More than four in five North Dakotans rely on credit unions and community banks for the loans they need to affordably finance big-ticket items like homes and cars-or to keep their small businesses running.
In recent years, federal regulations intended to rein in Wall Street have made it difficult for Main Street financial institutions to lend to small businesses and families across North Dakota. All credit unions and banks operate in a regulated environment, but the increase in regulations since the financial crisis has been not only dramatic, but costly.
The Credit Union National Association conducted a follow-up study to a 2014 report. Once again gathering data on costs of staffing, third party expenses, capitalized expenses, and reduced revenue opportunities, to determine the actual financial impact on credit unions and how much it has changed since 2010. The results continue to be staggering.
Credit union regulatory burden alone have increased to an "elevated new normal," totaling an estimated $6.1 billion lend according to a study commissioned by the Credit Union National Association in 2017. That translates to $115 per credit union household. For North Dakota that burden has a more devastating impact, costing credit union member households $189 per year. According to the study that's the second highest in the nation, where members in the District of Columbia brunt the burden at $265 per household.
Fortunately, Congress will soon have the chance to lift this regulatory burden. Understanding the impact that one-size fits all regulations have had on North Dakota credit unions and community banks, Sen. Heidi Heitkamp co-sponsored legislation and led a bipartisan effort that would free credit unions and community banks from onerous federal rules that are driving up costs for their customers. The Senate Banking Committee, as well as Sen. John Hoeven, have already given the legislation a thumbs-up; now it's up to the full Senate to take action as soon as next week. Here in North Dakota, these regulations cost credit unions $23 million annually and lead to $3 million a year in lost revenue. Huge banks can easily absorb the costs of such regulations. But smaller lenders "have less capacity for regulatory compliance than large banks do," according to the Congressional Research Service. The additional costs can even force them to shut down.
Since the passage of Dodd-Frank, community banks' share of total lending has plummeted, according to a Harvard study. North Dakota has lost about one-fifth of its credit unions.
Small lenders offer ordinary consumers many advantages. Credit unions, for instance, provide loans at much lower interest rates than big banks. Community lenders also offer more personalized service.
We sincerely appreciate the efforts of Sens. Heitkamp Senator Hoeven in trying to protect our smaller financial institutions that are vital to our state and that, in most cases, are the life-blood of our communities. Therefore, we believe that this legislative promotes and supports economic growth in our state and rural communities.
Olson is president and CEO of Credit Union Association of the Dakotas.