As air temperatures around the country cooled, financial regulators have turned up the heat on credit unions and banks.

For the third quarter of 2014, the needle was pointed directly at hot, according to Pam Perdue, EVP of regulatory insight for Continuity Control, a New Haven, Conn.-based financial technology firm.

“This surprised us a little,” Perdue told participants during a Thursday recorded webinar. “We were expecting some increases, but not quite this much.”

Using Continuity Control's Bank Compliance Index, which measured the impact of regulations faced by a hypothetical $300 million community financial institution, Perdue rated third quarter performance at a BCI rank of 1.86. The number refers to how many full-time equivalents were required to deal with regulations imposed between July 1 and Sept. 30 this year.

“Compliance is not a singular thing, but more of 'death by 1,000 cuts,' and rarely is a regulation ever repealed,” Perdue said. “I only remember one reg that has been repealed in 25 years for anything other than technical reasons.”

BCI's 1.86 FTEs found themselves dealing with some or all of 82 new regulatory items totaling 3,403 pages that consumed roughly 653 staff hours for the index's hypothetical institution, according to Perdue.

At $45 per hour, a salary figure on the rise due to declining unemployment and increasing market demand, compliance with new regulations during the third quarter cost financial institutions $45,264.

During the second quarter, which earned a lower BCI, 1.48 FTEs dealt with 75 new regulatory actions comprised of 2,884 pages that consumed 517 staff hours at $34,755, according to the BCI parameters, Continuity Control's data showed.

The third quarter also resulted in 150 enforcement actions against institutions, including a rise in enforcement actions against credit unions fined for submitting call reports after the deadline, according to Continuity Control.

The EA rating topped out at 9.01%, which actually declined from the second quarter's EA rating of 10.10% and 170 enforcement actions.

Most regulatory changes focused on actions more pertinent to the banking industry, in particular changes to CRA disclosure and reporting requirements, Perdue said. Interagency question-and-answer and community outreach procedures regarding CRA were part of the update.

There were also alerts from the Office of Foreign Assets Control instructing institutions to block transactions to and from individuals in the Central African Republic, South Sudan and Zimbabwe, which are countries considered terrorist havens, according to Continuity Control.

Reg Z received some clarifications especially as it related to the successor-in-interest situations since it does not meet the rule's assumption definition, Perdue said.

The CFPB also updated its Reg Z threshold amounts in various categories based on the annual percentage changes in the June 1 Consumer Price Index.

The Treasury adopted several NACHA operating rule definition changes affecting financial institutions that process ACH transactions for federal agencies.

Institutions with FHA-insured mortgage lending activities saw changes in interest regulations and adjustable-rate mortgage rules.

The NCUA cropped up specifically in two areas. The agency is proposing changes to the aggregate limit on fixed asset investments and partial occupancy requirements. Comments to these changes are due Friday.

The NCUA's actions against late call report filers also ranked among the most significant enforcement actions.

During third quarter, the agency fined 64 credit unions, the most egregious of which was a $20,000 penalty for a credit union that filed its call report 22 days late, Perdue said.

Enforcement actions against banks, by comparison, were grater in number and weighed in at much higher monetary penalties.

For example, U.S. Bank was required to pay $48 million in refunds to 420,000 consumers charged for identify theft protection services they had not ordered, Perdue said.

A July settlement of $208 million between FDIC and Citigroup over violations involving mortgage-backed securities was the largest penalty assessed during the period, according to the webinar.

Instant Insights /

Credit Unions Pay High 3Q Compliance Costs

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