government employees in New Mexico. That changed in 1992 when it started doing business with customers from all occupational groups statewide.
By the time it changed its name to U.S. Eagle last year, the organization – formerly known as U.S. New Mexico Federal Credit Union – had beefed up its growth ambitions, launched new products, hired more staff, expanded loans and merged with a smaller credit union in Santa Fe that had served correctional officers.
President and CEO Marsha Majors said the credit union intends to keep up the pace at a time when its members need the help for car loans, mortgages and small business growth when other lenders have walked away.
While U.S. Eagle is investing in its members, Majors said it also must deal with the costs of complying with the Dodd-Frank Act, an attempt to more closely regulate financial institutions in the wake of the 2008 financial meltdown.
New Mexico’s credit unions, which have 800,000 members, have joined a national effort to ask the Consumer Financial Protection Bureau and other regulators to roll back federal rules that they argue were never meant to apply to their institutions, but are resulting in some costly expenditures.
The credit unions say that, because they are small in terms of assets, it’s more difficult to meet some Dodd-Frank requirements than it is for larger banks.
Paul Stull, president and CEO of the Credit Union Association of New Mexico, said members of the group recently met with the state’s congressional delegation to share their concerns with the lawmakers and regulators who will make key decisions in the coming year. All three House members from New Mexico – Reps. Michelle Lujan Grisham, Steve Pearce and Ben Ray Luján – signed on to a letter addressed to CFPB Director Richard Cordray, contending Congress never intended the agency to apply the regulations to credit unions and community banks.
Stull acknowledges the challenges faced by the state’s small community banks are equally daunting, but they aren’t part of the recent lobbying effort. “They are also hamstrung” complying with the Dodd-Frank rules, said Stull. “The unfair advantage is the unintended consequences hurting New Mexican consumers, limiting the choice and availability of consumer credit,” he said.
Indeed, the letter the congressional representatives signed onto asks, “As you consider consumer protection regulations, we urge you to account for the burden associated with compliance, particularly for smaller entities such as credit unions and community banks.”
Laws intended to police Wall Street shouldn’t apply to Main Street lenders under a one-size-fits-all regulatory blanket, said Stull.
What that translates to for New Mexico credit unions since Dodd-Frank rolled out in 2010 is a $51.6 million bill for regulation costs and total revenue reductions of $9.2 million.
“How many more car loans, how many college educations could we use of that (nearly) $52 million to help average New Mexicans?” said Stull.
Many community banks and credit unions say several mortgage-related rules have increased their compliance burden, requiring more staff and training, more time for regulatory matters and having to update compliance systems. The institutions also are concerned about increased consumer disclosure on remittance transfers and fee caps on debit interchanges.
“On the debit card side, we’ve seen lost revenue,” Majors said. And, she said, the credit union’s compliance expenses are up by 35 percent in the past five years.
“Our loan officers have to be up to speed” on all the rules, she said.
Increased disclosure requirements also have affected service. “On the mortgage side, if you have the slightest errors, the clock starts all over,” said Majors.
The upshot, she said, is that, instead of providing better deposit and loan rates, enhancing conveniences and expanding locations, more money must now be directed into regulatory expenses. U.S. Eagle is the third-largest credit union in the state, with 85,000 members and $855 million in assets.
A recent SNL Financial survey reported that 29 percent of participating credit unions said compliance costs grew more than 30 percent since the act’s implementation.
According to a Credit Union National Association report released in February, regulatory compliance costs associated with 2010’s Dodd-Frank Wall Street Reform and Consumer Protection Act and the Durban Amendment increased by almost $3 billion between 2010 and 2014 – ultimately bringing annual costs of regulation to $7.2 billion at all credit unions, nationally, and reducing credit union revenues by $1.1 billion.
While Stull and the credit union industry see the issue as one of government overreach and have gotten a sympathetic hearing from Congress, not everyone shares their vision.
Cordray, the CFPB boss, said in a recent address to a credit union group that exempting credit unions altogether from consumer financial protection laws was a nonstarter.
“They (your leaders) have argued that the law would allow us to do that,” Cordray said. “I have considered their arguments carefully and I do not believe that is correct. The U.S. Congress had all of these suggestions in front of it when the Dodd-Frank Act was being written. But Congress did not do that and, though it gave us some amount of exemption authority, it is not plausible to me that we could use such authority to override Congress’s own judgment on such a broad-based policy matter.
“Instead,” Cordray continued, “Congress said that all financial institutions have to play by the rules and we have to enforce them. That is our charge. But that does not mean one size necessarily fits all. Congress itself drew some thresholds and tiers that distinguished larger institutions from smaller institutions, such as its provision giving us supervisory authority over banks and credit unions with more than $10 billion in assets, but not those with less.
“So where we can customize our rules to treat smaller institutions differently in light of their compliance burdens and the level of risk they pose, we have done so and will continue to do so.”