As president of Manchester-based Northeast Family Credit Union, with nearly 35 years in the industry, Joanne Todd is no stranger to regulations. But since the economic downturn of 2008, she says, the ripple effects of increased regulations have created unnecessary burdens that small credit unions are ill-resourced to handle.
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As president of Manchester-based Northeast Family Credit Union, with nearly 35 years in the industry, Joanne Todd is no stranger to regulations. But since the economic downturn of 2008, she says, the ripple effects of increased regulations have created unnecessary burdens that small credit unions are ill-resourced to handle.
“We are required to comply with most of the same regulations as large banks like Bank of America,” she said, estimating that her organization — which has fewer than 6,400 members and less than $75 million is assets — spends nearly half its education budget and roughly 20 percent of its labor costs on regulatory issues.
But that may soon change.
That's because the National Credit Union Administration (NCUA) — the governing body the oversees and regulates credit unions — recently passed the Regulatory Flexibility Act, which expanded the threshold for being considered a “small” credit union from $50 million in assets to $100 million. The goal of the act was to provide regulatory relief for the nearly 800 credit unions nationwide — including a handful in Connecticut — that now fit under this expanded definition.
That's welcome news to Jill Nowacki, president and CEO of the Credit Union League of Connecticut, a trade association that provides legislative, regulatory, educational and technical consulting to the state's credit unions.
“This will be the year of regulatory relief,” she said, noting the cost — which doubled from 2007 to 2012 — of complying with regulations have caused some industry consolidation in the state over the past few years. “In 2013, we had 118 credit unions in Connecticut; today, we have 110 credit unions,” Nowacki explained. The longer-term pattern is even more bleak: The number of credit unions nationwide is down by more than half — from more than 12,500 in 1995 to an estimated 6,000 today, according to a congressional report.
That's a trend Nowacki would like to see reversed because she says credit unions — which are owned by their members and serve nearly one in four people in Connecticut — provide better opportunities and more affordable access to money for consumers and small businesses. They're also, she argues, more stable financial institutions.
“After the 2008 market downturn, not one credit union had to accept government bailout money,” she said.
That's because many smaller institutions, Nowacki said, weren't involved in the more complex financial services like mortgage-backed securities that forced some of the largest financial services firms, including Lehman Brothers, into bankruptcy.
And yet, says Todd, while credit unions weren't involved in the predatory lending that led to the Great Recession, they are inundated with a raft of consumer-protection regulations that resulted. In fact, according to the Credit Union National Association (CUNA), credit unions have been subjected to nearly 160 rule changes since 2008.
“I recognize that many regulations are implemented with the best of intentions, but result in unintended consequences,” Todd said. “They are not only burdensome, but some also limit our ability to offer products that our members need.”
Smaller credit unions are the hardest hit because compliance costs are largely fixed and spread against a smaller asset pool. A 2014 report by Filene Research Institute, which examined the impact of regulatory burdens on credit unions, noted that the smallest quartile of credit unions nationally use resources equivalent to 43 percent of full-time equivalent employees; for large credit unions, it's just 4 percent. From 2007 to 2012, the number of full-time employees devoted to regulatory compliance industry-wide in the U.S., the report said, increased by 70 percent, nearly four times greater than the increase in the average number of employees (17 percent) in that span.
“These regulations are something we're dealing with on a daily basis,” said Nowacki, “and it's not sustainable.”
While she's not heard much from her members about the NCUA's latest change — and is not sure specifically what regulatory practices will be impacted as a result — Nowacki is optimistic about the future. “I think we'll see growth in the next three to five years,” she said. “I think credit unions have demonstrated through the financial crisis and economic stagnation that they are healthy and stable.”
She is hopeful that the regulatory review of credit unions will expand from the current 12-month cycle back to the 18-month cycle it was pre-2008. Small changes like that, she said, may just be a Band-Aid on a larger problem, but it's a better adhesive than red tape.
