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Credit Unions and the Regulatory Burden: Disconnect, Pessimism and Risk

By Brad Powell

Brad Powell

stressed out credit union compliance employee

At your credit union, you know exactly how cumbersome regulations (and the examinations that come with them) can be.

But if it wasn’t clear already, recent news coverage should drive home an additional fact: Your credit union is hardly the only one suffering under this load. 

Three recent news items highlighted the atmosphere and risks that current regulations have created for credit unions. To me, these articles have three big takeaways, and they are related:

  1. There’s a significant disconnect between the Consumer Financial Protection Bureau and credit unions.
  2. Credit unions are pretty bullish on their future – except when it comes to regulation.
  3. The regulatory burden creates real, existential risk for CUs.

Here are links to the pieces and a little more detail about each one:

Where Is the Disconnect Between the CFPB and Community Banks and Credit Unions?

In an opinion piece on Housing Wire, Brena Swanson contrasts statements by CFPB Director Richard Cordray and credit union leaders.

Cordray calls those who say regulations are throttling CUs and community banks “doomsayers.” Meanwhile, Dan Berger, president and CEO of the National Association of Federally-Insured Credit Unions, points out that “since the second quarter of 2010, credit unions lost more than 1,500 federally insured credit unions, which is more than 20 percent of the industry.”

That certainly is a disconnect.

Swanson asks a smart question in the piece: “Improvement can happen even with regulations, but how much more could lenders grow if they weren’t walking on eggshells?”

NAFCU Releases First-Ever Credit Union Sentiment Index

The NAFCU has debuted a monthly survey designed to gauge credit unions’ overall outlook toward their mission.

On a scale of 1 to 100, the first index came out at 58.3 for June. Not bad, but the index would be a lot higher if not for one factor: regulation.

Here are the four factors the index measured, and the scores for each:

Growth Outlook: 73
Earnings Outlook: 70
Lending Outlook: 70
Regulatory Burden: 20

The regulation score “is an average of two subcomponents: the perception of current regulatory burden versus one year ago (18) and the expected change in regulatory burden one year from now (22).”

CUNA CEO Raises Concern About the Future of CUs

Jim Nussle, the CEO of the Credit Union National Association, was blunt in a recent speech in Orlando.

As reported by Peter Strozniak of the CU Times, Nussle showed a graphic that focused on community banks and said, “They are getting their lunch eaten … handed to them. Their options are running out. They had more than half of the market at one point in time and now are ready to go out of business.”

Why? In large part, Nussle said, because they are not able to keep up with increasing regulatory challenges. And credit unions are starting to feel the same pressures.

“You will not hear Bank of America or Wells Fargo complain (about the regulatory burden), except maybe send out a press release here and there about the CFPB,” Nussle said. “They understand the CFPB will be there forever. It’s just a fact. And they’ve got the lawyers, and the compliance officers and the capital to deal with it. They’re not concerned about it. In fact, they kind of like it. They kind of like it because of what is happening to the small community banks, and what’s happening eventually to us.”

Nussle’s message: Credit unions need to advocate for easing the regulatory burden. If the industry fails to do it, “we may not be here five, ten years from now to have a conference like this to even talk about it.”

Topics: Resources, Industry News

Brad Powell

Written by Brad Powell

Brad Powell runs Redboard, a company that helps credit unions better respond to regulatory examinations. He has 20 years of experience developing technology for credit unions and financial services companies.

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