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News Now: August 22, 2014

CUNA urges FASB: leave CUs out of credit loss reporting proposal

Washington
WASHINGTON (8/22/14)--The Credit Union National Association reiterated its "strongest opposition" to a Financial Accounting Standards Board (FASB) proposal involving credit losses in a letter sent to the board today. The letter, signed by CUNA interim President/CEO Bill Hampel, states that the proposed changes are likely to have a "significant detrimental" impact on a number of credit unions and their members.
 
FASB has proposed credit loss reporting changes that would utilize a single "expected loss" measurement for the recognition of credit losses, replacing the multiple existing impairment models in U.S. generally accepted accounting principles that primarily use an "incurred loss" approach.
 
The newest CUNA letter states that, during the height of the financial crisis, credit unions overfunded their provisions for loan and lease losses and maintained their allowance for loan and lead losses (ALLL) in surplus. This caused credit union earnings to be understated during the recession, and overstated more recently as credit unions work down the overfunded allowance amounts. 
 
Hampel expressed his concern that, to the extent the proposal requires higher levels of the ALLL, the distortions would be
Click to view larger image Click for larger view
exacerbated.
 
"This unwarranted increase to many credit unions' ALLLs would directly result in a further reduction in their retained earnings, which are already understated under current accounting standards," Hampel wrote. "A decrease in earnings can lead to a reduced capital ratio, which could trigger prompt corrective action (PCA) implications for numerous credit unions that currently do not have PCA concerns."
 
The letter goes on to say that the proposal, if adopted, could further be compounded by the National Credit Union Administration's risk-based capital proposal, which increase minimum risk-based capital ratios for federally insured credit unions with over $50 million in assets. The NCUA is currently revising the rule based on feedback, making its impact unclear.
 
CUNA stressed in the letter, its official comment letter sent in May and in meetings with FASB,  that most credit unions, as not-for-profit, member-owned cooperatives, may only build net worth through retained earnings under the Federal Credit Act. This makes it more difficult for them to build capital.
 
The letter comes on the heels of an Aug. 15  New York Times  article that indicates FASB could adopt the proposal soon.
 
When available, the letter will be posted on CUNA's comment letters page. Use the resource link to access the page.

Look outside narrow window of products for revenue growth: Filene

CU System
MADISON, Wis. (8/22/14)--There are two sides to every balance sheet, and credit unions that want to remain financially sound now and into the future must start focusing on the revenue side, rather than only cutting back expenditures, according to a recent white paper from Filene Research Institute.

In "Addressing the Revenue Growth Challenge," Ron Shevlin, senior analyst for Aite Group, argues that focusing on efficiency only solves short-term profitability, but does nothing for future long-term growth.

Surveying 137 credit union leaders from institutions of all sizes to ferret out insight about how to find new revenue types, Shevlin examines existing sources of revenue and compiles ideas on where else credit unions can turn.

"It will take actual innovation and credit unions that build and strengthen their own product design competencies to drive more than marginal revenue growth in the future," Shevlin said.

From the survey, Shevlin found that many credit unions aren't being innovative enough in the products they offer.

His findings included:
  • Many credit unions plan to increase revenue through sales of existing products to existing members, as only one-quarter of those polled said they make it a priority to offer new products that can attract new members;
     
  • Credit union leaders largely said they believed interchange was the most promising path to enhancing revenue growth, with credit insurance and debt protection next on the list; and
     
  • Three-quarters of those surveyed said they expect to introduce less than two new products this year, with one-quarter expecting to introduce none.
Despite an increase in revenue growth in debit card interchange and fees in 2013, Shevlin wonders whether counting on similar gains year after year is sustainable, especially as U.S. debit card penetration has declined the past two years.

Further, Shevlin says credit unions place their hopes for revenue growth on a narrow set of products and services, but this can be overcome by taking several steps, including:
  • Creating credit card rewards programs, or strengthening the plans credit unions already have implemented;
     
  • Reinventing and crafting informative credit-related product marketing that can help members make decisions about loans, and potentially drive them to in-house loan products;
     
  • Bolstering personal financial management services by offering products such as payment-, advice- and insight-oriented services that are valuable enough for members to pay for; and
     
  • Focusing on member needs and desires.
About 15% of credit unions offer debit cards that feature a rewards program, which is an increase from 10% in 2010, according to the Credit Union National Association's 2013-14 Fees Report.

Offering these programs is important, Shevlin says, because studies have found that "rewards programs can significantly affect the preferences for cards relative to cash payments," and that, "the impact of rewards on card usage is higher for debit cardholders than for credit cardholders."

Other Resources

CUNA chief accepts chilly charity challenge

CU System
WASHINGTON (8/22/14)--The Ice Bucket Challenge that's sweeping the nation to raise awareness for Amyotrophic lateral sclerosis (ALS) continued to make its way through the credit union movement Thursday, as Credit Union National Association interim President/CEO Bill Hampel had not one, but two buckets of ice water dumped on his head in Washington, D.C.

Click to view larger image John Magill, CUNA executive vice president of government affairs, left, douses the trade association's interim President/CEO Bill Hampel Thursday as part of the ALS Ice Bucket Challenge. See video of the event, below. (CUNA Photo)
For those unaware, individuals are invited to participate in the fundraising effort by someone who has already completed the challenge, which requires someone to take a video of themselves having ice water dumped on them and then to upload the video onto social media.

After the challenge has been completed, the person nominates several more participants, who then have 24 hours to complete the challenge or pay $100 to the ALS Association (ALSA).

So far, the Ice Bucket Challenge has raised $41.8 million nationwide, according to ALSA. ALS is a progressive neurodegenerative disease that affects nerve cells in the brain and the spinal cord.

CUNA also continues to be a strong supporter of the National Credit Union Foundation, Children's Miracle Network Hospitals and the Credit Unions For Kids campaign.

Patrick Conway, president/CEO of the Pennsylvania Credit Union Association, and the entire Credit Union Association of New York challenged Hampel.

Hampel then challenged four new people, including Bill Cheney, president/CEO, SchoolsFirst FCU, Santa Ana, Calif., with $10.3 billion in assets; Jill Tomalin, CUNA executive vice president/chief operating officer in Madison, Wis.; John Worth, chief economist at the National Credit Union Administration; and Cam Fine, president/CEO of the Independent Community Bankers of America.

John Magill, CUNA executive vice president of government affairs, and Ryan Donovan, CUNA senior vice president of legislative affairs, got into the spirit of the day as well when they became the subjects of surprised dousings.

CUs part of CFPB's eClosings pilot program

Washington
WASHINGTON (8/22/14)--Two credit unions have been selected as participants for the Consumer Financial Protection Bureau's (CFPB) mortgage eClosing pilot program.

BECU, Tukwila, Wash., with $12.6 billion in assets, and Mountain America CU, West Jordan, Utah, with $3.8 billion in assets, will participate in the three-month program, slated to begin later this year.

The program is designed to explore how the increased use of technology during the mortgage closing process could affect consumer understanding and engagement.

"We believe that eClosings have the potential to create a better process for everyone involved. This eClosing pilot project will provide valuable insight as we work to improve the closing experience for consumers," said CFPB Director Richard Cordray.

The pilot project is a follow-up to a report released in April by the CFPB that outlined areas of difficulty in the closing process, and offered a vision for how electronic closings could help mitigate some areas. The project will study ways eClosings can enable consumer understanding, make processes more efficient and incentivize consumer engagement.

In addition to the two credit unions, two banks, three mortgage companies and five technology vendors that provide eClosing services will participate.

According to the bureau, the eClosing pilot program is not part of a rulemaking process, but is designed to identify best practices in the marketplace.

Use the resource link below to access guidelines for the program.

UPS latest giant to fall prey to data breach

CU System
ATLANTA (8/22/14)--Add shipping giant United Parcel Service (UPS) to the list of merchants that have suffered a data breach that compromised its customers' credit and debit card information.
 
The Atlanta-based company said Wednesday it learned from the U.S. Department of Homeland Security and the U.S. Secret Service that malware found on computer systems at some The UPS Stores had exposed names, payment card numbers and postal and email addresses from about 100,000 transactions ( USA TODAY Aug. 21).
 
At-risk transactions took place in 51 stores in 24 states between Jan. 20 and Aug. 11. There are 4,470 franchised locations that are individually owned and run independent private networks that are not connected to other franchised center locations, the company said.
 
The UPS news follows on the heels of last week's breaches at grocery chains SuperValu and Albertsons. Since the Target breach last year--the granddaddy of breaches so far, affecting 40 million debit and credit card numbers and 70 million customers' information--the list of compromised merchants includes Neiman Marcus, Sally Beauty Supply, Michaels, P.F. Chang's, Goodwill Industries International and Jimmy John's.
 
Meanwhile, the website security flaw Heartbleed resurfaced in the hacking of 4.5 million patient records from Community Health Systems of Franklin, Tenn., which runs a network of 206 hospitals and satellite doctors' offices across 29 states.
 
In April, the Heartbleed bug in the Open Secure Socket Layer technology--used to establish secure links between servers and users--exposed millions of usernames, passwords and other information.
 
The stolen records from Community Health Systems go beyond card data; they include addresses, birth dates, telephone and Social Security numbers--all prime fodder for identity theft ( Bank Technology News Aug. 21).
 
Damage from the compromised information could exceed that of Target, John Zurawski, vice president of security software company Authentify, told Bank Technology News.  
 
"Target lost credit card information, but Community Health has lost Social Security numbers, addresses, birth dates, phone numbers--everything a fraudster needs to capitalize on the individual's credit rating and more," he said.
 
Thus, financial institutions should be wary on two fronts: Protect against the potential of increased credit fraud and redouble efforts to ensure their own systems are safe.

Wyo. CU membership strong at 40% of state population

CU System
CHEYENNE, Wyo. (8/22/14)--The credit union movement continues to celebrate reaching its 100 million memberships milestone, and Wyoming's high concentration of credit union members caught the eye of Wyoming Business Report .
 
Roughly 40% of the Equality State's population is a credit union member, significantly higher than the national total, which equates to one-third of the U.S. population.
 
"This is a testament to the long-standing principles that guide credit unions, namely that they put members first and operate in a manner to reflect that philosophy," said Scott Earl, president/CEO, Mountain West Credit Union Association (MWCUA). "It's apparent that this principle is working."
 
Wyoming credit unions added 1,400 members in the first quarter, bringing total membership to 230,000.
 
Wyoming's membership growth has climbed at a continuously fast clip--to 3.47% in 2013 from 2.91% in 2011--above the national growth rate of 2.9%
 
"It's much higher than a lot of the other states that we see," MWCUA Director of Corporate Communications Patti Hazlett told Wyoming Business Report (Aug. 7).
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