To Be Clear: Dodd-Frank Not The Driver of Demise of Small CUs
By Cathie Mahon
In reading your piece “NCUA: Trump Reg Freeze Does Not Apply To Agency” earlier this week, I feel compelled to clear up a misconception that the Dodd-Frank Act is responsible for the approximately 20% decline of the number of credit unions over the previous five years. For years, the Federation has raised awareness of the challenges in navigating the changing regulatory and compliance environment for small credit unions. The ever-evolving financial services industry with its changing regulatory environment and consistent examiner over-reach have and continue to adversely impact credit unions, particularly small and disproportionately minority and low-income credit unions, thwarting their ability to grow and serve their communities to the fullest.
As a provider of capital, technical assistance, consulting services and support to credit unions for more than 40 years, we have seen first-hand how ever-tightening restrictions placed on credit unions by the regulators can drive a credit union to merge or close. These restrictions are placed on the credit union’s ability to expand to new communities, offer new loan products, increase services and manage appropriate risk levels to the populations that they serve. We have advocated on behalf of credit unions from examiners on up to the NCUA Board asking repeatedly that the agency take extra measures and steps prior to merging or closing a credit union, particularly one that serves an under-served communities. And we have advocated for outside help from others in the credit union movement to join us to help struggling credit unions to right themselves. Often the Federation has been the only voice fighting for more support for these institutions in danger of being merged or closed. Often as we raise that voice, we are told that this is the way it is, that small credit unions no longer offer a viable business model for the movement.
It therefore feels particularly disingenuous to read the article the other day linking the loss of these precious institutions to the enactment of Dodd-Frank and the ensuing consumer protections. In the lead-up to the Great Recession, community development credit unions saw rampant and irresponsible lending drive consumers and homeowners in their communities into dangerous levels of financial and economic insecurity. Dodd-Frank and the subsequent creation of a Consumer Financial Protection Bureau put in place protections and curbs to avoid future abuses. And while there is a lot of room for improvement, community development credit union members are healthier and stronger when rational, consistent and durable protections are in place.
Politically Expedient, But…
The link of credit union closings to Dodd Frank may be politically expedient but it is neither an accurate reflection of reality nor will it help preserve and grow credit unions in the future. The closing rates for CUs increased from 3.4% in the period prior to Dodd-Frank (2004-2009) to 3.9% in the period afterward, the same period that our members were climbing out of the aftermath of that disastrous Recession.
If others in the credit union industry are sincere in embracing struggling credit unions then they will join the Federation’s efforts through our CDCU Mentorship Program to support and help grow low-income and minority credit unions. We urge your readers to join us in providing vital services to these institutions to help them with all compliance in accounting, account reconciliations, with supervisory committee audits, interim audits, Bank Secrecy Act (BSA) audits, ACH audits, internal controls and filing of reports. And we urge your readers to commit to work together with struggling institutions to build their business, grow their lending and marketing efforts. If we are committed to maintaining and growing this movement, we need action and active engagement, not hollow words.