Executives representing community banks and credit unions want federal lawmakers to study the impact financial agencies are having on them considering that these smaller operations believe they are being hit with the same regulatory zeal as what’s being unleashed on much larger institutions with more resources.

During a U.S. House Financial Services Committee focused on preserving consumer choice and financial independence, Patrick Miller indicated that credit unions have been subjected to more than 190 regulatory changes from nearly three dozen federal agencies, totaling nearly 6,000 Federal Register pages since the beginning of the financial crisis more than five years ago. Miller is president and chief executive officer of CBC Federal Credit Union, which is based in Oxnard, Calif. He was on Capitol Hill this week on behalf of the Credit Union National Association, which represents approximately 90 percent of America’s 6,500 credit unions and their 102 million memberships

“Credit unions and their members acted responsibly during the economic crisis, but they continue to be unfairly penalized for the actions of too-big-to-fail financial institutions,” Miller told House lawmakers on Wednesday. “We work every day to deliver service excellence to our members, but that cannot happen when certain statutory and regulatory barriers keep credit unions from fully serving the needs of their members.

“We want to work with Congress, and specifically the Financial Services Committee, to remove barriers and create opportunities, so credit unions can better server their members all while continuing to practice safe and sound lending practices,” he continued.

Miller went on to deliver more than 40 pages of testimony, delving into different areas of financial services that smaller credit unions are being asked to comply with regulatory burdens mandated by the Consumer Financial Protection Bureau at the same level as institutions such as J.P. Morgan, Bank of America and Citibank.

Miller added the rule numbers do not even take into account regulatory changes that may emanate from state agencies.

“Every time a rule or regulation is changed or adopted, credit unions, and thereby their members, incur costs,” Miller said. “They must take time to understand the new requirement, modify their computer systems, update their internal processes and controls, train and oftentimes retrain their staff, design and print new forms and produce material to help their members understand each new requirement.

“Even simple changes in regulation cost credit unions thousands of dollars and many hours: time and resources that could be more appropriately spent on serving the needs of credit union members, not the desire of overzealous regulators,” he continued. “Congress needs to tell regulators to stop treating credit unions like we created the financial crisis or contributed to it.

“Regulations have real world consequences that prevent hardworking Americans from receiving the best financial services and products they could. That is a disservice to your constituents which we try very hard to serve,” Miller went on to say.

Community Banks Pinched, Too

Also appearing at the hearing was Tyrone Fenderson, president and chief executive officer of Commonwealth National Bank in Mobile, Ala., who spoke on behalf of American Bankers Association. Fenderson told lawmakers there are 1,200 fewer community banks today than there were five years ago. He insisted the trend will continue until some “rational changes” are made to provide relief to what he called America’s hometown banks.

“Community banks are resilient,” Fenderson said. “We have found ways to meet our customers’ needs in spite of the ups and downs of the economy. But that job has become much more difficult by the avalanche of new rules, guidances and seemingly ever-changing expectations of the regulators. This — not the local economic conditions — is often the tipping point that drives small banks to merge with banks typically many times large.”

Fenderson cheered the measure recently introduced by Rep. Randy Neugebauer, chairman of the Financial Institutions and Consumer Credit Subcommittee.  Neugebauer outlined H.R. 1266 — the Financial Product Safety Commission Act of 2015 — in this previous report from SubPrime Auto Finance News.

“We urge Congress to work together — Senate and House — to pass legislation that will enhance the ability of community banks to serve our customers,” Fenderson said.

“Community banks have been the backbone of hometowns across America,” he went on to say. “Our presence in small towns and large cities everywhere means we have a personal stake in the economic growth, health, and vitality of nearly every community. A bank’s presence is a symbol of hope, a vote of confidence in a town’s future. When a bank sets down roots, communities thrive.

Like Fenderson, David Williams shared anecdotes about how community banks work closely with their customers, especially in rural areas. Williams is chairman and CEO of Centennial Bank in Lubbock, Texas. He joined the hearing on behalf of the Independent Community Bankers of America and 6,400 community banks nationwide.

“Regulatory burden reaches the level of overkill when it injures the customer it was intended to protect,” Williams said.

“The economic life of rural America depends on customized financial products and services that only community banks provide,” he continued.

Williams offered a dire prediction if institutions such as his in the Texas Panhandle are subject to the same regulator threshold as the big boys from the Big Apple.

“Community banks are disproportionately impacted by regulatory overkill because they have a much smaller asset base over which to spread regulatory costs,” Williams said. “Without dedicated legal and compliance departments, we have to divert valuable staff from other duties, including serving customers, to implement new rules and other changes, a process that can take weeks or months depending on the complexity of the change and the bank processes impacted.

“If consolidation continues apace and rural community banks disappear under the weight of regulatory overkill, millions of rural customers — including farmers, small business owners, families and individuals — will be cut off from credit,” he went on to say.

Lawmakers’ Positions

Financial Services Committee chairman Rep. Jeb Hensarling of Texas acknowledged that it’s not an exaggeration to say that every single week lawmakers hear from another financial institution that is having trouble meeting the needs of their customers because of regulatory burdens.

“We hear from these banks and credit unions every day and we understand how federal regulation can adversely impact low and moderate income Americans,” Hensarling said.

“Now some, particularly those on the other side of the Capitol, have said community financial institutions are doing just fine,” the Republican continued. “In fact they have said, ‘Regulators have done a pretty good job protecting community banks.’

“I suspect many of our witnesses will disagree with their statement,” Hensarling went on to say before Miller, Fenderson and Williams offered their testimony. “I believe that assertion is just wrong, dangerously wrong and out of touch with low and moderate income Americans.”

Meanwhile, Rep. Maxine Waters, ranking member of the Financial Services Committee, expressed skepticism of the majority’s assertions. The California Democrat maintained the creation of regulators such as the Securities and Exchange Commission also was opposed by the financial services industry but now is an important agency.

“A free market system, with ample consumer choice, only works when businesses compete on cost and quality — not on how much they can cut corners or bend the rules,” Waters said.