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News Now: January 30, 2015

CUs face 'perfect storm' of tech changes in 2015

CU System
ATLANTA (1/30/15)--A sea of forces--investment, innovation and competition--could expand what credit unions, and other financial institutions, will spend on technology in 2015, according to a new report on technology expectations.  

" Bankers as Buyers 2015 ," compiled by William Mills Agency, a financial public relations and marketing services company, could provide credit unions a glimpse into how they might mold their technology budgets, including in the realms of mobile technology, branch transformation and data security.

Based on the agency's forecast, 2015 sets up to be a busy 12 months. Scott Mills, president of William Mills, said the year will usher in a "perfect storm" of robust investment in fintech, competitive pressure from nontraditional financial companies and a wave of innovation.

"From all appearances, more investment is flowing into financial and payment technology companies than I've ever seen in my career," Mills said in the report, which received input from the Credit Union National Association. "Once considered too esoteric for many local and general business media, the fintech industry has become more mainstream.

"Without trying to sound too enamored with it, it is possible we will look back to this time as a golden age of innovation and the beginning of enormous operational change."

Perhaps more than any other area of investment, financial institutions will focus on mobile technology in 2015.

Experts widely agree that mobile is no longer an add-on, but actually should be the first consideration when planning a technology spending strategy, the report said.

Digital banking is the key to attracting and retaining customers, according to Javelin Strategy and Research.

"There will be more mobile banking users than Internet banking users in the next 18 months," said Robb Gaynor, founder and chief product officer for Malauzai Software Inc.

As credit unions and other financial institutions stay on top of new and evolving data security threats, meanwhile, budgets to ramp up technology to protect themselves likely also will expand in 2015.

Financial institutions were asked what their most pressing security concerns for the upcoming year were, and 75.4% listed data breaches at the top.

One area where financial institutions may look to spend more is on technology that requires multifactor authentication for high-risk transactions, according to Javelin Strategy and Research.

Only one in five U.S. financial institutions currently use this type of additional security, such as one-time passwords sent to mobile phones for secondary authentication.

In addition to mobile technology and data security, a number of analysts have said 2015 will be the year financial institutions actually transform their branches and the branch experience, after years of talking and planning.

IDC Financial forecasts that branch transformation, which includes the addition of video banking to automate human interaction, will climb 5% to 10% over the next 12 months compared with 2014.

Wincor Nixdorf AG predicts that by 2017, financial institutions will be spending $16 billion per year to transform their branches and incorporate all the necessary technology.

"With transactions moving to digital channels, the branches aren't as important as they once were, but they are and will continue to be important destinations for complex advice and for problem resolution," said Somesh Khanna, director at McKinsey and Co.

William Mills expects to see more of each of the following in 2015 as well:
  • Interest in the user and customer experience;
  • Security breaches;
  • Mobile technology;
  • Regulatory compliance demands and costs; and
  • Adoption of big data projects with expected return on investment.

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CFPB proposes broader 'small creditor,' 'rural' area definitions

WASHINGTON (1/30/15)--The Consumer Financial Protection Bureau Thursday proposed a broader definition of "small" credit union and bank, as well as an expanded designation for what comprises a "rural" area.

If finalized, the proposal would increase the number of financial institutions able to offer certain types of mortgages in rural and underserved areas by exempting more small creditors from the CFPB's tough new mortgage rules.

In May 2013, the bureau announced it would study whether the definitions of rural and underserved should be adjusted. In May 2014, the bureau requested public comment regarding the origination limit for small creditor status.

The Credit Union National Association strongly backed easing the regulatory burden of the rules for credit unions. Being exempt from some of the provisions of the CFPBs Ability-to-Repay and Qualified Mortgage (QM) rules can beneficially affect the types of products a credit union can offer its members in what can be underserved areas, CUNA has noted.

CUNA President/CEO Jim Nussle said after the CFPB announcement Thursday that the changes are significant.

The CFPB's new proposal would define "small creditor" as one that originates no more than 2,000 first-lien mortgage loans, up from a 500 loan origination limit.

It also would expand the definition of "rural" by adding "census blocks that are not in an urban area as defined by the Census Bureau" to its current description.

Nussle noted, "CUNA fervently advocated to the bureau to take another look at these areas, and we thank them for listening to the concerns of credit unions.  More work still needs to be done, but this is an important step in the right direction.
"We're working with our mortgage lenders and member credit unions to submit a robust comment letter on these proposed changes. The changes announced today will benefit a number of community lenders, including credit unions, across the country. Ultimately, the real winners are communities.  As credit becomes more available, it's the growth of the communities across America that will develop in the long run."

The bureau also proposes a compliance grace periods for creditors that suddenly push past the loan threshold qualifying for the relief. Among other things, the CFPB proposal considers extending small creditors' exemption from limits on balloon-payment loans by about three months, which would bring it to April 2016, among other changes.

Interested parties have until March 30 to comment.

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Capitol visits raise CU awareness at state level

CU System
MADISON, Wis. (1/30/15)--Credit union leaders from three Midwestern states traveled to their state capitols this week to advocate for key issues on the local level.

Click to view larger image Representatives from Ideal CU and Tartan High School's student-run credit union meet Minnesota State Sen. Chuck Wiger (DFL-North St. Paul) during the Minnesota Credit Union Network's Credit Union Day at the Capitol. (Minnesota Credit Union Network Photo)
Minnesota's top policymakers headlined the Minnesota Credit Union Network's 2015 Credit Union Day at the Capitol event in St. Paul on Tuesday. More than 150 credit union leaders from communities statewide gathered for the annual event.
Lt. Gov. Tina Smith, speaker of the House Kurt Daudt (R-Crown) and Senate Majority Leader Tom Bakk (Democratic-Farmer-Labor-Cook) talked about their respective policy and legislative priorities, as well as their outlook for the legislative session. They also emphasized that in-person meetings with elected officials are vital in helping to keep them informed about issues that are important to credit unions.
Department of Commerce Commissioner Mike Rothman, a 2014 recipient of the Credit Union National Association's Desjardins Financial Education Award for State Government Policymakers, spoke about the importance of providing the state's youth with financial education.
"The Commerce Department and credit unions share the goal of teaching kids money management skills at an early age," said Rothman. "We want to help set the stage for them to build the financial skills they'll need to be successful in the years ahead."
Click to view larger image The South Dakota Legislative event was held in Pierre Wednesday with more than 30 credit union professionals visiting the state Capitol. (Credit Union Association of the Dakotas Photo)
The South Dakota Legislative event was held in Pierre Wednesday with more than 30 credit union professionals visiting the state Capitol, the Credit Union Association (CUAD) of the Dakotas reported ( The Memo Jan. 29). Following the Capitol visit, an open forum was held at the Ramkota Hotel.
Later, the group attended the Legislative Social with more than 70 South Dakota legislators. The event provided an opportunity for credit union leaders to meet and re-unite with policymakers.
"We are pleased with the strong turnout for this annual event," CUAD president/CEO Robbie Thompson said, adding, "Whenever we can show our presence and meet directly with our elected representatives, we strengthen the credit union movement."
As part of the Wisconsin Credit Union League's annual Governmental Affairs Conference last week, more than 200 state credit union leaders visited with their state legislative representatives to discuss issues that affect the state's 1 million credit union members ( Iron Mountain Daily Jan. 28).

Ohio, Ga. video: Merchants not watching your wallet

CU System
COLUMBUS, Ohio. (1/30/15)--Across the state, Ohioans on YouTube and Facebook are hearing the demand for merchants to protect their personal information. In a campaign demanding that merchants be held to the same data security standards for protecting consumers' personal financial information as financial institutions, the Ohio Credit Union League is taking the message straight to consumers via a humorous video.
Since Dec. 31, the online ads have made 64,462 impressions, leading to more than 33,000 views of the video ( eLumination Jan. 28).
Riffing on a well-known marketing campaign, the video created by the Ohio and Georgia leagues features a viking who decides to skip a raid. There's better plunder to be had through data breaches, he says, because, "the merchants ... they're not watching."
"Collaboration is an important part of this issue," Katie Walton, league director of marketing and communication, told News Now . "Late last year, the Ohio league worked with the Ohio Bankers League to send a joint letter to Congress urging stronger data security standards for merchants. Knowing that the Georgia league has video capabilities, we partnered with them to develop the video since the fallout of merchant data breaches is affecting all credit unions."
The video ends by directing viewers to , a microsite created by the Credit Union National Association that connects consumers with Congress to press for legislative action to hold merchants accountable. Credit unions are encouraged to embed or share the video via online communication channels to keep spreading the word.

Mortgage rates failing to propel housing recovery

WASHINGTON (1/30/15)--The Federal Housing Finance Agency (FHFA) reported Thursday that the national average contract mortgage rate in December fell to 3.98% from 4% the prior month--yet another index to report that interest rates have dropped below 4%.

But the lower mortgage rates have yet to fuel a rise in home sales, as pending-home sales fell 3.7% in December, reversing November's positive gains and pushing sales back to their lowest levels since April, according to numbers from the National Association of Realtors.

The Census Bureau also reported Thursday that the homeownership rate dropped 1.2% in the fourth quarter to 64% on an annual basis.

"Demand from traditional homebuyers continues to be muted, according to both recent mortgage application data and mortgage origination volume data," said Brent Campbell, Moody's analyst ( Jan. 29). "Further, according to several indexes, house-price growth continues to slow, as the contribution from institutional investor demand is beginning to wane and traditional homebuyers who use credit have yet to pick up the slack."

All regions posted declines in pending-home sales in December, with the Northeast dropping 7.5%, the West falling 4.6% and the Midwest and South slipping 2.8% and 2.6% respectively.

While pending-home sales remain 6.1% higher than year-ago levels, analysts had expected a gain in sales nationwide, rather than a step back across the board.

One explanation could be the growing preference to rent instead of buy.

The rental vacancy rate fell in the fourth quarter by 1.2% to 7% on a year-over-year basis, and 0.4% on a quarterly basis. Further, the median asking rent for vacant units climbed annually to $766 per unit.

"As house prices keep the upward momentum and get closer to their fundamental values, owning a home becomes less affordable," said Jing Zhang, Moody's analyst ( Jan. 29). "Moreover, many households still lack the confidence to buy, and many have not recovered from the credit loss during the housing crisis, resulting in low-purchasing mortgage origination."

The average loan amount, meanwhile, climbed to $298,300 in December, up from $293,600 in November, according to the FHFA.

The average interest rate on conventional, 30-year fixed-rate mortgages of $417,000 or less was 4.19%, down from 4.24% in November. And the effective interest rate, which accounts for initial fees and charges over the life of the mortgage, dropped to 4.15% in December, from 4.16% in November.

NCUA to hold session on opportunities in underserved markets

ALEXANDRIA, Va. (1/30/15)--Credit unions can sign up to learn about opportunities that exist within underserved markets. The National Credit Union Administration is offering a Feb. 18 webinar, which will launch at 2 p.m. (ET).
Among the discussion items on the 90-minute agenda for the session are:
  • What credit union products and services appeal to the underserved market;
  • The revenue potential of those products; and
  • Programs credit unions already have in place to successfully embrace the unbanked and underbanked markets.
Webinar participants will also have the opportunity to learn more about Lower Valley CU's outreach efforts to the underserved market in their community. The Sunnyside, Wash. credit union is known for such things as its Northwest area immigrant asset-building initiative, designed to connect low-income immigrants with quality immigration services and safe, affordable financial products ( News Now Sept. 29, 2014).
Online registration is available here . Participants are asked to use the same link to log into the webinar. Registrants should allow pop-ups from this website.

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Private student lenders get guidance on graduated payment loans

WASHINGTON (1/30/15)--The National Credit Union Administration, in concert with the other federal financial regulatory agencies, and in partnership with the State Liaison Committee (SLC) of the Federal Financial Institutions Examination Council, issued guidance Thursday on private student loans with graduated repayment terms at origination.  

The guidance is intended to provide credit unions and other private student lenders with principles that financial institutions should consider in their policies and procedures for originating such loans. 

The joint-regulators' guidance notes that while graduated repayment terms are available under certain federal student loan programs, credit risk associated with loans guaranteed and originated by the federal government differ from that of private student loans.
"Accordingly, some extended repayment features offered under the federal student loan programs may not always be appropriate for private student loans," the guidance says.

Also: "Financial institutions that originate private student loans with graduated repayment terms should prudently underwrite the loans in a manner consistent with safe and sound lending practices.

"Additionally, financial institutions should provide disclosures that clearly communicate the timing and the amount of payments to facilitate a borrower's understanding of the loan's terms and features."

The guidance recommends the following principles for private student loans with graduated repayment terms at origination:
  • Ensure orderly repayment;
  • Avoid payment shock;
  • Align payment terms with a borrower's income;
  • Provide borrowers with clear disclosures;
  • Comply with all applicable federal and state consumer laws and regulations and reporting standards; and
  • Contact borrowers before reset dates.

The guidance was issued by the NCUA, Federal Reserve Board, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the SLC.
Read more guidance details here .

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