A recent study by CUNA underscores just how large the impact is for credit unions. The CUNA study identified the regulatory cost to credit unions in 2014 totaled approximately $6.1 billion, which accounts for 17% of operating expenses. That year alone, regulations had a total financial impact on credit unions of $7.2 billion, with $1.1 billion in lost revenue. CUNA claims the regulatory costs for credit unions in 2014 were $1.7 billion higher than they would have been without the regulatory changes that occurred from 2010 to 2014. A more granular analysis highlights the regulatory cost impacts were much higher for small credit unions (under $100 million in assets), expending 1.12% of assets, compared to large credit unions (more than $1 billion in assets), which spent 0.33% of assets on regulatory costs. CUNA also reports that one in every four employee's time is spent on regulatory compliance, taking resources away from serving members.

Make no mistake, financial regulations carry tangible costs. Regulation can also have downstream impacts, passing costs onto consumers. But let's not forget the other side of the equation – the intended benefits and protections of regulation for consumers and society. Regulations are often put into place in situations where government officials felt the industry had not been doing a good job of regulating itself. The very consumers the regulations are intended to protect appear to overwhelmingly favor increased protections. A recent Quinnipiac University poll of voters showed 50% of those surveyed favored more government regulation of financial institutions, while 37% indicated such regulations hurt the economy. However, we can all point to specific policy and regulatory interventions that don't translate into the real world resulting in unintended consequences such as an untenable level of risk averseness in consumer lending. The regulatory burden just described for credit unions could be part of those intended or unintended consequences.

But despite the costs to credit unions, how many of these costs are really passed on to consumers? What are the quantified consumer benefits of the regulations? Who is losing and who is benefitting from the regulations?

Industry Impact: Many CUs Have Found a Way to Thrive

Though fraught with economic and regulatory uncertainty, credit unions have been working hard to reduce the impact to their bottom line and many credit unions appear to have found a way to thrive.

According to CUNA's Economic Update from January 2017, credit union savings growth increased by 4.5% in 2014, 6.8% in 2015, and is forecasted to be 7.3% in 2016. Likewise, credit union membership increased 3.1% in 2014, 3.5% in 2015 and 4.1% for the year ending September 2016, which is five times faster than the U.S. population growth and the fastest gain in over a decade. Despite the additional regulations, credit union loan growth has also held steady at 10.4% in 2014, 10.5% in 2015 and is projected to be 10% for 2016. CUNA also projects credit union net worth ratios will push closer to record levels in 2017.

This shows us, on the aggregate, credit unions appear to be in a good financial position coming out of the recession. So despite the onslaught of regulation, many credit unions, and the industry as a whole, appear to be doing well.

Member Impact: Despite Thriving CUs, Many Consumers Struggle

While credit unions as a whole have been doing well since the Great Recession, consumers, especially low to moderate income consumers, have not been able to grab on to the slowly improving economic conditions. As a nation, we've seen growing income inequality and a whole class of the population historically referred to as the middle class now struggling to make ends meet.

Research by Edward Wolff, an economist at New York University, reported the median net worth of Americans has plummeted in the past generation. Between 1983 and 2013, median net worth decreased 85.3% for the bottom income quintile, was down 63.5% for the second lowest quintile, and was down 25.8% for the third lowest, or middle quintile. Simply put, the poor are getting really poor, and middle income Americans are losing financial stability at a rapid rate.

The sources of these troubles are far reaching. Lisa Servon, in her new book The Unbanking of America, states, "Rising inequality, declining wages, a threadbare social safety net, decreased benefits for workers, and increases in the cost of living all play a role in how we got here. It's not just the consumer financial services industry that got us into this mess."

What other impacts are we seeing? One example is the lack of savings to stave off financial emergencies. You may have seen the often-quoted statistic from a Federal Reserve analysis stating 47% of Americans would not be able to cover a $400 emergency expense.

Another impact to middle- and low-income Americans is income volatility. Research from the U.S. Financial Diaries Project found 61% of household expense spikes do not align with corresponding income spikes. When income doesn't match expenses, households may revert to high-cost payday loans to cover everyday expenses. In fact, Pew Research confirmed this in its research: Of first-time payday lending borrowers, 69% indicated their loan was for recurring expenses, not the commonly presumed "emergency" expense.

While consumers of all backgrounds are struggling, minority populations often face the largest financial service access gap. In Filene Research Institute's recent report "Reaching Minority Households: Learning from Minority Credit Unions," we report minorities represent approximately 30% of all U.S. households, but hold only 10% of the total wealth, 13.4% of the deposits and 7.5% of retirement savings. That type of wealth gap creates all sorts of challenges in a mainstream financial system where credit scores and assets have a disproportionate role in determining who does and does not get credit. Access to safe, high quality and affordable financial products is often out of reach for many minority households in the U.S.

Connecting the Dots

Let's pause for a moment to connect the dots. While the credit union regulatory environment has become increasingly complex and costly to manage, generally the credit union industry appears to be doing well, if not thriving. Many credit unions have found a way to carry out their mission in this environment. At the same time, more and more consumers (and likely credit union members), are finding it harder and harder to make ends meet.

Certainly, credit unions did not cause the declining economic situation for consumers. In fact, credit unions in the U.S. and around the world have actively been doing their part to ameliorate the situation for their members; however, will credit unions do more to help financially vulnerable consumers in an uncertain regulatory environment?

The regulatory pendulum is constantly swinging and those who choose to wait for a period of stability before innovating will be waiting far too long. Numerous credit unions have pioneered creative concepts for vulnerable consumers, for example:

• Point West CU in Portland, Ore., has issued approximately $20 million to more than 2,000 members through its Non-Citizen Lending Program since its inception in 2002. The portfolio currently stands with a delinquency ratio of 0.71% and a charge-off ratio of (one year) of 0.22%.

• The Payday Payoff program was originally established by Kinecta FCU and Nix Neighborhood lending in California in 2014 and as of Feb. 14, 2017 they have provided more than $18.1 million in installment loans to more than 13,700 individuals with a repayment rate of 92%. Average FICO score improvement for recipients is 150 points.

• WSECU and QCash in Washington State provided members with more than $28 million in small dollar loans in 2015, saving members an estimated $3.7 million when compared to payday lending options.

• Alterna Savings Credit Union of Ontario, Canada has been providing microfinance loans, coupled with business education since 2000, issuing more than 850 loans totaling more than $4.5 million. Through 2012, Alterna reports that borrowers experienced a 75% reduction in the need for government assistance and hired workers in the community to support their businesses (25% hired permanent workers and 75% hired part-time workers).

The bottom line is credit unions that choose to take on the task of being part of the solution for struggling consumers do not need to start from scratch, nor are they going to have to do it alone. Filene Research Institute (through significant support from VISA and the Ford Foundation) has made a firm commitment to making a dent in the economic slide of many consumers through our Financial Empowerment Incubator. In this Incubator we work with more than 35 credit unions across North America to research, test and analyze possible solutions for credit unions to serve financially vulnerable groups, including the ideas noted above.

Could CUs be Doing More With Fewer Regulations?

If the regulatory environment gets rolled back, credit unions could gain significant operational capabilities, freedoms, reach and influence. As Peter Parker's uncle said in The Amazing Spider Man, "With great power comes great responsibility." Like Peter, credit unions have a choice. A choice to use newfound power to increase focus on serving those who need them most, or continue with business as usual. Part of the "responsibility" of credit unions is to carry the flame that Edward Filene lit many years ago – a fiery movement where financial cooperatives could solve the most pressing financial challenges of their communities when private banks decided certain groups or populations were not worthy, profitable or necessary to serve.

While credit unions could potentially celebrate a regulatory victory in the near future, it is no guarantee that consumers will ultimately see any benefit, unless credit unions take a stand, make certain choices, and ensure that part of the industry's success is tied to the most financially vulnerable among us.

Credit union action alone cannot lift people out of poverty. But, the declining financial situation of many financially vulnerable consumers will not go away without fair and affordable financial service interventions. It should be credit unions leading this charge. Credit unions exist to serve their members, and not to exist for existence sake. It's in credit unions' DNA. It's why they put people before profits. It's what differentiates them from other financial service providers.

As Filene has seen evidenced in our work with credit unions, and through frequent examples from others across North America, credit unions are not, in fact, paralyzed by regulations. Many have found effective ways to serve the most financially fragile members of their communities while sustaining the business. It does, however, take creativity, passion and the desire to recognize one's powers to be the financial leaders we seek and the heroes we need.

Adam Lee is Incubator Director for the Filene Research Institute. He can be reached at 608-661-3747 or [email protected].