Get ready to say goodbye to your neighborhood credit union! Slowly, but surely regulations imposed by Dodd-Frank are putting credit unions out of business across America. As a result of the Dodd-Frank regulatory burden, U.S. credit unions have seen skyrocketing compliance costs and loss of revenue that are not only hurting credit unions, but also the American consumers that they serve.
The financial services industry has always been a heavily regulated industry, but since the financial crisis the level of regulations placed upon this industry has reached astronomical heights. Instead of solving what caused the financial crisis, Dodd-Frank imposed a new regulatory regime upon the financial services industry. This has made the industry as a whole less profitable and less competitive. While larger institutions that are able to absorb these costs thrive under Dodd-Frank, smaller institutions, like credit unions, are left to struggle for survival.
Credit unions are staples of every community across America. They offer a consumer focus larger institutions are unable to give since credit unions are member-owned, and not purely for profit like many of their larger competitors. This commitment to consumers and communities allows credit unions to focus on helping members save and borrow and receive affordable financial services. In many cases this means lower rates, reduced fees, and personalized service. Dodd-Frank puts this all in jeopardy.
Under Dodd-Frank the cost to simply comply with regulations continues to increase. According to a 2016 study, credit unions see three sources of these increased costs from regulations: additional staff; third party expenses; and depreciation of capitalized costs.
In order to simply understand the complex rules put in place by Dodd-Frank, credit unions have to hire additional staff, and in order to make sure that they are complying with regulations they must hire third party companies to review their work. Fully one in every four credit union employees time is now spent on regulatory compliance. All of this extra staff and expenditures added up to an additional $6.1 billion in costs for credit unions in 2014 alone.
Unfortunately, not all credit unions are created equal. Naturally some credit unions have more assets than others, and as a result are able to spread the costs. In fact credit unions with assets under $100 million face a regulatory burden almost 3 times greater than credit unions with over $1 billion in assets. As a result revenue from these institutions are drastically affected by Dodd-Frank regulations like the Durbin amendment. Estimates show that the total impact of these regulations comes in at $1.1 billion in lost revenue in 2014, and that’s just the conservative estimate.
Fortunately, amongst all of this bad news there is some hope for the millions of Americans that use credit unions. President-elect Donald Trump and his nominee for Secretary of Treasury, Steven Mnuchin, along with a unified Republican government will have the tools to repeal much of Dodd-Frank. Should they need any guidance they will have the work of Representative Jeb Hensarling (R-Texas) and Senator Pat Toomey (R- Penn.) to use as a roadmap.
Photo Credit: Johnathan Haeber