Rescuing a Struggling Credit Union

Case Study: Transforming Compliance and Operational Efficiency at a Community Financial Institution

Client Background

A small federally-chartered credit union serving a modest community of members faced challenges with regulatory compliance, outdated information technology systems, and operational inefficiencies. While the credit union was functioning, there were numerous areas of concern flagged by federal regulators and external auditors, along with an urgent need to modernize the internal infrastructure and improve financial performance.

Challenges

The credit union struggled in several key areas:

·         Regulatory compliance gaps: Outdated policies and a lack of aggressive adherence to regulations placed the credit union at risk during regulatory audits and examinations.

·         Technology inefficiencies: Legacy IT systems were limiting the organization’s ability to efficiently serve members, streamline operations, and ensure data security.

·         Operational shortcomings: Policies and procedures were not aligned with best practices, leading to inefficiencies and inadequate protection of consumer rights.

·         Financial underperformance: The credit union lagged behind competitors in areas such as loan growth, revenue generation, and overall profitability.

Project Overview

To address these challenges, over the course of 14 months, a comprehensive plan was implemented to modernize the credit union’s regulatory approach, strengthen IT infrastructure, and ensure long-term financial and operational health.

Key Actions

1. Led Two Internal Audits: Conducted in-depth internal reviews of the credit union’s compliance protocols and operational practices, identifying critical gaps and opportunities for improvement.

2. Ordered Three External Audits: Collaborated with third-party auditors to evaluate compliance, cybersecurity, and operational resilience. These audits provided an external benchmark and validation of the internal audits' findings.

3. Oversaw Two Full-Scale Regulatory Exams: Managed and facilitated two federal regulatory exams, ensuring that the credit union was prepared to address areas of concern while maintaining transparent communication with examiners.

4. Modernized IT Systems: Worked to upgrade the credit union’s outdated technology infrastructure, implementing solutions that streamlined operations, improved member service delivery, and enhanced cybersecurity protocols.

5. Updated Policy and Procedure Manuals: Revised and modernized the credit union’s policy manuals and procedures to reflect a more aggressive, forward-thinking approach to regulatory compliance and consumer protection. These updates also included comprehensive steps for long-term financial health.

Results

By the end of the 14-month engagement, the credit union achieved several key milestones:

·         Leading Financial Performance: The credit union led all state credit unions of its size in critical performance metrics:

·         Loan Growth: Top performer in loan growth, significantly increasing its portfolio.

·         Revenue Growth: Achieved consistent revenue growth, outpacing industry competitors.

·         Profitability: Surpassed profitability targets, maintaining a strong bottom line.

·         Delinquency and Default Rates: Reduced delinquency and default rates to the lowest in the state, demonstrating strong credit risk management.

·         Regulatory Compliance: All identified “areas of concern” from federal regulators and outside auditors were successfully addressed. The credit union improved its regulatory standing and significantly reduced the risk of future regulatory scrutiny.

·         Long-Term Sustainability: With modernized policies, procedures, and technology infrastructure, the credit union was well-positioned for long-term growth and resilience in an increasingly competitive financial landscape.

Conclusion

This comprehensive transformation project not only resolved immediate compliance and operational issues but also set the credit union on a path for sustained financial health and market leadership. The success of this initiative illustrates the importance of a proactive, forward-thinking approach to regulatory compliance and operational modernization in the financial services industry.

*Names and locations have been changed or omitted to protect confidentiality and privacy.