WASHINGTON - While credit unions and other financial servicesproviders continue to work to lighten their regulatory load,complying with a myriad of regulations has become a cost of doingbusiness, and the burden has grown in recent years.

"The annual privacy notice requirement is a good example of howcosts get built into the cost of doing business," CUNA AssociateGeneral Counsel for Compliance Kathy Thompson said. The requirementfor annual privacy notices for credit unions began under theGramm-Leach-Bliley Act in 2001.

Hershey Federal Credit Union President and CEO Diana Robertsexplained that her credit union is saving money by actuallyprinting its privacy notice annually in its newsletter and thenotice is posted on its Web site (www.hersheyfcu.org) as well. ThePennsylvania-based credit union does keep some printed copiesinternally in addition.

Members can agree to electronic notices, but it would likelytake more time and expense to sort them out rather than justsending all paper notices, Thompson observed.

However, the common complaint now is: "I don't think they'redoing a whole lot of good," Clinchfield Federal Credit Union(Erwin, Tenn.) President and CEO Sandy Lingerfelt remarked.

Thompson said that is the complaint she is hearing from mostcredit unions. She added that CUNA is hopeful the requirement willbe eliminated in regulatory relief legislation for institutionsthat do not share member information and where the policy has notchanged. "Eliminating annual privacy notices is the one thing whereeveryone will say, somebody actually provided regulatory relief,"Thompson commented.

NAFCU Director of Compliance Anthony Demangone pointed out thatthe Federal Trade Commission recently developed a draft modelprivacy notice in an attempt to simplify them and make them moreuseful to consumers. He suggested that a cost/benefit analysisshould be done, "but to be quite honest, we're not hearing manycomplaints about it." It is part of the cost of doing business, hesurmised.

Recent focus on Bank Secrecy Act compliance has raised theexpenses and the eyebrows of some in the credit union community. AnNCUA spokesperson pointed out that the PATRIOT Act upped the anteon training and tracking, but the underlying reporting remainsmaterially unchanged. "The requirements that a more robust systemof training and tracking-with more stringent oversight by theregulators, with resultant penalties and fines-have resulted inadditional resources needing to be expended by financialinstitutions," he said.

While NCUA has not attempted to track credit union expenditureson compliance, NCUA estimated during its 2006 budgetary processthat the increased focus on BSA would bump up examination hours byapproximately 16,000 for the year.

Roberts, head of Hershey FCU, started out talking about BSA'simpact stating, "I can't say that it has really impacted us thatmuch." She explained that the $37 million credit union has begunrunning all new accounts through Check Systems and performingOffice of Foreign Assets Control matching. As she continued, shebegan realizing Hershey had spent $2,500 for software and $1,500for training for all 20 employees, and 80-plus hours of staff timea year on BSA compliance. Now the credit union is looking into anindependent audit of its BSA compliance, which could carry a pricetag as high as $2,500.

Lingerfelt's credit union is located in the small town of Erwin,Tenn. where they know most of their members. "I don't see whereit's improved the everyday lives of our consumers," she said.

Clinchfield, with $54 million in assets, "upgraded and updated"when it switched over to a new system, but that was not directlyrelated to BSA, she explained. "The biggest thing we've seen withall this is calling and verifying checks of other institutions,"Lingerfelt said. Before, occasionally banks would requestverification but now she is seeing more credit unions asking for itas well. One bank even asked them to fax a copy of the check tothem, she said.

CUNA's Thompson said she is hearing, particularly from thelarger credit unions, that it is a "tremendous expenditure of stafftime."

State Employees Federal Credit Union (N.Y.) President MichaelCastellana agreed whole-heartedly. "BSA is no longer simplypreventing money laundering-the enemy has changed and today it'sabout preventing terrorist financing," he said. SEFCU has hired twonew staffers to help manage the compliance function, spendsthousands annually on software licensing agreements, and hascustomized its core processing system to manage the CurrencyTransaction Report process with filings up almost 260% between 2003and 2006. Suspicious Activity Report filings have doubled at thecredit union in the past year with 41 of the 47 for structuring toavoid CTRs, seven requiring further investigation by lawenforcement and the IRS resulting in two arrests.

The $1.3 billion credit union is working to leverage technologywherever possible, but manual processes still take place, includingaccount risk assessments and wire transfer activity monitoring,Castellana explained. "While technology continues to evolve, it isstill challenging to review and analyze the vast amounts of memberdata to keep up with the demands of law enforcement and governmentagencies," he commented.

Castellana said that while the FFIEC Manual has helped, SEFCUwould like to see better definitions and clearer guidance of whatis considered a documented incident and clarification andconsistency between the regulators as to what they are looking forwhen they conduct examinations.

And with BSA, according to Demangone, there is "no one size fitsall for compliance.That being said, there is no small credit unionexemption. So if a small credit union wanted to offer a realcomplex product line, they would have to follow the same rules asBank of America, theoretically."

Lingerfelt stated, "I wish the people passing the laws would getout in the real world." They need to put themselves in the place ofthe credit union member. "I think [compliance cost/burden] is whyyou're seeing a lot of smaller credit unions go away."[email protected]