The CARD Act, the creation of the CFPB, and various Anti-Money Laundering laws and regulations (including the Bank Secrecy Act and the US Patriot Act) have significantly impacted the credit card industry in recent years. This regulatory environment could hamper a credit union’s ability to administer a card program in an efficient or profitable manner. Unsurprisingly more than 50% of credit union respondents in CUNA’s 2014 survey listed regulatory burden as one of the top three concerns.
Primary Regulations Impacting Credit Card Issuers
- The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) represents a set of reforms measures on the credit card industry to create a fair and transparent system. This law included provisions to create minimum time frames to require payment, ban retroactive rate increases, apply new rules on the application of payments, and place restrictions on high-fee card products.
- Anti-money laundering laws and regulations (including the Bank Secrecy Act and the US Patriot Act of 2002) aim to guide financial institutions in the prevention and detection of international money laundering. Some of the key components impacting a credit card issuer include the responsibility to report suspicious activities, verify customer identities, and create on-going support of an anti-money laundering program.
- Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 led to the creation of the Consumer Financial Protection Bureau.One of the primary goals of this legislation was to curtail Unfair, Deceptive, or Abusive Acts or Practices (UDAAPs). Since its creation in 2011, the CFPB says, it has facilitated redress to consumers and fined financial institutions approximately $5 billion for a wide range of practices.
Regulations’ Impact On Credit Unions
As financial institutions work to ensure ongoing compliance with these regulations, a set of common impacts emerge.
- Staffing Impacts. A substantial investment is required to make certain that the right staffing meets the growing compliance needs. These costs are not limited to the initial cost in hiring and training personnel, but include the ongoing coaching to develop a staff with the skills to keep up with the interpretations and changes of existing regulations. According to a Filene Research Institute study, the number of full-time credit union employees devoted to regulatory compliance increased on average by 70% in the United States from 2007 to 2012.
- Business Strategy.Regulation scope may start to impact a financial institution’s long- term strategy. Based on the regulatory burden, a credit union may decide to phase out or not add certain products in demand by their members. Many financial institutions struggle to find the bandwidth while compliance professionals are swamped with required regulatory reports and responses. Mergers are increasingly common within the credit union space as there have been 784 mergers since 2012 while the compliance expectations around these mergers continues to increase. Within the merger process, a financial institution must ensure that the proper due diligence takes place to ensure proper disclosure of product changes as well as to avoid inheriting the potentially costly regulatory mistakes of another entity.
- Processes and Systems. Most financial institutions are implementing a number of new processes to ensure accurate and timely compliance with the current regulations. From an ongoing oversight perspective the audit and documentation of these processes represents an increasingly critical task. These processes help financial institutions meet the requirements around reviewing marketing campaigns along with credit card product terms and disclosures as these expectations have exponentially grown over the last decade. With resources already scarce, credit unions are now allocating a greater percentage of those resources towards compliance initiatives versus initiatives that drive growth and extend credit.
Management into the Future
Growing regulatory oversight into credit card programs has already become the new norm. Within this environment, credit unions must learn to tackle these issues in the most efficient and complete manner possible. This plan of attack may include building a strong infrastructure to support a complicated and changing regulatory environment, outsourcing select compliance audit functions, or partnering with a trusted third party with a proven track record. Once the best of these three options are decided, an institution can once again focus on benefiting members with new products, better services and relevant technologies.
For nearly 50 years, Elan has delivered a best-in-class credit card program, card products and exceptional service to its valued credit union partners. Today, Elan helps nearly 300 credit unions navigate the rapidly changing card issuance landscape. Year after year, our partners remain pleased with the Elan solution, as Elan has seen a more than 96% renewal rate. For more information, call 1-800-223-7009 or visit cupartnership.com.