Small financial institutions are being hit especially hard bythe rising cost of regulations, and the impact of more red tape isa threat to the existence of small town community banks and creditunions, witnesses told a House Financial Institutions and ConsumerCredit Subcommittee on Wednesday.

“While any one single regulation may not be particularlyburdensome, the layering of new regulation on top of old andoutdated regulation can completely overwhelm small financialservice providers like credit unions,” said Ed Templeton,president/CEO of the $630 million SRP Federal Credit Union of NorthAugusta, S.C.

Templeton pointed to results of a 2011 survey that showed almosttwo-thirds of credit unions said they have increased or wereconsidering increasing fees on products or services due to recentregulatory changes.

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

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

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

Templeton also testified that his credit union has seen itsdebit card interchange rate drop by almost two centsper transaction since its enactment. And, to comply with thenew routing requirements, SRP had to re-issue hundreds of plasticcards 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 isadjusting to new regulations on remittances.

“We currently originate about 140-160 international wiretransfers a month,” he said. “We will need to revise forms toincorporate the receipt requirements. We will need to put intoplace the specific error resolution process required by theregulation, and conduct staff training. Obviously, staff in severaldepartments is thoroughly analyzing what needs to be changed.”

The CFPB proposed a definition that would say any credit unionthat makes 25 or fewer international remittances a year would notbe considered a “remittance transfer provider.” Credit unions weresurprised at the very low number proposed, West said, which wouldonly 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 toinitiate international wire transfers from their accounts. A creditunion can be very small and serve, for instance, an immigrantpopulation who will also want such a service,” he said.

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