Hartford Business Journal

8 Hartford Business Journal • October 12, 2015 www.HartfordBusiness.com FOCUS CREDIT UNIONS Regulatory Relief New definition of 'small' credit unions expected to ease burdens By Matthew Broderick Special to the Hartford Business Journal A s president of Manchester-based Northeast Fam- ily Credit Union, with nearly 35 years in the indus- try, Joanne Todd is no stranger to regulations. But since the economic downturn of 2008, she says, the ripple effects of increased regulations have created unnecessary burdens that small credit unions are ill- resourced to handle. "We are required to comply with most of the same regula- tions as large banks like Bank of America," she said, esti- mating that her organization — which has fewer than 6,400 members and less than $75 mil- lion is assets — spends nearly half its education budget and roughly 20 percent of its labor costs on regulatory issues. But that may soon change. That's because the National Credit Union Administration (NCUA) — the govern- ing body the oversees and regulates credit unions — recently passed the Regulatory Flexibility Act, which expanded the threshold for being considered a "small" credit union from $50 million in assets to $100 million. The goal of the act was to provide regulatory relief for the nearly 800 credit unions nationwide — includ- ing a handful in Connecticut — that now fit under this expanded definition. That's welcome news to Jill Nowacki, president and CEO of the Credit Union League of Connecticut, a trade association that provides legislative, regulatory, educa- tional and technical consulting to the state's credit unions. "This will be the year of regulatory relief," she said, noting the cost — which doubled from 2007 to 2012 — of complying with regulations have caused some industry consolidation in the state over the past few years. "In 2013, we had 118 credit unions in Connecticut; today, we have 110 credit unions," Nowacki explained. The longer- term pattern is even more bleak: The number of credit unions nationwide is down by more than half — from more than 12,500 in 1995 to an estimated 6,000 today, according to a congressional report. That's a trend Nowacki would like to see reversed because she says credit unions — which are owned by their members and serve nearly one in four people in Connecticut — provide better opportunities and more affordable access to money for consumers and small businesses. They're also, she argues, more stable finan- cial institutions. "After the 2008 market downturn, not one credit union had to accept government bailout money," she said. That's because many smaller institutions, Nowacki said, weren't involved in the more complex financial ser- vices like mortgage-backed securities that forced some of the largest financial services firms, including Lehman Brothers, into bankruptcy. And yet, says Todd, while credit unions weren't involved in the predatory lending that led to the Great Recession, they are inundated with a raft of consumer-pro- tection regulations that resulted. In fact, according to the Credit Union National Association (CUNA), credit unions have been subjected to nearly 160 rule changes since 2008. "I recognize that many regulations are implemented with the best of intentions, but result in unintended con- sequences," Todd said. "They are not only burdensome, but some also limit our ability to offer products that our members need." Smaller credit unions are the hardest hit because compliance costs are largely fixed and spread against a smaller asset pool. A 2014 report by Filene Research Insti- tute, which examined the impact of regulatory burdens on credit unions, noted that the smallest quartile of credit unions nationally use resources equivalent to 43 percent of full-time equivalent employees; for large credit unions, it's just 4 percent. From 2007 to 2012, the number of full-time employees devoted to regulatory compliance industry-wide in the U.S., the report said, increased by 70 percent, nearly four times greater than the increase in the average number of employees (17 percent) in that span. "These regulations are something we're dealing with on a daily basis," said Nowacki, "and it's not sustainable." While she's not heard much from her members about the NCUA's latest change — and is not sure specifically what regulatory practices will be impacted as a result — Nowacki is optimistic about the future. "I think we'll see growth in the next three to five years," she said. "I think credit unions have demonstrated through the financial crisis and economic stagnation that they are healthy and stable." She is hopeful that the regulatory review of credit unions will expand from the current 12-month cycle back to the 18-month cycle it was pre-2008. Small changes like that, she said, may just be a Band-Aid on a larger problem, but it's a better adhesive than red tape. n Q&A Windsor Locks credit union evolves over 75-year history Q&A talks with John Franco, CEO of Windsor Locks Federal Credit Union, which is marking its 75th year in business. Q: The Windsor Locks Federal Credit Union is celebrating its 75th anniversary this year. What have been some of the biggest changes over the years for the credit union? A: When the credit union was founded in 1940 it was open for membership to the parishioners of St. Mary Church. Busi- ness was conducted after mass on Sun- days and accounts were limited to regu- lar share savings and small loans. The manager conducted loan business in his home and made loans literally based on a promise to repay and a handshake. Over the years membership grew, the staff grew and a full-time office was opened in 1975. In 1987 the name was offi- cially changed to Windsor Locks Federal Credit Union and the mem- bership was broadened to employ- ees of various local businesses and organizations. By 2003, the credit union moved from serving specific sponsor groups to a community charter serving the needs of peo- ple throughout Hartford County. Today, the credit union has evolved into a full-service financial institu- tion serving the needs of both con- sumer and business members. Q: How have you been able to maintain yourself as a sin- gle branch credit union? Why haven't you expanded as other credit unions have? A: People come to our credit union because of the personalized service they receive and the fact that most are recognized by name. We have a very loyal membership base. But banking in general has evolved over the years. Today, many people like the personalized ser- vice when they open their accounts or get a loan but they don't come into the branch on a regular basis. In fact, we have seen the number of individuals that come into the branch decline, yet our credit union continues to grow. Most individuals transact busi- ness through home banking on their computers or cell phones, apply for membership or loans online, have their paychecks directly depos- ited and loans paid automatically, pay bills online and get cash from an ATM. With all of these services available we can serve our mem- bers without them having to come to a branch. We also participate in shared branching that allows our members to transact business at these other credit union locations. We may expand in the future as the need and opportunity warrants. Q: What are some of the stiffest chal- lenges and opportu- nities you face as a small credit union? A: Over the years the competition has grown dramatically. For years banks and credit unions com- peted for business. Now, everyone is in the financial services business from Wal- Mart to American Express to mortgage brokers, etc. The day-to-day oper- ations of the credit union are more demanding and more costly than ever before. Complying with ever increasing regulations is expen- sive and time consuming. Open- ing a new account or processing a mortgage is increasingly more complicated. Cybersecurity is costly and with the breaches at Target, Anthem, etc. the regula- tors are scrutinizing everyone's security and how it is being moni- tored and tested. Q: As the demographics of Windsor Locks have changed, how has the credit union had to change? A trend among credit unions is to focus on low- income communities. Has Wind- sor Locks Federal Credit Union targeted low-income groups? A: Windsor Locks Federal Credit Union is a low-income desig- nated credit union. We feel that our products and services are tailored to these individuals. Our member- ship fee is $25 and is deposited into a shared-savings account. We offer a free checking account with no minimum balances and no monthly fees. In order to attract the unbanked we are offering a new account this year called Save to Win that allows members to save. Every time they deposit $25 they become eligible for an entry into a monthly or quarterly drawing for cash prizes. We hope that this will encourage people to save. Even though the demographics of Windsor Locks have changed over the years, our core values have not. n JOHN FRANCO CEO of Windsor Locks Federal Credit Union Jill Nowacki, president and CEO, Credit Union League of Connecticut P H O T O | B L E A K S T A R , S H U T T E R S T O C K . C O M

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