Compliance costs at the $42 million Dixies FCU have increased five-fold since 2009, from about $20,000 a year to $100,000 annually. President/CEO Scott Eagerton pressed that point about his Darlington, S.C.-based cooperative to members of the House Committee on Small Business Economic Growth, Tax and Capital Access Thursday during a hearing that examined the effect Dodd-Frank has had on small lenders.
"I feel like we're getting away from helping people and focusing on following laws created in Washington," Eagerton said about regulatory burden created by the 2010 law.
He also said Dixies FCU spends $30,000 per exam cycle on lost wages due to employees preparing for the exam, being available to examiners during the exam, and following up with examiners after they've left. Eagerton, who testified on behalf of NAFCU, pitched the trade's position that the NCUA return to an 18-month exam cycle.
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The credit union devotes so many resources to compliance, Eagerton said he's lost employees due to regulatory frustrations.
"Most of our staff has indicated that they do not want to participate in real estate lending because of the constant changes and regulatory uncertainty," he told the panel.
He also said the credit union no longer offers non-qualified mortgage loans.
"In addition to pressure from our examiners urging us to strictly limit any home loan, we decided the liability risk simply wasn't worth it," he said. "This has resulted in our mortgage portfolio shrinking from 60% prior to the crisis to 30% today."
Eagerton also pressed that while he's put away $9,000 annually for loan loss reserves, he's spent $120,000 on compliance.
"We have had staff departures due directly to these frustrations," he said. "Most of our staff has indicated that they do not want to participate in real estate lending because of the constant changes and regulatory uncertainty. Through August of this year, Dixies FCU spent more than $20,000 for systems upgrades and software licenses; this does not even include the man hours spent setting up and learning how to operate the new software. For that we joined a CUSO to help with compliance and training of our compliance officers. The cost for membership and training was roughly an additional $7,500. During these times of regulatory adjustment, it is nearly impossible to make mortgage loans; this hurts our members as well as the overall business."
Julia Gordon, senior director of the Housing and Consumer Finance Center for the Washington-based Liberal think tank American Progress, testified mostly in favor of Dodd-Frank and the CFPB. However, even she agreed when pressed by lawmakers that the small financial institutions represented on the panel should be exempt from a number of CFPB rules.
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