Regulation is threatening to drive some credit unions out of certain business lines and even drive them right out of business altogether, making reg relief efforts a top priority for the community.
Two CU executives, along with several community bank representatives with similar concerns, passed that message along to Congress during a hearing before the House Financial Services subcommittee on financial institutions and consumer credit Tuesday.
"The growing regulatory burden on credit unions is the top challenge facing the industry today," said David Clendaniel, CEO of Dover FCU, Dover, Del., during his testimony on behalf of NAFCU. "The number of credit unions continues to decline, as the compliance requirements in a post Dodd-Frank environment have grown to a tipping point where it is hard for many smaller institutions to survive. Credit unions want to continue to aid in the economic recovery, but are being stymied by overregulation. Enough is enough."
Financial services regulators have overstepped their authority and, as a result, both credit unions and smaller community banks are paying the price, said Doug Fecher, CEO of Wright-Patt CU, Beavercreek, Ohio.
"Without question, regulatory burden is one of the greatest threats to community-based financial institutions, " Fecher said during his testimony on behalf of CUNA. "It is driving consolidation within both the credit union and small bank sectors, leaving consumers with fewer choices in the financial services marketplace."
Community bankers on hand for the hearing agreed.
"Community banks currently dedicate significant energy and resources to monitoring, detection and reporting of fraud and other financial crimes in compliance with the Bank Secrecy Act," Samuel Vallandingham, president and CEO of First State Bank in Barboursville, W. Va., said. "Reputation in their communities is the stock-in-trade of community banks. The mere prospect of enforcement action is daunting enough to lead risk-adverse community banks to shut off access to their payment systems to all but the most-established, low-risk businesses."
The hearing, scheduled to discuss nine different bills that are all aimed at regulatory relief for small financial institutions, touched on everything from NCUA's proposed rule on risk-based capital, Operation Choke Point and the flurry of regulations coming out of the Consumer Financial Protection Bureau.
It wasn't just the CU and bank reps complaining about the undue regulatory burden put on them—some of the committee members joined in, as well.
"Clearly there were some bad actors and through an investigation those bad actors have been ferretted out," Rep. Ed Perlmutter (D-Colo.) said during a discussion of Operation Choke Point. "But you then don't create a program that continues to sweep more and more businesses into it. You look for the fraud and you punish the fraudulent."
Rep. Leon Westmoreland (R-Ga.) asked the executives who were testifying whether their institutions had the chance to comment on the list of merchants that have been flagged as being high risk to do business with. The panelists shook their heads no. "That's a little weird since it involves your industry," Westmoreland said.
Westmoreland also asked if examiners - concerned about the financial institutions' reputational risk - were overlooking other industry problems.
"I'm very concerned about the degree examiners are focusing on reputational risk," William Isaac, global head of financial institutions at FTI Consulting and former chairman of the Federal Deposit Insurance Corp., said. "I don't know anyone who knows what it means, except that the bank is doing something the examiner doesn't like but can't quantify into the CAMELS system. I don't think it is a helpful concept."
