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News Now:April 17, 2014

CUs, league win reg relief as Wis. gov. signs CU bill

CU System
MADISON, Wis. (4/17/14)--Wisconsin Gov. Scott Walker signed a package of credit union regulatory reforms into law Wednesday--action that will ease regulatory burden for the state's credit unions and remove barriers they face when serving their memberships.

Senate Bill 520 will modify a dozen credit union regulations, including those concerning permitted investments and incidental powers.

"We applaud the Legislature for passing and the governor for signing these common-sense reforms that let credit unions spend less time unraveling regulatory requirements and more time providing consumers and communities with services that have consistently earned them recognition for their social responsibility," said Brett Thompson, president/CEO of the Wisconsin Credit Union League (WCUL).

The bill, developed by credit union leaders and lawmakers in the state, including lead authors in the Assembly Rep. Dave Craig (R-Big Bend) and Gordon Hintz (D-Oshkosh), unanimously passed in both the Senate and Assembly.

The law also was crafted with the help of both the director of the Office of Credit Unions and staff from the WCUL.

"Wisconsin's lawmakers and the governor have again shown that they understand, appreciate and support credit unions across the state by adopting reforms that facilitate credit unions' continued service to their 2.4 million member-owners," said Tom Liebe, league vice president of governmental affairs.

The legislation was initiated through dialogue held in the State Assembly Financial Institutions Committee's "Right to Rules" review process.

State credit union leaders have called development of the law a case-study in good-faith public/private collaboration, according to a WCUL press release.

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NCUA: CUs can help consumers avoid predatory payday loans

Washington

ALEXANDRIA, Va. (4/17/14)--The basics of credit union payday alternative loans (PALs) and advice for credit unions looking to start up their own programs were addressed during a Wednesday National Credit Union Administration webinar.
 
NCUA representatives included Tom Penna Jr., Office of Small Credit Union Initiatives economic development specialist; Lucinda Johnson, Office of Examination and Insurance program officer; and Kerri Donald, NCUA Region III examiner. Also participating in the webinar were Katia Marini-Nunez, CEO of $7.5 million-asset St. Francis FCU, Greenville, S.C.; Jennifer Lovett, CEO of  $7.3 million-asset Mississippi DHS FCU, Jackson, Miss.; and Vickie Hastings, CEO of  $34.9 million-asset Greenwood (S.C.) Municipal FCU. 
 
The presenters stressed that NCUA PALs can serve as a viable option to predatory payday loans for many credit union members, as well as non-members. The loans, they said, give credit unions a chance to transition borrowers to more traditional products offered by credit unions.

 
Click to view larger image An NCUA analysis presented during the webinar showed that the 28% APR charged by many credit unions is well below the 661.80% APR reportedly charged in some payday loan situations. Monthly payments, fees and total payments on a $250 loan were also lower. (Source: NCUA)

The NCUA's short-term, small-amount loan program permits federal credit unions to charge an interest rate that is a maximum of 10 percentage points above the established usury ceiling at that time. Currently, this amounts to an interest rate ceiling of 28%. 
 
Most credit unions offering payday loan alternatives also limit fees, provide member financial counseling and encourage members to open savings accounts. 
 
Nearly two-thirds of webinar participants said they did not offer PALs or other short-term small-amount loans. Twenty-seven percent of attendees said they offer the loans. 
 
Direct deposit payments can be a useful tool to help credit unions limit the risk presented by these loans, but is not a requirement for PALs. Payroll deduction can also be used for PAL payments but cannot be a condition of extending credit. However, credit unions may offer lower rates or other incentives for members who choose to pay off their PALs using payroll deductions. 
 
The webinar also covered other types of small-dollar loans provided by credit unions, which do not have the same requirements as PALs and are limited to an APR of 18% or less. Credit unions must ensure these other loan programs are in accordance with all applicable laws and regulations. Standard safety and soundness guidelines must also be applied, the presenters said. 
 
When they examine a credit union's small-dollar and payday-alternative loan programs, NCUA staff said they will look to ensure adequate policies and procedures and sufficient documentation of loan files. NCUA examiners will also check for verified application fees as well as established and well-monitored lending limits.

 

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Function should be focus of any CUSO regs, says NASCUS chair

Washington

LAKE BUENA VISTA, Fla. (4/17/14)--Regulators' interest in credit union service organizations (CUSOs) should focus specifically on the impact these organizations' services deliver to credit unions rather than their overall safety and soundness, John Kolhoff, chairman of the National Association of State Credit Union Supervisors (NASCUS), told attendees of the National Association of Credit Union Service Organizations' annual conference.

Kolhoff  said it can be difficult to determine a CUSO's direct impact on a credit union's bottom line due to secondary subsidiaries and other interconnected players; and there's no efficient pipeline to share this information with other involved parties.  

 
Click to view larger image John Kolhoff, chairman of the  National Association of State Credit Union Supervisors and a state regulator, says regulators need "examination oversight, not enforcement or regulatory oversight" of CUSOs. (CUNA photo)

And that, he said, is the CUSO trap for regulators. He addressed the conference Monday.

"We don't need to regulate CUSOs, we just need to understand how they work," said Kolhoff, who also heads the Michigan Department of Insurance and Financial Services' Office of Credit Unions. "The tools are there to go after [CUSOs] if there's an exorbitant amount of risk we need to mitigate."

NASCUS has expressed this viewpoint to National Credit Union Administration, which lacks direct regulatory authority over CUSOs but is implementing requirements for the organizations through directives to credit unions. NCUA Chairman Debbie Matz recently reaffirmed the agency's intent to obtain direct authority over CUSOs.

"We need examination oversight, not enforcement or regulatory oversight," Kolhoff said.

CUSOs allow credit unions to innovate, reduce costs, increase income, become more efficient and share risks, said Kolhoff, who classifies them along with third-party vendors who perform similar functions.

"What I need to know is how your services directly relate to the safety and soundness of the credit union," Kolhoff said. "That's all I should be looking at."

To address risk, Kolhoff believes regulators should focus on credit unions' due diligence to ensure they're aware of the risks of their relationships with particular CUSOs and that they've taken steps to mitigate those risks.

"Instead of making those decisions, we are reviewing those decisions," he said.

Kolhoff added that credit unions would benefit from a shared information pool about CUSOs. He proposed developing a CUSO registry that credit unions could access, similar to the Nationwide Mortgage Licensing System and Registry.

 

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Nearly all 12 districts saw improvements in economy: Beige Book

Market
WASHINGTON (4/17/14)--Economic activity improved almost uniformly throughout the U.S. from mid-February through March, according to the Beige Book, a wide-ranging summary of economic conditions across the country published by the Federal Reserve.

Ten out of 12 districts saw improvement, the summary said, with declines in overall conditions only reported in Cleveland and St. Louis. The districts that saw gains, meanwhile, realized mostly "modest to moderate" progress.

Boston, Philadelphia, Richmond, Va., Atlanta, Minneapolis, Kansas City, Mo., Dallas and San Francisco all reported modest and moderate gains, while Chicago also said economic growth had picked up.

New York and Philadelphia each rebounded from weather-driven struggles that buried them earlier in the year.

"Loan demand strengthened since the previous Beige Book," the summary said. "Credit quality improved in the Philadelphia, Cleveland, Richmond and Kansas City Districts. New York and Dallas reported especially strong increases."

Many of the districts that stumbled through the early months of the year in terms of home sales and mortgage borrowing cited the inclement weather as the main obstacle as well.
St. Louis was the only district to report a decrease in loan growth.

New York and Dallas both indicated strong increases in credit quality, while credit standards appear to be loosening in Atlanta.

Further, the majority of districts experienced mixed or declining residential borrowing, while Dallas and San Francisco reported slight growth.

For real estate and construction, reports varied.

Home sales strengthened in Kansas City, single-family home sales stayed healthy in Dallas, and real estate appeared improved in Richmond.

Chicago reported declines in home sales, again listing weather as the main driver of the step-back, and New York housing markets continued to be mixed.

The report said auto sales, transportation, manufacturing and financial services all improved, along with improvements in labor market conditions.

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Small Ark. CU offers loan growth advice

CU System

FORT SMITH, Ark. (4/17/14)--With economic activity starting to sizzle, at least one small Arkansas-based credit union has been leveraging the upward trend into gains in loan growth, while also sharing its secrets for success.  

With consumer borrowing up $16.5 billion in February, and auto and student loans gaining $18.9 billion as well--the largest one-month leap since February of last year--River Town FCU, Fort Smith, Ark., with $14 million in assets, is trying to capitalize on the recent economic surge ( Leaguer April 16).

It appears to be succeeding.

"Since the economic recession, consumers have felt a little uneasy about taking on more debt," said Tim Bowers, River Town loan manager. "But it seems they are feeling more secure in their ability to manage new debt. Since January of this year, we've seen steady loan growth."

River Town offers several loan products, such as credit cards, signature loans, home equity, recreational vehicle and motorcycle loans.

For mortgage lending, the Arkansas-based credit union uses CU Members Mortgage, a business partner of Credit Union Resources.

But of all loan products, Bowers told Leaguer , the member-owned institution has seen the strongest improvements in auto lending.

"People have been driving their cars for longer because they haven't wanted to take on new debt," Bowers said. "However, that's starting to change as people are biting the bullet and trading in their aged and high-mileage vehicles for new or pre-owned vehicles with less mileage. As a result we're seeing a greater demand for auto loans."

Meanwhile, not only has Bowers pushed River Town to take advantage of the healing economy, he's also offering up ways other credit unions can cash in.

To maximize products and services, Bowers advises credit unions:

  • Offer competitive loan rates, particularly for high credit-score members, as "even loyal members are rate shoppers," Bowers said.
     
  • Cross-sell products. "We identify the needs of our membership and take advantage of opportunities to educate them on the appropriate products and services to meet their financial needs," Bowers told Leaguer.
     
  • Step up loan promotion and marketing efforts.
     
  • Recapture auto loans. "Even if you didn't get the loan the first time around, that doesn't mean you can't get their business," Bowers said. "I might be working with the member on another loan product, and if while reviewing their credit report I learn they have an auto loan elsewhere, I'm going to try and compete for that loan."

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Rewards accounts attractive to Gen Y, says Kasasa

CU System
AUSTIN, Texas (4/17/14)--So-called "Gen Y" adults search for mobile tools, rewards programs and cash-back options more than older generations when selecting a financial institution, a Kasasa study released Wednesday found.

Nearly 80% of 18- to 34-year-olds polled said mobile banking is at least "somewhat important" when choosing a bank, according to the survey ( MarketWired.com April 16).

About 85% of the same demographic said customizable rewards are at least somewhat important as well, compared with 73% of those between the ages of 35 and 54.

Further, 88% said cash-back programs were at least somewhat important, compared with 74% in the 35-to-54 category and 67% in the 55-and-up category.

Commissioned by BancVue, the Consumer Banking Insights Study surveyed more than 1,000 adults ages 18 and up.

"Attracting younger customers with rewards checking accounts and mobile offerings can help community banks and credit unions increase profits ... by way of heightened, non-interest income and increased account holder engagement and retention," said BancVue CEO Gabe Krajicek.

Also important to Gen Y adults seems to be a recognizable brand name, with 81% of respondents saying that a brand name is at least somewhat important, compared with 68% of those ages 35 to 54.

"Gen Y adults are more likely to respond to brand-name offerings," Krajicek said. "With social media, endless searchable options and new non-bank players entering the banking space, the notion that the customer is king has never been more true than it is now."

Despite 72% of Gen Y adults responding that banking locally is at least somewhat important, about 25% who have checking accounts say they don't use a "community financial institution" because they don't believe a community bank or credit union will offer the same benefits they're getting at their current bank.

And 30% said they don't manage their funds at a credit union or community bank because they've never thought about it, suggesting that community financial institutions need to improve at least their marketing efforts to attract the next generation of consumers ( BancVue.com April 16).

World Council suggests revisions to international RBA guidance

Washington

WASHINGTON (4/17/14)--A comment letter from the World Council of Credit Unions filed Monday with the Financial Action Task Force (FATF) suggests revisions to the international guidance on the risk-based approach (RBA) to anti-money laundering and countering the financing of terrorism (AML/CFT) compliance. The changes would help to promote financial inclusion and to limit regulatory burdens on credit unions and other less complex financial institutions
 
The World Council comment letter was filed in response to new FATF proposal for the risk-based approach of the banking sector on AML/CFT.

The FATF is currently updating its RBA guidance to better align the guidance with its also-updated International Standards on Combatting Money Launderingand the Financing of Terrorism & Proliferation document--commonly called the "40 Recommendations."  The comment letter follows a recent FATF's private sector consultative meeting on the RBA guidance project held in March at the headquarters of the European Banking Federation in Brussels.
 
The FATF's changes to the RBA standards, once finalized, are likely to be incorporated into the U.S. Bank Secrecy Act (BSA) rules within the next year, the World Council has predicted.
 
In the letter, World Council Vice President and Chief Counsel Michael Edwards said the association supports most aspects of the proposal in relation to credit unions, but suggested several revisions to the draft guidance, including:

In both the comment letter and at the recent meeting at the headquarters of the European Banking Federation in Brussels, Edwards said the FATF could limit regulatory burdens on credit unions.

To do so, as part of revisions to its RBA guidance for financial institutions, FATF should increase the detail in its RBA for banking institutions guidance paper thereby increasing clarity regarding when and how it is appropriate to apply risk-based policies for AML/CFT, Edwards said.

  • Limiting AML/CFT compliance requirements for business activities that have lower money laundering/terrorist financing risks;
  • Limited compliance burdens on less complex financial institutions;
  • Allowing flexibility in AML/CFT requirements, such as customer due diligence/know your member rules, in order to promote financial inclusion of unbanked persons; and
  • The concern that some banks may be "de-risking" their customer relationships by ceasing to provide correspondent banking services to credit unions and other types of businesses which handle funds on behalf of members/customers.

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