Stop regulatory creep on credit unions

Credit union leaders will be in Washington, D.C. next month to tell their story of the daunting challenge they face as more and more regulation makes it harder and harder to stay in business. Too many are forced to consider merging with other credit unions as the cost and complexity of complying with regulatory schemes overwhelms their ability to provide service to members – regulatory schemes put in place to deal with the financial crisis that credit unions played no part in creating. 

Member-owned, not-for-profit, community-based credit unions have been there for their members in good times and bad. That’s just one reason more than 102 million Americans choose credit unions as their best financial partner.  When the financial crisis threatened the economy and the financial livelihood of many Americans, credit unions were a safe harbor for consumers and small businesses who could not access credit elsewhere. The facts are not in dispute – during the financial crisis, banks withdrew access to credit to small businesses and credit unions kept lending.  

{mosads}The problem is that in many cases regulators are applying one-size-fits-all regulation on depository institutions; and, when there are exceptions or exemptions provided in rulemaking, they are too narrow to be effective.  Since the beginning of the financial crisis, credit unions have been subjected to more than 190 regulatory changes from nearly three dozen Federal agencies despite the fact that credit unions in no way contributed to the financial crisis. This number doesn’t even take into account regulatory changes that come from state regulators.  Every time a rule is changed – even when it’s changed in an effort to reduce regulatory burden – credit unions, and by extension their members, incur costs.  They must take the time to understand the new requirement, modify their compliance processes, train staff, and so much more.  Even simple changes in regulation cost credit unions thousands of dollars and many hours: time and resources that could be more appropriately spent on serving the needs of credit union members  

Credit unions’ are designed to promote thrift and provide access to credit for their members.  This is the mission that credit unions have fulfilled since their inception in the United States more than 100 years ago and the system’s size and growth in terms of membership loans and deposits, and its consistent soundness are indicators that credit unions succeed in fulfilling this mission.  Credit unions continue to deliver tremendous benefit to their members in terms of lower-interest rate loans, and lower-fee or no-fee products and services. And because credit unions are actively fulfilling their mission, consumers – credit union members and nonmembers alike – benefit to the tune of approximately $10 billion annually. 

This is exactly why American consumers need Congress to address this crisis of creeping complexity with respect to regulatory burden.   

Regulatory changes present a particularly difficult challenge for small credit unions because the fixed costs of compliance are proportionately higher for smaller-sized credit unions than for large banks. This is one of the primary reasons that Main Street financial institutions are disappearing at an alarming rate.  The number of credit unions has been halved in the last 20 years – from more than 12,500 in 1995 to just more than 6,000 today.  Today’s consolidation of small financial institutions, much like the pre-crisis trend, is being led by an ever-increasing, never-decreasing, regulatory burden that frankly forces some credit unions simply to give up on trying to serve their members and find other larger credit unions with which to merge in order to preserve a credit union option for the benefit of their members.   

If the pace of this crisis of creeping complexity isn’t reversed , the trend of consolidation will continue; consumers will have fewer options in the financial marketplace; and the cost of accessing mainstream financial services will increase.  This outcome should be unacceptable. Congress can do something about it. 

We’re encouraged Congress is taking a good look at these issues. The Senate Banking Committee is holding two hearings this week on regulatory relief for community banks and credit unions. The first occurred with Federal banking regulators and a state banking regulator while the second will feature representatives from the depository institution sector, including CUNA.  

It is significant that the first hearings the committee held were focused on regulatory relief for community banks and credit unions.  We want to work with the Congress to remove regulatory barriers.  If these barriers are removed, the impact that credit unions have on the financial lives of their members will be that much more significant and the economic contribution credit unions and their members make will be that much greater.

Nussle is president and CEO of the Credit Union National Association (CUNA).