Credit union executives in Nevada have long feared the cost of regulatory compliance would increase due to new rules that seek to better regulate the financial services industry.
Those fears have come true, according to local credit union executives and a Credit Union National Association commissioned report from Cornerstone Advisors.
The report found costs associated with 2010’s Dodd-Frank Wall Street Reform and Consumer Protection Act and the Durban Amendment jumped by almost $3 billion between 2010 and 2014, bringing annual costs of regulation to $7.2 billion at all credit unions and reducing revenues by $1.1 billion nationwide.
What that means for Nevada is $21.3 million spent on regulation costs, and a total revenue reduction of $4 million. The report found an average cost of $77 passed on to Nevada credit union members.
“Regulatory costs obviously impede our ability to compete,” said Bradley Beal, president and CEO of One Nevada Credit Union. “Those costs have to be passed on to the consumer in the form of higher rates and fees, or reduced member benefits.”
Due to higher regulatory compliance costs, Beal said they’ve also been forced to attempt to cut operating expenses, which adversely impacts member services. “So the consumers suffer both ways,” he said.
Beal expects overall regulatory costs to continue to increase, mostly at the federal level. Las Vegas-based One Nevada Credit Union operates 14 branches in Nye, Washoe and Clark counties with 76,667 members and $771 million in assets.
“The federal government has become a regulation writing machine,” Beal said. “Yes, there are limited abusers in the financial services industry, and these folks need to be punished and removed from the marketplace.”
Beal said it was unfortunate, but the federal government, “under the guise of preventing abuse in the future,” unnecessarily overburdens the entire industry, and ironically consumers suffer.
Matt Kershaw, president and CEO of Clark County Credit Union, agreed, saying higher regulation costs have resulted in a multi-million dollar reduction in the bonus dividend members received in January.
“We gave back to our member-owners a $3 million bonus dividend in January and if we didn’t have the amount of regulatory burden that number could have doubled,” he said.
This year’s average bonus was $83 per member, with the highest single bonus totaling more than $16,000. Clark County Credit Union, based in Las Vegas, operates six branches in Southern Nevada. The credit union has 37,000 members and assets of $580 million.
“Much of the regulation that had happened in the last several years were meant to reduce the ‘too big to fail’ banks that we wouldn’t have a repeat of the Great Recession,” Kershaw said. “However, the opposite has happened, and big banks are bigger today.”
He said the result is “increased costs of regulatory compliance.”
The CUNA’s report estimates that as many as one in four credit union employees is involved in regulatory compliance, which accounts for about 74 percent of staff costs at credit unions nationwide.
“All of our employees are involved in regulatory compliance,” Beal said. “Several regulations require annual retraining of all employees. For example, all employees have to receive annual retraining on handling currency deposits, even those employees who never come remotely close to processing those deposits.”
The study also found regulatory compliance accounts for 22 percent of third-party expenses and a 4 percent depreciation of capitalized expenses. However, the regulatory “burden is particularly egregious for smaller institutions,” the report said.
“The number of employees involved in compliance is difficult to pinpoint because it is part of almost everyone’s job, but there are three employees that focus heavily on compliance and another five employees that spend significant time dealing with compliance,” Kershaw said. Those eight employees represent nearly 10 percent of the credit union’s staff.
Kershaw called on the Consumer Financial Protection Bureau to use its authority to excuse credit unions from regulations meant for big banks.
Kershaw received some support on March 15 when a bi-partisan letter signed by 329 members of the U.S. House was delivered to CFPB Director Richard Cordray, calling on the bureau to protect credit unions from Dodd-Frank regulations.
“Credit unions and community banks provide safe and sound lending opportunities for their members and customers,” according to the letter composed by Reps. Adam Schiff, D-Calif., and Steve Stivers, R-Ohio. “Their focus on local lending and community development and the close-knit relationship they develop with those they serve is essential to preserve.”
Nevada Reps. Dina Titus, a Democrat, and Republicans Mark Amodei, Joe Heck, and Cresent Hardy added their signatures to the letter, according to a CUNA spokesman.
The letter urged Cordray and his staff, as they consider more regulations, to account for the burden associated with compliance, particularly for smaller entities such as credit unions and community banks.
Cordray told some 5,000 credit union executives and advocates attending the CUNA Governmental Affairs Conference in Washington, D.C. that he believe the CFPB cannot exempt credit unions from certain rulemaking.
CFPB considers crackdown
on statement choice
Paper or online monthly statement?
For most bank and credit union customers, it’s online statements every month, because there is usually an added fee if you want paper documents.
The National Consumer Law Center believes credit unions and other financial institutions are pushing consumers into accepting electronic statements. The nonprofit consumer group is calling on the Consumer Financial Protection Bureau to require financial institutions to offer paper documents as the “default option.”
“Paper statements may seem old-fashioned, but consumers have good reasons to continue receiving them,” said staff attorney Chi Chi Wu, a co-author of the report Paper Statement: An Important Consumer Protection. “Paper has its advantages.”
The report calls on the CFPB to protect consumers by prohibiting banks and credit card lenders from making electronic statements the default choice, compelling consumers to consent to electronic statement by making it a condition of a product or condition of online access or by charging a fee for paper statements that are required by federal law.
In the report, the NCLC added that millions of Americans don’t have Internet service at home, making it more difficult for them to access e-statements. For example, 55 percent of Americans over 65 don’t have Internet service at home, the report said.
The NCLC also found that mobile devices aren’t a substitute for home computers because of their smaller size and formatting is unsuitable for recordkeeping.
“Paper versus electronic should be the consumer’s choice,” said Lauren Saunders, associate director at the NCLC in Boston.
“Banks and credit card lenders should not push consumers into electronic statements with fees or coercive measures.”