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December 17, 2014

NEW: Fed remaining 'patient' on rate-hike decision

Market
WASHINGTON (12/17/14, UPDATED 2:25 p.m. ET)--The Federal Open Market Committee (FOMC) left the words "considerable time" in its policy statement today, potentially signaling that the Federal Reserve may raise short-term interest rates later than currently anticipated.

Analysts have said that removing the words from the statement would have indicated that the FOMC was planning to raise rates sooner, but the Fed said that keeping rates at their near-zero levels remained appropriate.

"In determining how long to maintain this target range, the committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2% inflation," said the FOMC in its statement following the conclusion of its two-day policy meeting. "Based on its current assessment, the committee judges that it can be patient in beginning to normalize the stance of monetary policy.

"The committee sees this guidance as consistent with its previous statement, that it likely will be appropriate to maintain the 0% to 0.25% target range for the federal funds rate for a considerable time following the end of its asset-purchase program in October, especially if projected inflation continues to run below the committee's 2% longer-run goal."

The Fed added, however, that if incoming economic data points to faster economic progress, the committee may then hike interest rates sooner than they presently expect.

In assessing the overall economy, the Fed noted that the labor market continues to make improvements, with solid job gains and a lower unemployment rate recorded of late. Further, household spending continues to climb and business fixed investment is rising as well.

The housing market continues to make slow progress, though.

"The committee sees the risks to the outlook for economic activity and the labor market as nearly balanced," the FOMC said. "The committee expects inflation to rise gradually toward 2% as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate." ReadMore

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CUNA's Donovan details CU relief measures' benefits, vows 'aggressive' 2015 reg. relief fight

Washington
WASHINGTON (12/17/14)--The Credit Union National Association plans to aggressively pursue regulatory relief legislation in the 114th Congress, after having end-of-year success with the passage of two bills.

Ryan Donovan, CUNA senior vice president for legislative affairs, said in a News Now interview that CUNA plans to meet the 114th Congress with a list of regulatory relief proposals.

The House passed the Regulation D Study Act (H.R. 3240) Dec. 3, with the bill's chief sponsor Rep. Robert Pittenger (R-N.C.) citing CUNA's support when introducing it before a vote. While the Senate has not taken up the bill, Donovan has said the bill lays the groundwork for the study, which is possible due to the bill passing the House 422-0.

The Credit Union Share Insurance Parity Act was passed by the Senate last week, and CUNA has sent a letter to President Barack Obama urging him to sign the bill into law.



"These measures, the fact that we got them through Congress, gives us some momentum going into next year," Donovan said. "We're looking forward to advancing more regulatory relief measures in the next Congress so that we can remove barriers that keep credit unions from serving their members."

CUNA presented nearly three dozen proposals to the Senate Banking Committee and the House Financial Services Committee at the start of the 113th Congress, and Donovan said CUNA plans to bring "a more ambitious" regulatory relief agenda.

Areas where CUNA saw success this year include:
  • Senate passage last week of a prize-linked savings account bill that would allow credit unions and other financial institutions to offer such accounts;

  • Senators introducing a package of regulatory relief bills aimed to help credit unions and community banks;

  • The House of Representatives passing three regulatory relief bills in May, including two stand-alone credit union measures;

  • The House Financial Services Committee passing four bills in June and two acts in July, with the pledge from several members to work to ensure credit union parity measures are inserted; and

  • Testimony before the Senate Banking Committee in September and the House Financial Services Committee in July and April.
ReadMore

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PST lays out card security road map for 2015, beyond

Washington
WASHINGTON (12/17/14)--A new paper from the Payments Security Task Force (PST) has outlined a strategic road map for increased payments system security, designed to keep consumers' personal information from being compromised.

Eric Richard, general counsel and executive vice president for regulatory affairs for the Credit Union National Association, serves as CUNA's representative on the task force, which also includes senior staff from Visa, MasterCard, financial institutions and merchants.

"We are encouraged by collaborative efforts on this strategic road map issued by the Payment Security Task Force. The joint paper provides background and key recommendations for merchants, acquirers and other stakeholders to take steps to improve payments security," Richard said.

CUNA also believes that a layered approach to improving payments security should consist of chip cards, encryption and tokenization for all entities.

The elements of such an approach are:
  • Chip cards: Payment cards that offer enhanced security over traditional magnetic stripe cards. In contrast to the static three-digit verification code of magnetic stripe cards, chip cards use a dynamic authentication code that is generated for each transaction;

  • Encryption: The process of encrypting payment data in a secure terminal and transmitting it through an internal or external network where it is decrypted in a secure environment. Point-to-point encryption is currently in use in the U.S. payment card industry and can be used alone or with acquiring tokenization and chip; and

  • Tokenization: The practice of replacing an account number with a substitute value. If this substitute value is stolen, the criminal's ability to use it for fraudulent transactions is limited.
The paper also examines the future landscape of updated chip technologies. Previously, the PST reported that half of all debit and credit cards in the United States will be chip-enabled by the end of 2015, and that a survey showed approximately 47% of terminals will be enabled to accept chip cards.

"This is a clear indicator that merchants are investing in technology to accept chip cards by the end of 2015," the paper reads. "The size of the U.S. market, however, suggests that at least three to five years will be needed to reach full maturity of chip card acceptance."

In October 2015, the largest payment networks will shift liability for those who use chip technology in point-of-sale terminals. Once the shifts take place, if counterfeit fraud occurs with a chip-capable card and the merchant is not contact chip-card capable, the acquirer will be held liable for the transaction. ReadMore

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CU Effect: Chartway FCU's 'branch of the future' to benefit members, staff

CU System
CHESAPEAKE, Va. (12/17/14)--When it came time for Chartway FCU to look at building the "branch of the future," the credit union turned to an unlikely source: retail. Specifically, retail stores that emphasized customer engagement.

The result is a branch that eschews the traditional queue, teller stations and member services desks. Instead, members are greeted at an information desk immediately upon entering, and shown where to go for the services they need.

"We did a lot of research when putting this idea together, and we just kept coming back to retailers, specifically ones who were changing the way they do business with consumers," Michael Wagner, Chartway's corporate sales officer, told News Now. "We found places like Apple and Verizon seemed to be hitting the nail on the head when it came to engagement as soon as someone walks in the door."

Chartway FCU, based in Virginia Beach, Va., with $1.9 billion in assets, has 52 branches nationwide. When deciding which to transform into a new kind of branch, the credit union had to look at a few things.

Click for slide showChartway FCU welcomes members to its Greenbrier branch in Chesapeake, Va., newly opened as the "branch of the future." The branch contains virtual tellers, staff who can look up account information via tablet and other ways to make daily operations more efficient for members and staff. (Chartway FCU Photo)
"We wanted a location where we owned the building, was in need up an update and was in an area that served different populations and is up and coming," Wagner said. "Greenbrier met all of those criteria: It's fast-growing with a lot of employers coming into the area, it has a pretty good mix of members of all ages and demographics and it has a pretty good mix of deposits and loans."

The Greenbrier branch in Chesapeake, Va., has replaced the standard teller stations with "virtual tellers" and rows of desks with four shared offices that can be used by staff to provide specific services to members.

Members are greeted by someone when they enter the branch, and can proceed to one of the virtual tellers, consult with a staff member with a tablet who can look up some basic account information, or use one of the shared offices.

The virtual tellers consist of a screen where members can interact with a teller and a tube where members can make their deposits and receive cash, receipts or statements. The shared offices also contain pneumatic tubes where deposits can be made and other documentation can be submitted.

"We knew right off the bat that members coming into the branch for the first time might be a little lost, which is why engagement is right at the top of our list, to show people exactly what they can do, and how they can do it," Wagner said. "Process flow was a major part of the design. Tellers can now handle multiple transactions from the inside and from the drive through, and that helps us serve members more efficiently, while keeping our staff safe and secure."

Wagner says branch staff have been more than up to the challenge.

"We have a great team in the branch, and they're excited to be a part of this pilot effort. They've been very adaptable and open to the change," he said. "We've had employees from other branches come by to learn better engagement techniques."

The move to mobile deposits and online services has changed the nature of many credit union transactions, which meant Chartway wanted to maximize the experience members get when they visit a branch, Wagner said.

They also have a bank of computers and staff available to help members learn the ins and outs of online banking and remote deposits.

Wagner says loan productions and deposit growth has been up at the Greenbrier branch since the change.

This is the second installment of News Now's new series "The CU Effect," which gives readers a fresh and in-depth look at how credit unions make a difference in the world every day. Look for the next installment Jan. 7. ReadMore

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CUNA presses for NCUA review in exam-related info breach

Washington
ALEXANDRIA, Va. (12/17/14)--Following a data breach caused by the loss of a thumb drive containing member information during an federal examination of Palm Springs (Calif.) FCU, Eric Richard, general counsel for the Credit Union National Association, called on the National Credit Union Administration to conduct a thorough review of the situation.
 
The NCUA Tuesday confirmed the loss of the thumb drive during the exam.  The agency said the lost information did not include member passwords or PINs, nor has the agency received indication of any unauthorized access to members' accounts or attempts to gain improper access. NCUA Public Affairs Specialist John Fairbanks added that the agency has "only confirmed the loss, not how it happened or who might have responsibility."
 
Richard, however, issued a statement that CUNA is "deeply concerned about this event."
 
"NCUA examiners are charged with promoting the safety and soundness of credit unions, not putting it at risk. NCUA should conduct a thorough review of the situation to see what steps it can take to make sure that nothing like this happens again.
 
"Trust in the agency is at stake," he declared.
 
An NCUA spokesperson told News Now, "NCUA is working closely with the credit union. Consistent with Office of Management and Budget guidance, the notice to members about the lost data came from the credit union. This notice is also consistent with California law, as well as NCUA's rules and instructions.

"Since 2008, NCUA has had in place policies and procedures governing the proper handling of electronic data received as part of the examination process. These procedures require NCUA examiners at all times to properly secure and control electronic devices containing sensitive or confidential information.
 
"We take this situation very seriously and we are committed to ensuring that the data shared in exams are protected."
 
Palm Springs FCU has more than $12.5 million in assets. ReadMore

Ga. CUs report highest 3Q loan increase in a decade

CU System
ATLANTA (12/17/14)--Georgia credit unions reported the largest third-quarter increase in loans in more than a decade, with total loans rising by 4.2%, according to Georgia Credit Union Affiliates.  

The first nine months of 2014 generated loan growth of 8.9% (11.9% annualized). Since October 2013, Georgia cooperative financial institutions have recorded a 10.2% increase in loans.
 
Automobile lending maintained its position as the top performing loan category. New-auto loans grew 9.26% in the third quarter. Used-auto loans increased year-to-date by 7.6% (10.1% annualized).
 
"It's not a surprise that as the economy improves, consumers are looking to purchase bigger ticket items," said Mike Mercer, league president/CEO. "When people are considering financing options, they're looking for great interest rates and rapid approval times. But, they're often looking for trustable advice ... tough to find in the car-buying experience. That's what they get at a credit union."
 
The current average rate on a four-year used-vehicle loan at a Georgia credit union is 1.01% lower than average bank rates, according to Informa Research Services.
 
Unsecured loans and first-mortgage loans were also up in the third quarter, with those categories growing by 3.2% and 2.3% year-to-date, respectively.
 
Georgia consumers clearly recognize the benefits of belonging to a credit union, with total memberships in the state's credit unions growing by 2.8% in the third quarter (3.7% annualized) and by 3.1% from October 2013 to September 2014.
 
Nationally, federally insured credit unions have been reporting strong loan growth all year and that positive trend even picked up a bit during the third quarter of this year, according to state-level data released by the National Credit Union Administration last week. (News Now Dec. 10). The median growth rate for loans outstanding was 3.5% during the year ending in the third quarter. That was up from the 1.8% median growth rate in the year ending Sept. 30, 2013. ReadMore

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29 senators question proposed FHLB membership change

Washington
WASHINGTON (12/17/14)--Twenty-nine senators have written to Federal Housing Finance Agency (FHFA) Director Mel Watt, citing concerns with the agency's Federal Home Loan Bank (FHLB) proposed membership rule.

The proposal, first announced in September, would require financial institutions to meet a set of requirements to apply for FHLB membership, as well as to retain it.

The rule would require certain financial institutions, including all credit unions, to adhere to the requirement that FHLB members have 10% of assets in residential mortgage loans at all times. Currently members are only subject to this requirement when they apply to the program.

The senators expressed concerns that, while current regulations would prevent a financial institution from borrowing if the 10% requirement is not met, the proposal would result in their expulsion from the program.

"Under the proposed regulations, however, even if a member has assets that meet this test, a member could be expelled from membership if the member cannot meet the new--and unprecedented--mortgage asset test for continued membership," the letter reads. "The consequences are harsh and the terms of the proposed rule are inconsistent with the express terms of the FHLBank Act."

Another part of the FHFA's proposal would define "insurance company" to mean a company's primary business is underwriting insurance for nonaffiliated insurance. This would exclude captive insurers from FHLB membership and prevent those not eligible for the FHLB program from gaining access to FHLB advances.

The senators say this part of the proposal "may have unintended--and negative--consequences on the FHLB system, which is currently operating safely and successfully."

The senators encourage the FHFA to consult further with other agencies before finalizing the rule and urge the agency to "reconsider this proposal and consult with Congress, which is where these important policy decisions should be made."

The Credit Union National Association believes the proposal could create "significant barriers" to credit union membership in the FHLB program and is working with the FHFA and FHLBanks to improve the proposal.

The senators' letter comes a month after 68 representatives expressed similar concerns in a letter to Watt. In that letter, the legislators echoed their colleagues in the Senate, saying that FHLB membership decisions should be left to Congress. ReadMore

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Average auto debt to top $18K in 2015: TransUnion

CU System
CHICAGO (12/17/14)--Auto loan debt per borrower will continue on an upward trend, rising to $18,244 at the end of 2015, according to TransUnion.
 
That would make 19 consecutive quarters of increases since the first quarter of 2011, when auto loan debt per borrower stood at $14,954.
 
The TransUnion forecast calls for the national auto loan delinquency rate (the ratio of borrowers 60 or more days past due) to end 2014 at 1%, and increase slightly to 1.27% at the end of 2015.
 
"We expect the auto loan market to continue to perform exceptionally well in 2015, with more sales leading to continued increases in auto loan debt per borrower as the national portfolio gets younger on average," said Peter Turek, automotive vice president in TransUnion's financial services business unit.
 
TransUnion anticipates the economy will continue to improve in 2015, with a better employment picture boosting the auto industry. "While the auto loan delinquency rate has slowly risen to a point where it will be above 2010 levels, we are still far off the peaks observed in 2008 and 2009 when delinquencies were more than 30 basis points higher," Turek said.
 
Since 2007, the auto loan delinquency rate has been as low as 0.86% (in the second quarter of 2012) and as high as 1.59% (in fourth quarter of 2008). On average, the delinquency rate during the fourth quarter between 2007 and 2013 was 1.29%.
 
While delinquency levels for subprime borrowers have grown to 5.3% in 3Q 2014 from 4.5% in 3Q 2013 and 4.2% in 3Q 2012, the contribution of this segment to the overall delinquency rate has been muted because its share has remained between 14% and 15% during this timeframe. Subprime share of balances had peaked in 2009 at just more than 22%. ReadMore

7 elected by acclamation for CUNA board, 1 contested election

CU System
MADISON, Wis. (12/17/14)--Seven nominees for the Credit Union National Association's board of directors have been elected by acclamation.
 
The deadline for nominations was Monday.
 
There is one contested election: In District 3, which covers Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina and Tennessee, Stephanie Sievers, CEO, ANECA FCU, Shreveport, La., with $108 million in assets, and Paul Hughes, president/CEO, Greenville (S.C.) FCU, with $178 million in assets, were nominated for the Class A seat, which represents credit unions with fewer than 28,000 natural-person members.
 
Official ballots will be sent Dec. 29 to all affiliated credit unions in District 3, Class A for its contested election.
 
Elected by acclamation were:
 
District 1--Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Puerto Rico and Virgin Islands:
  • Class B--Credit unions having at least 28,000 but not more than 100,999 natural-person members: Gary Furtado, president/CEO, Navigant CU, Smithfield, R.I., with $1.4 billion in assets.
District 2--Delaware, District of Columbia, Indiana, Kentucky, Maryland, Ohio, Virginia and West Virginia:
  • Class C--Credit unions having at least 101,000 natural-person members: Rod Staatz, president/CEO, SECU, Linthicum, Md., with $2.8 billion in assets.
District 3:
  • Class D--League presidents: Patrick La Pine, president/CEO, League of Southeastern Credit Unions and Affiliates.
District 4-- Illinois, Iowa, Michigan, Minnesota, Missouri and Wisconsin:
  • Class B: Peter Dzuris, president/CEO, Northland Area FCU, Oscoda, Mich., with $279 million in assets; and
  • Class D: Patrick Jury, president/CEO, Iowa Credit Union League.
District 5--Arizona, Colorado, Kansas, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas, Utah and Wyoming:
  • Class A: Winona Nava, president/CEO, Guadalupe CU, Santa Fe, N.M., with $135 million in assets.
District 6--Alaska, California, Hawaii, Idaho, Nevada, Oregon, Washington, American Samoa, Guam, Johnston Atoll, Midway Atoll, Northern Mariana Islands, Palmyra Atoll and Wake Atoll:
  • Class C: Brett Martinez, president/CEO, Redwood CU, Santa Rosa, Calif., with $2.3 billion in assets.
ReadMore

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Fed walkup: 'Considerable time' will tell

Market
WASHINGTON (12/17/14)--The intentions of the Federal Open Market Committee (FOMC) on when it plans to begin nudging up short-term interest rates may be revealed this afternoon when it releases its statement at the conclusion of its two-day policy meeting.

Should the words "considerable time" appear in that statement, it could signal that sluggish inflation has persuaded the Federal Reserve to push back its timeline on when it will begin raising short-term interest rates.

If the Fed leaves those words out, however, chances are the FOMC is giving a heads up to the market that it's gearing up to raise rates in the middle of next year, as many economists have predicted it would.

"It's reasonable to think about taking that language out now," Jim O'Sullivan, economist with High Frequency Economics, told USA TODAY (Dec. 16).

Policymakers are "likely to start trying to reshape market expectations gradually" rather than surprising investors with an abrupt increase in rates, added Drew Matus, economist for UBS (USA TODAY).  

Market conditions, which will weigh heavily on the Fed's decision on when to raise rates, largely have proven favorable in recent months, as the economy grew by 3.9% in the third quarter, U.S. employers continue to add jobs at a healthy clip and the unemployment rate continues to taper.

But then there's that pesky inflation.

Bottomed-out oil prices and a weakening global economy have pinned down inflation in the United States below the Fed's annual 2% target, which could give the FOMC reason to hold off on any rate increases (USA TODAY).

O'Sullivan told USA TODAY, however, that because the Fed relies on "core" inflation, which leaves out food and energy costs, inflation could still rise to an acceptable level for the FOMC.

And if gas and energy prices continue to flounder, consumer spending may reap the benefits, which could boost economic growth and encourage the Fed to raise rates just the same. ReadMore

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