WASHINGTON — Big Valley Federal Credit Union President and CEO Linda Sweet testified Tuesday morning on behalf of NAFCU before the House Small Business Subcommittee on Investigations, Oversight and Regulation on "Regulatory Landscape: Burdens on Small Financial Institutions."
Sweet is expected to focus on the increased regulatory compliance credit unions have faced since the financial crisis, according to an advance transcript of her testimony.
"I have watched the industry go from helping people with their financial needs and life goals, to a point now where I have limited member interaction due to the unprecedented regulatory onslaught my credit union has faced since the financial crisis," Sweet said in her prepared testimony.
Sweet noted the entire credit union community appreciates the opportunity to discuss the regulatory burden that CUs face with members of Congress, as the "overwhelming tidal wave" of new regulations in recent years "is having a profound impact on credit unions and their ability to serve some 96 million member-owners nationwide."
She reminded members of the subcommittee that credit unions have always been some of the most highly regulated of all financial institutions, facing restrictions on who they can serve and their ability to raise capital.
Furthermore, she asserted, there are many consumer protections already built into the Federal Credit Union Act, such as the only federal usury ceiling on financial institutions and the prohibition on prepayment penalties that other institutions have often used to bait and trap consumers into high cost products.
Despite the fact that credit unions are already heavily regulated, were not the cause of the financial crisis, and actually helped blunt the crisis by continuing to lend to credit worthy consumers during difficult times, they are still firmly within the regulatory reach of several provisions contained in the Dodd-Frank Act, including all rules promulgated by the Consumer Financial Protection Bureau (CFPB),
"The breadth and pace of CFPB rulemaking is troublesome as the unprecedented new compliance burden placed on credit unions has been immense."
The impact of this growing compliance burden is evident, Sweet argued, because the number of credit unions continues to decline - dropping by more than 800 institutions since 2009. While there are a number of reasons for this decline, she will testify, a main one is the "increasing cost and complexity" of complying with the "ever-increasing onslaught" of regulations. "Many smaller institutions cannot keep up with the new regulatory tide and have to merge out of business or be taken over."
Increase In Compliance Costs
The Subcommittee is also expected to be told of the "skyrocketing" increase in compliance costs CUs have experienced over the last few years.
She will offer results of surveys of NAFCU members that found of those credit unions that are increasing their education budgets for next year, 84% cited increasing compliance burdens as the most important factor for this increase.
The new regulations also impact many of the vendors credit unions deal with, and the same NAFCU survey found more than 70% of responding credit unions have seen increased vendor costs stemming from new regulations.
"These increased costs at Big Valley have resulted in the inability to provide the quality of service our members have grown accustomed to," Sweet will testify. "Now, we are often slower to offer services that our members want and there are some services we have been forced to cut back on. For example, in many cases we are unable to offer a member a mortgage product that we were once able to."
Big Valley has had to outsource many of its mortgages because the credit union cannot afford a loan officer with the qualifications that new CFPB regulations require, according to Sweet.
"In addition to requiring a member to turn elsewhere for a product we once offered them, they are faced with increased costs that often rise to several thousands of dollars. That certainly seems like an unintended and unnecessary cost to the consumer that the new agency was meant to protect."
