Financial regulation in the United States dates back to the Declaration of Independence when the fledgling states set limits on loan rates, and for the first two centuries of the country’s existence regulatory change was infrequent. Decades would pass without major amendments. But in the late 1970s that all changed. The past 50 years have been a continuous churn of regulation and deregulation, much of it tied to which political party is in power at any given time. Anyone who has been responsible for credit union compliance since 1980 knows that changing administrations means regulatory change.
Today is no different. Although it’s too soon to know exactly what will change, depending on who you talk to it could be really good or truly awful. There’s a lot of fear, uncertainty, and doubt. Yes, the dreaded FUD Factor.
In February of 2021, collaborative back office CUSO Aux asked credit union executives to participate in a survey regarding the effects a “Blue Wave” Democratic-controlled administration may have on the industry. As expected, this survey generated a wide variety of responses, some quite agitated and negative, and others celebratory and positive. This microcosm of the industry mirrors the divided political landscape in our country. But to be honest, from a compliance officer’s perspective it doesn’t really matter which party is in power. Whether we’re ramping up regulations or rolling them back, we need to update policies, forms, disclosures, and systems. We need to educate staff and members, and we need to prepare for new examiner expectations.
But before any of that can happen, it’s in our best interest to get involved and help manage the coming change.
One way to prepare for change is to actively participate in the process. Legislation becomes regulation. If you don’t want to be saddled with burdensome regulations, you need to be involved in the legislative process. Know the issues and talk to lawmakers — Hike the Hill, visit local offices, attend Town Hall meetings, send email and letters.
Once legislation is passed, there are more things you can do to reduce regulatory burden.
Anticipate the Impact on Your Credit Union
Determine whether your credit union offers covered products or services. If so, will you still be able to offer them? What will change? Will your system support the changes? Will you need to send change in terms notices, update disclosures and agreements, train staff on new processes?
Prepare your management and Board for upcoming changes. Discuss potential changes early and often, updating senior management on the process and status of legislative and regulatory change. Get them on board with requirements and developing an implementation plan.
Write Comment Letters on Proposed Regulations
At the time of this writing, there are 10 open requests for comment from various regulatory bodies that credit unions should consider, with topics ranging from cybersecurity to flood insurance to BSA and the exam process. Trade associations may provide analyses and request information so they can prepare comments on behalf of their members. Credit unions can also make their voices heard by submitting comments directly to the responsible agency(ies). Include information about your credit union’s specific products and services, supported by “real life” examples of how your members might be helped – or hurt – by proposed changes. Even if you don’t submit comments, it’s worth reading the requests and analyses to gain a better understanding of the issues.
Talk to Your Data Processor, Forms Vendors, and Other Third-Party Support
Ask if they’re aware of pending changes. How are they addressing the issues? Push them to be ready well ahead of any mandatory compliance dates so you have time to test and train.
Educate Staff and Members
Never underestimate the power of communication. Loop in your team so they aren’t blindsided by new requirements. You can begin this process even before you have all the facts. Create awareness of coming change through newsletter articles, blogs and social media, then later with more technical Change in Terms notices (if applicable). Be sure to explain WHY something is changing. Even if they don’t like it, people tend to be more accepting of change if they understand the reasoning behind it.
Budget for Change
All of this costs time and money. Credit unions would do well to budget a certain amount for miscellaneous regulatory change every year, if possible. But don’t spend too much of that money on things that might not change! Wait until you see a final rule.
Be Prepared for Examiner Scrutiny
Even before you’re required to comply, examiners will want to see good faith effort. Showing them that you’re aware of and preparing for coming changes will increase their comfort level and give you breathing room.
Returning to the Aux survey, respondents universally agreed that there’s big change coming. They fully expect increased regulation, especially in the areas of cybersecurity, fair lending, member business lending, marijuana related businesses, and of course, BSA/AML requirements. But beyond that, they are sharply divided on whether the impact on credit unions will be positive or negative. Consumer protection laws might align with the credit union mission, but compliance is costly. And not knowing what we don’t know is keeping us all on edge.
The vagaries of politics can be less jarring if you follow the advice above. Clear the FUD fog by focusing on what you can do now instead of worrying about things that may never happen. To date, there’s been no legislation introduced in 2021 that poses any real threat to credit unions. But the possibility is always there, so be prepared. Incorporate legislative and regulatory change into your ongoing risk management process and set aside time in strategy and board retreat sessions to discuss the regulatory environment and possible changes. It’s a never-ending process.