Penalties and fines associated with compliance mistakes often reach into the thousands, if not millions, of dollars. When liabilities are this high, credit unions need the best possible compliance oversight. The best, however, typically comes with a hefty price tag. According to employment website Simply Hired, the average credit union compliance officer makes $56,000 per year.
“That’s a good chunk of change,” says Steve Gibbs, assistant vice president of Shared Compliance Resources, a division of Credit Union Resources Inc. a subsidiary of the Cornerstone Credit Union League. “We’re seeing these people asking for more now because of the potential fines and the liability hanging over them.”
The USA PATRIOT Act, which Congress signed into law in late 2001, includes language that requires credit unions and banks to pay for compliance — whether that means by employing a specifically labeled compliance officer, splitting the task among various officers, or outsourcing to a third-party vendor remains up to the discretion of the financial institution.
Shared Compliance Resources provides compliance services to approximately 80 credit unions across six states and with asset sizes that range from $1 million to $1 billion — although Gibbs says the company’s sweet spot lies in institutions with assets between $50 million and $150 million.
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According to Gibbs, that’s because small- to mid-sized credit unions struggle to devote the proper time, money, and resources to compliance. Often, tasks that keep the institution compliant come at the expense of or detriment to other obligations. That’s where a shared compliance solution is especially beneficial.
“We’ve managed to keep some smaller credit unions in the game as opposed to them being buried in compliance and merging with someone because they can’t get their work done,” Gibbs says.
How To Handle Compliance
With the creation of the Consumer Financial Protection Bureau and the adoption of new regulations — such as TILA/RESPA — the burden of compliance for credit unions has increased significantly the past few years. Not only that, says Gibbs, “we’re seeing faster and more frequent changes in those regulations.”
To meet both the volume and elasticity of regulations, Gibbs advises credit unions do their homework to find the solution that works best for each situation, whether that be outsourcing or hiring a full-time employee dedicated to compliance. Whatever the solution, there are several areas of expertise any credit union would do well to ensure it had available.
Most important, Gibbs says, are both the willingness and skill to research future regulations.
“You can’t sit in your chair and wait for regulations to take affect anymore,” he says. “You have to see what’s out there because preparation takes time.”
Additionally, Gibbs suggests credit unions look for employees that understand time management, business writing, and credit union operations.
“If you don’t know the people in your organization who handle an issue, it’s going to take a lot of time to find out,” he says. “We don’t have a lot of time for that anymore. Time is a precious resource.”
For those institutions that outsource compliance, due diligence is required on the part of the credit union. Gibbs recommends reaching out to similarly sized credit unions to hear firsthand about a company’s strengths, weaknesses, and approaches to compliance. And he advises credit unions to use consultative services — those that will find and correct problems — versus auditors.
“You don’t want someone who is going to leave you with an audit report that lists 1,500 things you already know about your institution,” he says.
Although understanding the nature of the service purchased is critical, Gibbs warns against trying to combat compliance problems using a boilerplate or cookie-cutter solution. When every credit union’s products, services, and membership bases are different, situational compliance needs are as well and deserve to be approached as such.
“When we approach a situation, we try not to liken it to anything,” Gibbs says. “You have to analyze everything because it’s a new situation every time you walk through the door.”
Shared Compliance And The Importance Of Small Credit Unions
According to NCUA data, on average, 263 credit unions merge yearly. Of those, 94% have $50 million or less in assets. Gibbs and his team see value for the industry in the continued success of small- to mid-sized credit unions; that’s why Shared Compliance Resources helps these institutions stay independent. It makes compliance services more affordable to these credit unions and offers flexible availability, such as coming on-site more often but for shorter periods of time.
I feel like we’ve managed to keep some smaller credit unions in the game as opposed to them being buried in compliance and merging with someone because they can’t get their work done.
“Their needs aren’t going to be as extensive as a larger credit union in terms of the types of things that they get into,” Gibbs says, “But they still have needs.”
Those needs include such things as reports and risk assessments, which are difficult for smaller credit unions. It’s not that reports and assessments are overly complicated, though sometimes they can fall outside a compliance officer’s area of knowledge; rather, appointed staff have limited time in which to complete those tasks on top of everything else.
In terms of savings, historically, Shared Compliance Resources charges credit unions $3,500 per week. Credit unions can contract to have the company on-site for one week per month or one week per quarter, but they also tailor plans to meet credit union needs. That's a total expenditure of $14,000 and $42,000 per year, respectively. At the average going-rate for one compliance officer, that's a savings of more than $11,000 annually — the average member relationship at credit unions from $20 million to $50 million in assets. That’s a potential difference between remaining independent and merging.
AVERAGE MEMBER RELATIONSHIP - CREDIT UNIONS $20M- $50M
Data as of 03.31.15
Source: Callahan & Associates’ Peer-to-Peer Analytics
"I don't encourage mergers," Gibbs says. “Small credit unions have always been the backbone of the credit union industry.”