News & Highlights

The CFPB, Credit Unions and Fines

imageThe CFPB fined Navy Federal Credit Union $5.5 Million as a civil penalty for violations related to collection efforts and $23 million as compensation to members who were subject to collection efforts that were allegedly contrary to applicable regulations.   This got me to thinking, what is the purpose of CFPB fines?

Some would argue that the fines are a form of punishment.  “Make the bastards pay.”  The sentiment was widespread among many Americans after the financial meltdown when no one was held accountable.  I have to admit that the notion has some emotional appeal to me.  There are people who were bad actors and designed business models that preyed upon the public and deserve to face at least a fine for their egregious conduct.   However, I do not see Navy Federal Credit Union as a predatory institution that needs a dose of vigilante justice.   Navy has the heart and soul of a true credit union that cares deeply about the financial well being of its members.   Navy Federal Credit Union did not cause the last financial melt down and will not cause the next financial melt down.  They will never be on the “get-even” list.

Some would argue that fines are a deterrent to financial service providers to not repeat bad behavior.   The theory goes that if a bank is fined, that will cut into the profits and upset the shareholders who will take up their pitchforks and make the board and management behave better.   Even if you accept this reasoning, I don’t see how that theory applies to a credit union.   The irony of the Navy fine is that in its zeal to protect the members of Navy Federal Credit Union, the CFPB is taking money from the very members it says it is protecting.   All the money in credit unions belongs to the members.  There are no profits going to “fat cats.”  So if you fine a credit union, it is the members who pay.


The CFPB and My Fifth Grade Government Class – by Guy Messick

schoolhouse-clipartIn my fifth grade, I learned about checks and balances in our democracy.   This country was founded on the then revolutionary principle that the people are free and the people grant their government with limited rights for limited purposes.  The fear of an overreaching government is why our founders created a government with multiple checks and balances; to prevent a branch of government from making up rules without the input and consent of the people and their representatives.   When Congress created the CFPB, they forgot those concepts.

The CFPB is run by a single administrator who is appointed to a five year term and answers to no one.  The current administrator was never confirmed by Congress.  The CFPB funding comes from the Treasury Department not from the Congress.   The people’s representatives have no supervisory powers over the CFPB, an agency that Congress created to pass rules consistent with the authority granted by Congress.  Unfortunately Congress was a bit vague with the grant of authority. The CFPB exploited that vagueness to give itself the power to regulate conduct in every type of consumer financial service.  Congress gave the CFPB the keys the car and an unlimited credit card and like an entitled teenager, the CFPB is driving anywhere it wants to go.

Other financial regulators pass regulations that are first offered for public comment and then published as final regulations so that the financial institutions understand the “rules of the road” and can act accordingly.   The CFPB makes many of their new rules by ambush.   They and they alone decide among themselves what is fair and not fair.   They then give notice to a financial service provider that they are acting in a manner they determined is unfair to the consumer.   Through litigation and the mere threat of litigation, new standards of conduct are imposed.  If their new rules impose higher costs on a financial service provider that drive up the costs to consumers or adversely impact the financial integrity of a financial services provider, they do not care as they are “on the side of the angels” and will impose their view of the world on all of us no matter what the costs or consequences.


I Want a Financial Fitbit!

Four years ago, for my husband’s 50th birthday I bought “us” the Up by Jawbone. It was a primitive Fitbit. A black band with a cap that revealed a stick you put into your iPhone to upload your data. You had to “check in” so it could judge you. It tracked your activity, your sleep patterns fairly well, you had to upload your eating so it could judge you more. It was ugly, and clunky and it had this annoying habit of vibrating when you were idle for too long. After about 2 months I ripped it off my wrist and tossed it in a drawer. My husband stayed with it. After about 6 months his first one died, and he bought another, only to have that also die outside of warranty and by the third time (three strikes and you’re out) he gave UP. Get it?

fitbit-earningsSo for Christmas last year I bought him the Fitbit – because it was the highest rated on Amazon and I got free shipping (Amazon Prime). I didn’t really know much about it. He’s a gadget guy, so anything that gives him charts and graphs and feedback is great. The Up never made him smile. He was always answering to it, and trying to coax it back to life.

Soon after he got the Fitbit he would say things like “I just got my Empire State Building badge for climbing a bazillion flights of stairs!” (The Fitbit was giving him “awards”) – hey, whatever floats your boat, right?


We Found the CU*Answer to the Dwindling Number of Credit Unions


Credit unions. Not for profit, financial cooperatives owned and operated by their members. The start up stories of this 107 year-old movement are heartwarming:

Credit Union ONE began in 1938 when 15 neighbors organized the Ferndale Co-Op Credit union in a local church basement, pooling $158 and their shared commitment to “people helping people.”

TAPCO Credit Union was founded in 1934 by nine employees of the City of Tacoma. Our first branch was located under the stairs of the Old City Hall in downtown Tacoma.

TOPCU was established by City Firefighters and Chief John “Slatz” Freeman in 1935. The original branch was Fire Station One, the hours were “Whenever there isn’t a fire.” It began with 19 members and $30.75 in assets.

The original model was quite simple. Built on trust, usually involving money in a shoe box or cigar box. Ledgers kept track of deposits and loans. Our first real regulation didn’t come down until 1968, The Truth in Lending Act. Credit unions were not allowed to offer share draft (checking accounts) until the late 70’s. And that’s when things started to get more complicated.


Wells Fargo and a Culture Out of Control by NACUSO CEO Jack Antonini

When I first heard the news that Wells Fargo employees fraudulently opened two million unauthorized or fictitious customer accounts in an effort to meet sales goals, I could hardly believe that such a fraud could occur.  Then as I learned that this happened over a period of several years, dating back to at least 2011 and that Wells Fargo continued to pressure employees to “cross-sell” (i.e. open new accounts), even after they became aware of these egregious acts, I was outraged.

stumpfAt the Senate Banking Committee hearing this week, The Wall Street Journal reported that Senators “accused [Wells Fargo CEO] John Stumpf of fostering a culture where low-paid branch employees were pressured to meet impossible sales quotas to keep their jobs, and so signed up customers for products without their knowledge. As the employees sold more products, Wells Fargo shares rose and bigger bonuses flowed in for the top executives.”

How could this happen?  In a well written article on “How Wells Fargo’s High Pressure Sales Culture Spiraled Out Of Control” the WSJ summarized it this way: “Hourly targets, fear of being fired and attractive bonuses kept employees ‘selling’ even when the bank began cracking down on abuses.”  The article went on to say: “For five years, Wells Fargo conducted investigations into improper practices, hired consultants and tinkered with sales and compensation incentives. Questionable sales tactics persisted, though, and were an open secret in Wells Fargo branches across the country … branch managers routinely monitored employees’ progress toward meeting sales goals, sometimes hourly, and sales numbers at the branch level were reported to higher-ranking managers as many as seven times a day. Tension about how to meet the sales targets was common. Former employees reported that managers asked employees who had fallen short of the targets if they could open accounts for their mother, siblings or friends.”


The Essential Truths of Back Office Collaborations by Guy Messick


I learned a few things along the way about credit union collaborations that jointly supply back-office operational services, e.g. IT support, lending, collections, compliance; etc.   Below are some common lessons learned.

  1. Scale alone is not enough. If two credit unions merge or two credit unions collaborate through a CUSO there will be an increased scale in the operation. But if there are no other changes and the credit unions continue to operate in the same manner with the same number of people, there are no savings other than perhaps through additional bargaining power with vendors.    If the processes and people issues are not addressed, a merger of credit unions or a CUSO collaboration can actually add costs.


Innovation and Disruption at its Core

collaborating logo.001Today, let’s consider a new concept for disruption and collaboration. Let’s change the entire paradigm of the core system technology platform and build that model in collaborative CUSOs.

Core systems in credit unions have been a material advantage for credit unions over all size banks for decades. Our business developed as full service institutions at the same time significant new technologies came to the market – specifically mini computers and integrated data bases. We also had the added advantage of very centralized operations, which allowed us to have a consolidated technology platform. We entered the full service retail banking world at the same time that there were technology platforms geared toward our size institutions. Allowing us to connect all loan, savings and transactions accounts into one record and to provide online, real time operations. We leaped over banks in our use of technology and were leaders in on line ATMS, audio response systems and online banking platforms. We were the innovators and the disrupters. We had members using those services long before the average bank.

Our core vendors, companies like DNA (FiServ) and Symitar (Jack Henry) supported our tech leadership positions with integration into lending platforms, collection systems, card subsidiary systems, etc. They have been very good partners and we would not have grown to the extent we have today without them.


Advocacy Updates

NCUA Meeting Provides CUSO Guidance 6/16/16

NACUSO Visits NCUA to Discuss the CUSO Registry and CUSO Reviews

On June 14, Jack Antonini, NACUSO President and Guy Messick, NACUSO General Counsel met with NCUA Staff on the results of the CUSO Registry and the thinking on how CUSO Reviews will be handled.

The CUSO Registry sign-up period and the follow-up by NCUA found there were approximately 900 CUSOs.   NCUA believes that there are more CUSOs that have not reported.  Under the NCUA Regulations (Part 712.1(d)), “A CUSO also includes an entity in which a CUSO has an ownership interest of any amount, if that entity is engaged primarily in providing products or services to credit unions or credit union members.”   So these subsidiary CUSOs are considered CUSOs and required to make annual reports to NCUA.   The NCUA staff believes that many CUSOs were not fully aware of this requirement and there are a number of subsidiary CUSOs that have not reported.   NCUA will be following up with CUSOs to obtain these filings.   NCUA is also scrubbing the data and asking for clarification if the data is indicating that there may have been a reporting error. (more…)

Report on Advocacy Fund spending…NACUSO Working for you

Through the support of our partners, NACUSO raised approximately $63,000 in contributions toward its Legal and Litigation Fund in 2014 with a primary purpose to develop strategies for the most effective way to seek the repeal and/or mitigation of the impact of the CUSO Rule that NCUA had adopted in November 2013.  Subsequently, NACUSO established an Advocacy Fund to supplement the Legal and Litigation Fund.  The goal of the two funds together were to enable NACUSO to coordinate legal decision making, with a crucial advocacy component that will have more impact than the always risky option of legal action.  In total, $190,600 was contributed to the NACUSO Advocacy Fund.  Combined these two related initiatives received total contributions from NACUSO partners of approximately $253,600 in 2014 and 2015.

In keeping with our commitment to be fully transparent and to regularly communicate our usage of these dollars, we would like to provide you with the following information.  NACUSO spent the following amounts from the two funds during 2014 and 2015:


CUSO Registry Clean Up Period 4/22/16

As most of you know, all CUSOs are obligated under the NCUA Regulations to register certain information directly with NCUA on an annual basis.   Over 800 CUSOs did so in February and March.   NCUA is now in the process of making sure all CUSOs have registered.   Their new deadline is April 30.  They are taking CUSO information from the credit union 5300 call reports and sending out letters reminding “CUSOs” that they have to register.   Some credit unions may have incorrectly listed a company as a CUSO.  Other credit unions list their CUSO but use an acronym for the CUSO instead of the CUSO’s full name.   NCUA, not knowing better is sending letters to any and all companies listed on the call reports. (more…)

Regulatory Update 3/15/16

Letter to NCUA regarding CUSO Registry Acknowledgement: Yesterday, NACUSO informed you of a change we negotiated with our General Counsel (Messick & Lauer) with the NCUA regarding the CUSO Registry Acknowledgment each CUSO is required to agree to when submitting their CUSO registration in the NCUA’s CUSO Registry system.  As we pointed out in our Regulatory Alert yesterday, the acknowledgment required CUSOs to agree to be bound by statutes that only apply to credit unions and which imposed penalties that are not applicable to CUSOs.


Change to the CUSO Registry Acknowledgement 3/14/16

During the process of assisting with CUSO Registry questions, it came to our attention that in order to complete the CUSO Registry, CUSOs were required to agree to be bound by statutes that apply to credit unions and which imposed penalties that are not applicable to a CUSO.  On behalf of NACUSO and the many CUSOs in this industry, Messick & Lauer (NACUSO’s General Counsel) have advocated and negotiated to revise this acknowledgement to more accurately describe the duty of CUSOs to respond to the CUSO Registry.  It is a contractual duty with the credit union and not a direct regulatory obligation to NCUA.   As NCUA continues to pay more attention to CUSOs, NACUSO will continue to take action to be the voice of CUSOs and to resist any attempts at regulatory overreach.  The NCUA has changed the acknowledgement text.  For your reference, the text of the previous and current CUSO Registry acknowledgments are below. (more…)

Regulatory Update 2/26/16

NCUA’s CUSO Registry Training & Demonstration webinar held on February 11 is now available to be viewed.  If you missed the webinar, or want to view it again, to help you in completing the CUSO Registry, you can watch it by clicking on the following link:  View 2/11/16 Webinar. You have until March 31, 2016 to complete your initial registration of all CUSOs.

Regulatory Update 2/1/16: NCUA’s CUSO Registry Opens Today

Credit unions and credit union service organizations can now get additional guidance on NCUA’s CUSO Registry from a new agency website page. Registration for the CUSO Registry opens today and continues through March 31. The new website page explains the agency’s requirement that CUSOs report information directly to the agency if they wish to work with credit unions and provides links to related resources available to help those completing the registry. You can link directly to the CUSO Registry from the resources page.