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CUs differ from banks in approach to subprime auto loans

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MADISON, Wis. (7/28/14)--A July 21 article in The New York Times described how the subprime auto loan market has grown 130% in the five years since financial crisis, with roughly one in four new auto loans last year going to borrowers with credit scores at or below 640. Credit unions and banks approach the market quite differently.
The increase is driven by some of the same factors that fed the runaway growth of subprime mortgages that led to the financial crisis, the article explained. Banks are charging rates that can exceed 23% and making loans to consumers without the means to make payments. And, as with subprime mortgages leading into the Wall Street implosion, some subprime auto loans are bundled into complex securities sold as investments--a process that creates more demand for the loans. (See related story: Auto loan balances race to all-time high: Equifax.)
The vast majority of banks largely rely on dealers to screen potential borrowers. The arrangement, which means the banks rarely meet customers face to face, mirrors how banks relied on brokers to make mortgages.
Credit unions interviewed by News Now take a vastly different approach to subprime auto lending. "We're trying to set our members up for success," Jim Brown, senior manager of consumer lending at University FCU, Austin, Texas, with $1.7 billion in assets. "The last thing we want to do is set somebody up to fail."
University FCU participates in Non-Prime Auto Loans, a partnership between the National Credit Union Foundation and the Filene Research Institute that tests the viability of subprime auto lending in credit unions. Fourteen credit unions participate in the program.
"These are members who have the fewest options out there," Brown told News Now . "Credit unions were initially formed to serve these members: the underserved. We've found that if we help these members, they're very loyal, and they come back to us time and time again for future loans."
University FCU has been offering subprime auto loans since 2004. The credit union classifies subprime auto loans as D and E loans, which represent consumers with credit scores below 600, Brown said. The credit union currently makes the loans at annual percentage rates between 12.05% and 14.85%
"In our market, we have people who are coming to us that were at 23% and 24% through dealers and other financial institutions," Brown said.
Among the keys to making subprime auto loans is focusing on the overall member relationship. Seasons FCU, Middletown, Conn. with $142 million in assets, also participates in the NCUF/Filene subprime auto loan initiative. When it screens subprime applicants, the credit union considers if the member has a direct deposit or a checking account with a debit card, said Jeff Rindfleisch, vice president of financial services ( News Now April 23).
Indeed, credit unions appear to know their members before lending to them for subprime loans. While subprime auto loans account for 14.2% of credit union auto lending portfolios, compared with 13.7% for banks, credit unions' 30-day delinquency rates on subprime auto loans in the first quarter of 2014 was 1.20%, compared with 1.93% for banks, according to data from Experian.
Denver Community CU, with $263 million in assets, is another NCUF/Filene program participant. "One of our components of underwriting that we take a lot of pride in is lending based on character, and that can make or break a program like this," Tessa Bonfante, Denver Community CU chief operating officer, told News Now . "You do need to understand the member and ask what their intent is and how they are trying to improve their lives financially to create some kind of comfort that lending to them is going to work."
In many cases the vehicles provided through subprime loans can literally change lives. "It can be a matter of going to work, or getting to the doctor's office," said Helen Gibson, Denver Community CU vice president of marketing and education.

CU System briefs (07/28/2014)

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  • WHITEFISH, Mont. (7/28/14)-- The 112-year-old Flathead County Fairgrounds in Kalispell, Mont., has its first partnership, and it's with Whitefish (Mont.) CU . "This partnership allows Whitefish Credit Union to further promote our message of thrift and financial responsibility to an even wider audience throughout the year," said Jim Kenyon, president/CEO of the $1.2 billion-asset credit union. The Flathead County Fairgrounds will host its largest event of the year, the Northwest Montana Fair, Aug. 13-17, with an expected 78,000 attendees. "Without community support and participation, then our programs, our events and our activities don't exist," said fairgrounds Manager Mark Campbell ...
  • FITCHBURG, Mass. (7/28/14 )--IC FCU, Fitchburg, Mass., with $538 million in assets, helped bring to life little-known history of African-American achievements with a visit from actress Karyn Parsons from "The Fresh Prince of Bel-Air." Parsons' Sweet Blackberry Foundation recently visited the Leominster Boys and Girls Club. "These stories deserve recognition," said Parsons, left, with Tony Emerson, IC FCU president/CEO and vice chair for the Boys and Girls Club (IC FCU Photo) ...
  • TRENTON, N.J. (7/28/14)-- Albert C. Lukowicz of Millstone, N.J., died July 21 . He was 85 ( The Star-Ledger July 23). Lukowicz was a charter member, treasurer and president of the New Jersey Law and Public Safety CU , Trenton, N.J., now with $46 million in assets. The credit union was chartered in 1958 for employees and retirees of the Office of Law and Public Safety, inclusive of the Division of Motor Vehicles, employees of the New Jersey Judiciary and Office of the Public Defender ... 

Minn. league provides elder fin. abuse training

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ST. PAUL, Minn. (7/28/14)--Attuned to the devastating consequences of elder financial abuse, last week the Minnesota Credit Union Network hosted more than 50 credit union representatives at a forum focused on providing front-line staff the tools needed to identify and report instances of fraud.

Former Minnesota Attorney General Hubert H. "Skip" Humphrey III addresses the participants of the Minnesota Credit Union Network's forum on financial elder abuse, calling credit unions a friend he's comfortable dealing with. (Minnesota Credit Union Network Photo)
Front-line credit union staff are often the first to encounter, and thus the first able to spot, instances of elder abuse, according to the league.

"Prevention is key for credit unions, due to the relationships you have (with your members)," said former state Attorney General Hubert H. "Skip" Humphrey III during the event. "I personally feel more comfortable dealing with a credit union. You're a friend. You have that knowledge of what (your members) do, and that gives you the opportunity to spot unusual behavior and provide protection."

In April, Minnesota became the first state in the United States to to issue guidance to state-chartered credit unions and banks urging diligence protecting senior citizens and reporting irregularities to local law enforcement agencies.

The forum included a panel discussion among elder financial abuse experts that covered how to communicate with those being defrauded, how to report abuse and what happens when an abuse report has been filed.

Credit union staff in attendance, many of whom are trainers at their organizations who teach employees how to identify and report possible fraud, learned additional prevention tips from the following experts:
  • Shane Deal, deputy commissioner of financial institutions for the Department of Commerce. Deal is responsible for state regulatory oversight of state-chartered financial institutions;
  • Jay Haapala, associated state director of AARP Minnesota and a leader of the state's Fraud Watch Network, which educates consumers about scams and fraud;
  • Sean Burke, steering committee member of the Minnesota Elder Justice Center at William Mitchell College of Law, an organization dedicated to tackling elder and adult financial exploitation; and
  • Mary McGurran, agency policy specialist for the Department of Human Services' Adult Protective Services unit and a licensed social worker specializing in working with vulnerable adults, their family members and caregivers.

CUNA Mutual Group pledges $35K to Cooperative Trust

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MADISON, Wis. (7/28/14)--CUNA Mutual Group has committed $35,000 over the next year to The Cooperative Trust to support the future of credit unions. This new sponsorship continues CUNA Mutual Group's long-standing involvement with the trust and will increase leagues' efforts to engage young adults.
"The leagues' ability to engage young adults, and credit unions attracting and retaining them as members and employees, is key to the future of our industry," said Gerry Singleton, CUNA Mutual Group's vice president of credit union system relations. "Our industry needs to pursue the next generation of members and employees, and we see our support of The Cooperative Trust as an investment in the future of credit unions."
The Cooperative Trust, founded by Filene Research Institute in 2010, is a grassroots group of young people working in credit unions and cooperatives with the goal to learn from the vast amount of talent among industry veterans while aggressively shaping the future. CUNA Mutual Group is a charter and founding member of the Filene Research Institute.
CUNA Mutual Group's funding will help The Cooperative Trust community attend, learn from and be heard at nontraditional industry events.  It will also support the leagues' desire to engage and maintain relationships with young professionals by providing on-site facilitation for young professional events, guidance, templates, mentorship best practices and more.
"Our continued relationship shows CUNA Mutual Group's commitment to the future of credit unions," said James Marshall of Filene Research Institute and manager of The Cooperative Trust.

CUNA BSA training to reach 38 Mich. state examiners

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MADISON, Wis. (7/28/14)--The Credit Union National Association has been invited by the Michigan Department of Financial Institutions to provide CUNA Bank Secrecy Act (BSA) training to 38 state examiners during a Department of Insurance and Financial Services training event later this year.

The training, offered in partnership with the National Association of State Credit Union Supervisors, is scheduled for Oct. 8-9 in Ann Arbor, Mich. Michigan credit unions are invited to participate in the certification opportunity as well.

Tracy Blaske, CUNA director of compliance education, said that it's an honor to bring the training program to the compliance experts "who safeguard the Michigan credit union system year-round."

Examiners who complete CUNA's BSA designation training will receive the CUNA BSA Compliance Specialist (BSACS) designation, which recognizes them for their expertise in the field and for their dedication to the advancement of credit union compliance.

CUNA also will host the Bank Secrecy Act Conference later in the month, from Oct. 26-29, in Las Vegas.

The conference brings together BSA compliance officers, state and federal examiners, industry experts and regulators, and provides attendees with updates from the Financial Crimes Enforcement Network, the National Credit Union Administration and agencies from the Office of Foreign Assets Control.

Those in attendance will learn the statutory and regulatory training knowledge needed to comprehend and comply with the complex federal BSA law.

For more information on the training use the link.

Neb. Hike the Hill focuses on reg relief

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LINCOLN, Neb. (7/28/14)--Nebraska credit union advocates took their message of regulatory relief to Capitol Hill during a Hike the Hill event earlier this month.
Click to view larger image Nebraska credit union advocates met with Sen. Deb Fischer (R-Neb.) during their Hike the Hill visit to Washington, D.C., earlier this month. (Nebraska Credit Union League Photo)
"Our credit unions are being inundated with hundreds of new complex regulations from multiple agencies that they must now comply with," said Scott Sullivan, Nebraska Credit Union League president/CEO ( The Affiliate July 21).

There have been 180 new regulations from 15 separate agencies since 2008, not including those from the CFPB, according to the Credit Union National Association.
Ronny Miller, president/CEO of $16 million-asset Gallup FCU, Omaha, Neb., told lawmakers that small credit unions are bearing the brunt because of their limited staff and resources. "Their staffs (small credit unions) are spread so thin that it hurts the members," said Miller.

Steve Edgerton, vice president of operations and governmental officer for Centris FCU, Omaha, with $531 million in assets, said that larger credit unions are hiring more compliance officers to keep up with the new rules and regulations coming out of Washington, D.C.
Nebraska advocates thanked U.S. Reps. Jeff Fortenberry (R-Neb.), Adrian Smith (R-Neb.) and Lee Terry (R-Neb.) for co-signing the risk-based capital (RBC) letter sent to the National Credit Union Administration. The letter was co-sponsored by Rep. Peter King (R-N.Y.) and Rep. Greg Meeks (D-NY).  The letter garnered support from more than 300 House members.  During visits to Sens. Deb Fischer (R-Neb.) and Mike Johanns (R-Neb.), Nebraska credit union representatives asked them to pen a letter to the NCUA.
In addition to meeting with federal lawmakers, the advocates met with NCUA Chair Debbie Matz and NCUA board member Rick Metsger. Much of the focus of both meetings was the proposed RBC rule.
Other states participating in Hike the Hill visits this spring and summer include Michigan, Minnesota, Maine, Missouri, New Mexico, Arkansas, Oklahoma, Texas, North Carolina, South Carolina,  New York, Ohio, Iowa,  Oregon, Washington, California, Nevada, Alabama, Florida, Wisconsin, Georgia, Kentucky, Montana, Massachusetts, New Hampshire and Rhode Island.

Maine league rallies volunteers for Michaud campaign

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WESTBROOK, Maine (7/28/14)--The Maine Credit Union League is soliciting volunteers to help elect U.S. Rep. Mike Michaud (D-Maine) for governor.
The league endorsed Michaud for governor last fall and highlighted Michaud's track record of supporting credit unions during his 12 years in Congress and 20 years in the Maine Legislature. Michaud also served as a longtime credit union board member and remains an honorary credit union board member at Eastmill FCU, Millinocket, Maine, with $60 million in assets.
"Helping to successfully elect Mike as Maine's next governor is going to take a strong, coordinated and involved effort on the part of Maine's credit unions," said John Murphy, league president ( Weekly Update July 25). "We played a critical role in helping him first get elected to Congress in 2002, by participating in leaflet drops in key areas, hosting him at credit union-related events and working in other aspects of his campaign. In fact, Mike has never forgotten our involvement, as he often cites the work of credit unions as helping to put him over the top in that race.
"We have continued to support him during his other campaigns, but the race for governor is shaping up to require a 2002-like effort, as it is anticipated to be a hard-fought and close race," Murphy added. "It is going to take a strong effort on the part of your league and Maine credit unions so we need to get this process under way now and identify individuals and credit unions that are willing to help."