MADISON, Wis. (7/8/15)--CEOs of small credit unions wear a lot of hats. It comes with the territory.
“Some days you might find me working the drive-thru if we’re busy,” Anne Heggelund, president of Marathon County Employees CU, Wausau, Wis., told News Now. “Other times I’ll jump on the teller line.”
The hat small credit union CEOs are most likely to don these days would be labeled “Compliance.” And with that hat usually comes a major headache.
Since the beginning of the financial crisis, credit unions have been subjected to more than 190 regulatory changes from at least 15 different federal agencies resulting in more than 6,000 Federal Register pages to review and implement, according to CUNA’s Department of Economics and Statistics. There also have been other changes such as extensive and ongoing modifications to the National Credit Union Administration 5300 Call Report and examiner demands for implementation of a wide variety of best practices.
Credit unions of all sizes are feeling the regulatory burden, and it stands to reason that smaller credit unions especially feel the pinch.
“Small shops can’t simply hire another person,” said Frank Michael, president/CEO of Allied CU, Stockton, Calif. “The reality is that small credit unions are dealing with bottom-line issues because of the interest rate compression that we’ve all experienced the past seven years. We’re all running pretty lean right now in trying to control expenses. Generally, it falls on the CEO’s shoulders to keep up with compliance, in addition to running the operation. That’s created some real problems for small credit unions.”
Michael said his biggest challenges stem from two landscape-altering entities that emerged in the wake of the 2008 financial crisis: the Dodd-Frank Wall Street Reform and Consumer Protection Act; and the Consumer Financial Protection Bureau (CFPB) that Dodd-Frank created. Dodd-Frank and the CFPB create “thousands and thousands of pages of new regs every year,” Michael noted during an interview with News Now.
Michael questions who all those pages of new rules are intended to reform. “A lot of the regulation out there is intended to stop bad practices, and I don’t think small credit unions have ever been accused of being involved in bad practices,” he said.
Marathon County Employee's Heggelund said her biggest compliance challenges are related to the Truth-in-Lending Act and the Real Estate Settlement Procedures Act. What’s more, she’s spent more than $14,000 this year on forms related to compliance changes.
“The fact that we’re spending that money on forms means that we don’t have it to pay a higher dividend on savings or to add new products,” Heggelund said. “We want to add remote deposit capture and Apple Pay. We’re moving forward with EMV, but not until next year. Because we’re paying so much on compliance issues we don’t have as much to spend on things that will protect or benefit members.” EMV, of course, refers to Europay, MasterCard, VISA, a credit card technology intended to bolster information security by making card information hard to counterfeit.
“We’ll always serve the member,” Allied's Michael stated, but he underscored that the heavy compliance burden his credit union faces stretches time, money and knowledge sometimes to its outer boundaries. Summoning up his inner Donald Rumsfeld he describes it this way:
“When you think about compliance it breaks down to three areas: There are things that we know that we know, things that we know that we don’t know, and things that we don’t know that we don’t know. That last area is where a lot of small credit unions are right now because we don’t have the workforce to really know compliance.”
Still, Michael said he appreciates the efforts by the NCUA to exempt small credit unions from onerous rules when possible, and he’s hopeful the CFPB will begin seeing smaller credit unions with a similar eye. “If they don’t, they’re going to put us out of business,” he said. “I think they are starting to realize that.”
Despite her budget challenges, Heggelund has decided to “pull the trigger” on a product she hopes will attract younger members: an online budgeting and account aggregation tool. “It’s not going to be inexpensive but we’re looking to do it to differentiate ourselves from the big players in our market,” she said. “We all talk about offering great service. Sometimes you have to dig a little deeper find other things that set you apart.”
(This story is part of News Now's continuing series, "The CU Effect," which gives readers a fresh and in-depth look at how credit unions make a difference in the world every day. Look for the next installment July 22.)