Top league execs charge small credit unions doomed by regs

SPOKANE, Wash. – Regulatory overkill is threatening the very survival of small credit unions and compliance with new anti-terrorist laws while high minded present a dismal picture for this segment of the industry, two top leaders of the Washington and California Credit Union Leagues have charged. In comments made in connection with a Seattle conference of CU Association of the West, Byron Edgett, chairman of the Washington League, and Pat Wagner, chairman-elect of the California League, complained that the data processing and management burdens on small CUs can be overwhelming in trying to comply with laws like the USA Patriot Act and Office of Foreign Assets Control Act (OFAC). Regulatory agencies and lawmakers “have to understand” that while small CUs are eager to do their part in compliance, the processing overhauls, paperwork and training expenses are forcing many CUs to consider leaving the business, said Wagner, president of the $8 million New World Federal Credit Union, of Lafayette, Calif. Large CUs are better staffed and equipped to cope with the new laws which now makes it vital “they come to the assistance of smaller credit unions to protect their very survival,” said Wagner, who participated in the two-day CEO Oktoberfest , a management summit conducted by CU Association of the West for League members in Oregon, Washington, California and Nevada. Edgett, who is also president of the $80 million Spokane, Wash. Federal Credit Union said apart from the Patriot Act and OFAC, NCUA and other agencies are pursuing zealous compliance with various other consumer protection laws including Truth in Lending and by doing so are creating processing nightmares. Small CUs-those under $40 million-serve such a small part of the economy, and yet a regulatory imbalance has been created in which NCUA and other regulators press small CUs to comply. This ends up needlessly punishing them, forcing the institutions to spend inordinate amounts of time and resources they don’t have. NCUA, said Edgett, has begun to implement lighter versions of complex administrative rules but much more can be done. “When one weighs the risk to the insurance fund to the potential cost of small credit unions failure, we have a lot of room to back off and increase their chance of survival,” said Edgett. “None of it makes sense to me,” observed Edgett, adding the result of the excessive regulation is “absolutely onerous” to the degree that small CUs are ready to quit. Even those that stay in business find their ability to find management talent to run the institutions is severely crippled.. “My own daughter recently graduated with a BA in finance, and if I was asked I could not recommend she accept a CEO position at a small credit union because the compensation package they might offer is not worth the risk she would accept, just in the area of compliance,”said Edgett.. He said his daughter has a credit union job and is receiving “nearly the same compensation as CEOs of very small CUs without the risk.” Edgett in an interview with Credit Union Times maintained NCUA does recognize that it can lessen the impact on small CUs but “a lot needs to be done in the entire regulatory environment.” He went on to say that, “When you consider consumers just don’t get ripped off by their credit union I have to advocate all of the consumer protection laws do not have to be so onerous for small credit unions,” adding “lighter versions of all consumer protection laws would be appropriate.” Wagner who moves up this month to chairman of the California League noted that apart from the regulatory issue for small CUs, the CEO Oktoberfest also devoted attention to secondary capital, an issue of concern to both large and small CUs. The Washington League in a statement on the Seattle meeting, said “current restrictions” on secondary or additional capital “may limit all credit unions’ near term viability.” Capital accumulation “and the safety that growing reserves provide may be an issue that defines whether the entire CU system grows or declines,” said the League. Other topics at the meeting attended by some 50 CU execs included: getting a bigger share of consumer lending, expense control, and political action. -