To: The 45th President of the United States
From: Jim Nussle
In addition to the woodland caribou, the bighorn sheep, and the masked bobwhite, you can add this to America’s list of endangered species: credit unions and other community-based financial institutions.
Chalk up that threat to the same culprit: humans. In this case, it’s death by a thousand paper cuts from Washington legislators and regulators who have been carving up small financial institutions with compliance costs since the Great Recession. Worse, the prognosis in the Capitol is for more of the same bad medicine.
Your leadership will turn the tide. America’s credit unions were not the cause of the financial crisis. On the contrary, our not-for-profit, member-owned, cooperative business model guides us to serve our members with attractive rates on savings, loans and credit cards. We kept credit available during the crisis while others couldn’t and stand ready to help spur economic growth, job creation, and small business development.
Since passage of Dodd-Frank in 2010, which led to the creation of the Consumer Financial Protection Bureau (CFPB), regulatory costs for credit unions have risen by 39 percent. While this hits all of America’s credit unions regardless of size and impacts the financial benefits they extend to members, it hammers small credit unions and the communities they serve particularly hard. That’s because smaller financial institutions lack the scale to spread their regulatory costs across a larger base. Typically, they’re forced to dig out from the regulatory blizzard by adding costly staff or reducing services that benefit their members.
We studied the effect these regulations had on credit unions. Our findings: The regulatory cost impact on the credit union industry was $6.1 billion in 2014 and the lost revenues to credit unions from services that were discontinued or reduced because of added regulation is at least an additional $1.1 billion. This total impact of $7.2 billion is equivalent to an astonishing 80 percent of credit union industry earnings and 6 percent of our credit unions’ net worth.
The disproportionate impacts from Dodd-Frank, the Durbin Amendment, the CFPB and the bureau’s Qualified Mortgage Standard, and other regulations are borne by credit unions, particularly the three-fourths of them with assets of $100 million or less. These firms already face a significant challenge in keeping up with the rapid technological changes in the financial services industry.
Add in the unnecessary burdens from Washington and the effects can be devastating, which is why industry-wide consolidation is picking up speed. Membership in credit unions has grown to a record 105 million member-owners, but the number of credit unions that serve those members has decreased by 25 percent since the beginning of the financial crisis. Among the 6,000 credit unions that remain, large and small, our study found they now spend over a quarter of their staff time dealing with the impacts of regulations.
How did this happen, when the stated goal of financial reform was to rein in “big banks” and those considered too big to fail? In a bid to clean up a broken financial system, Washington rounded up more than the usual suspects. It threw in innocent entities like credit unions and community banks that played no role in the financial crisis and should have been held harmless.
We recognize that as federally insured financial institutions there will be regulation. However, the recent increase has been excessive, and we would provide more benefit to our members and our communities if we spent less on compliance and more on member services: lower interest rates for consumers buying a house or a car, and higher interest rates on savings.
Your leadership will make a difference. We are ready to work with your administration to roll back laws that are causing the damage to credit unions and other smaller institutions, or to at least exempt them from these laws.
For America’s credit unions, regulatory restraint would offer more than relief in terms of costs and a boon to their members. It could be a lifesaver and help spur economic growth, job creation, and small business development across the country.
President / CEO, Credit Union National Association