhanced scrutinyequivalent to having to change all four tires on a car whiledriving 90 miles per hour down a road.

Blaine said his credit unionwas well past the threshold when the Dodd-Frank Act was passed andthat he was aware of the changes coming down the pike.

He said criticism of the CFPB has resulted from the short memories of politicians andothers who have since forgotten that there was mismanagement andinappropriate behavior by those that caused the financial crisisand problems for everyone involved, including the institutions thatdid not cause the financial crisis.

He added that he supports the intent of the CFPB.

“The intent in the Dodd-Frank Act is to make sure that what wenton, leading up to the financial crisis of 2008, doesn't happenagain and I will support that forever,” he said.

SECU was examined through the Home Mortgage Disclosure Act andit was an eye-opening experience, Blaine said.

“What we found was [the CFPB was] at a whole different, a higherlevel of explicit exactitude than we were,” he added.

The examination was very technically oriented and as a result,the credit union found it had much to improve on, according toBlaine.

Ultimately, the differences in terms of compliance for largercredit unions become apparent as the examinations progress.

“We worked on the basis that as long as errors or mistakes arefew, when they appear, we fix them and go on,” Blaine said.

However, the level of scrutiny can reach a whole new level.

Cann explained that when he started at BECU in May 2009, therewere four staff members in the compliance department who were alsotasked with other assignments. Now, the department has 14 staffmembers devoted solely to compliance, and a host of other staffmembers with compliance expertise are housed in otherdepartments.

The CFPB encouraged BECU to embed compliance experts into itsdepartments, according to Cann.

“If the CFPB was coming into my institution, I would contact mylocal CFPB office and ask for a time to talk in advance,” Blainesaid, adding that asking for guidance in advance of a formal visitwould be especially helpful.

Examinations can take longer, too. Schenck said the exam couldtake between two and three months; Cann cited a shorter timeframeof up to eight weeks.

Schenck cautioned credit unions to budget for the significantincrease in regulatory costs.

“About a year in advance of our first exam, we contracted withsome external firms to review some of our key products andprocesses in depth and to provide recommendations for strengtheningour programs in advance,” he added.

Cann said the days when credit unions waited for regulators tocriticize and make changes are long gone.

“In today's world, you can't afford to do it that way,” he said.“You have to understand their expectations before they come to dothe exam and build out your programs to meet thoseexpectations.”

Cann added, “It's a big job. Do not underestimate it.”