News & Highlights

A New Approach to Banking Money Service Businesses (MSBs)

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In speaking at various bank and credit union events about the banking of businesses that are  cash intensive, or “Money Services Businesses” (MSBs), one common theme is clear:  despite changes in the regulatory landscape, the process for banking MSBs has remained the same.  As a result of systematic “de-risking,” MSBs across the country have been losing access to the financial system.  But with a driving force behind de-risking, Operation Choke Point, now officially ended, it is time to assess the aftermath of de-risking, and specifically how financial institutions can service MSBs in this new environment.  For this to happen, institutions must be ready to discard legacy concepts and practices associated with banking MSBs and embrace a new approach.

De-risking created a wealth of new opportunities with respect to the banking of MSBs.  As many large financial institutions have exited the MSB market, small and regional institutions are poised to fill the void left by them.  For MSBs themselves, losing access to financial institutions represents an existential threat to their businesses, regardless of how long they’ve been around or their adherence to regulations.  This means there are many responsible MSBs desperate to regain banking access, and many financial institutions open to serving them. Nonetheless, much of the MSB industry remains underserved.  So, what is the problem?

The answer may be found in some of the most common reactions heard from financial institutions about the prospect of banking MSBs:

  • “I don’t have the staffing to bank MSBs”
  • “We don’t have the tools to properly bank MSBs”
  • “We don’t know where to start”
  • “How do you bank MSBs in a profitable manner?”
  • “My compliance officer says we can’t do MSBs”

The consistent thread in these responses is compliance and cost.  And while they are related, I’ll address these concerns separately and explain how they can be overcome with a new approach to banking MSBs.

Compliance:

The exit of many large financial institutions from the MSB market exposed a problem with legacy compliance technologies – that they were not built to address the unique challenges of banking MSBs.  And yet, many institutions banking MSBs keep repeating the same mistakes by relying upon these ill-suited compliance technologies.  In one telling example, I was speaking with a bank that had been in and out of the MSB market many times while using legacy compliance technology.  When I asked what the primary problem was, the answer was “everything” – initial underwriting and due diligence, risk analysis, documentation, transaction monitoring, site visits (or lack of), baseline analysis, and expensive manual processes.  This institution finally realized that the old approach to MSB compliance had become outdated, and that a new approach, with the help of Hypur’s technology, was needed.

Contrary to conventional wisdom, the success of an MSB banking program does not depend upon the size of a financial institution.  I have seen large, well-known, institutions sanctioned for insufficient MSB compliance, and relatively small institutions successfully process $100 million per month in MSB volume.  The key is having the requisite capabilities necessary for the compliance challenges posed by MSBs, which increasingly requires the use of technology.  The right compliance technology can minimize the errors and maximize the efficiencies associated with banking MSBs.  Our financial institution clients, including the one identified above, utilize Hypur’s technology to address the unique challenges of banking MSB through automation and granular-level transparency.  When coupled with appropriate training, policies, and procedures, technology can enable banks and credit unions to responsibly, sustainably, and profitably bank MSBs.

Cost:

The imbalance of supply and demand around banking MSBs – with the latter vastly outstripping the former – gives financial institutions significant pricing leverage.  From the financial institution’s perspective, they can justify higher fees because of the additional risks and costs associated with banking MSBs.  From the MSBs’ perspective, the choices are rather stark – pay higher fees to obtain or maintain an account, or risk losing their entire business.  A pricing dynamic rarely gets more favorable than this for financial institutions.

And yet from what I have seen, financial institutions have been slow to seize this opportunity.  At a recent banking association conference, I asked the audience how many had MSB clients, and about 40% said that they did.  I then asked whether they had different fee schedules for their MSB customers.  Surprisingly, only 10% of the group said they charged their MSB customers more than their standard account and analysis fee schedules.  The rest continue to charge “normal” fees because, as many said, “that is how we have always done it.”

Put simply, the concept of free or low-cost compliance for the banking of MSBs is an outdated model that ignores current regulatory and economic realities.  Risk analysis should be conducted on each MSB customer to determine an appropriate fee schedule that properly accounts for the cost and exposure to the institution.  But I still see time and again institutions that throw FTE’s and manual processes at problems and then wonder why their margins are so low.

De-risking has caused significant disruptions to the banking industry, but also significant opportunity.  But while the landscape has changed, many financial institutions continue to utilize an outdated playbook when it comes to banking MSBs.  The combination of new technologies, including our company’s, and commensurate pricing, offers the promise of both enhanced compliance and increased revenue.  By adopting this new approach to banking MSBs, financial institutions can turn the disruption caused by de-risking to their advantage.

If you have any questions, please email Hypur executives directly aherrera@hypur.com and jvardaman@hypur.com.

Authored by:

Andre Herrera – EVP of Banking & Compliance, Hypur

John Vardaman – EVP & General Counsel, Hypur (formerly with the Department of Justice and Cole Memo/FinCEN guideline author)

 

The “M” in DREAM is for Motivate!

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For the last several weeks we have been having some fun dissecting the best credit union book out there CU 2.0: A Guide for Credit Unions Competing in the Digital Age by Ongoing Operations CEO Kirk Drake. This book is available on amazon.com (how cool is that) and currently has 22  five star reviews. That’s a better rating than the complete collection of Harry Potter (yes, there are some Harry Potter haters….I know, who would hate Harry?) but I digress.

Kirk breaks the book down in an easily digestible and memorable format. We have posted a blog on each letter. In case you missed the first four here are the links:

D – Differentiate

R – Recreate and Reinforce

E – Educate and Excite

A – Automate

M – Motivate

In this final section of his book Kirk talks about using a motivating structure to help demonstrate to the member the value of their credit union ownership, Clearly motivating the member and demonstrating the value of their membership, along with the rest of the DREAM approach, will help your credit union differentiate itself from a crowded field and allow it to compete with FinTech startups. I hope this story “Motivates” you to read this helpful book.

The first time I ever saw a Cirque du Soleil it blew my mind. If you’ve never been it’s hard to describe. It’s a “human circus” with acrobatic numbers that seem impossible. It’s all set to music, with incredible costumes, sets, props, and again, really hard to describe. But I remember distinctly this one scene where a four story building appeared on stage. Looked more like a burned out warehouse, no glass in the windows, dark and dingy. Suddenly these acrobats came running onto the stage and “bouncing” off the ground, diving head first into the windows. That one scene gave me this incredible thought. First of all, “How do they not die?” and secondly “How many times did they have to rehearse that to get it right?”

The following week I was working with a credit union helping them create a strong brand by differentiating themselves from their competition. Part of the project was the launch of a very unique branch idea. This credit union was known for their used car auto loan program. Specifically they had partnered with a local auto broker to find the best possible fleet of used cars. They would not “endorse” the cars unless they were still under warranty, had passed an additional 18 point inspection and were highly rated. The joke for a while was “What color Toyota Camry would you like to buy?”

Anyway, the CEO asked “What if we added a showroom to the lobby of this new branch and used part of the parking area as a used car lot?”  To the best of my knowledge I had never heard of a credit union attempting this. And it brought me back to the scene from Cirque du Soleil. The only way we could really pull this off would be to “choreograph the experience and rehearse it.” And that’s exactly what we did.

We sat down and through a great brain storming idea we identified “death threats.” Specifically the reputation of a used car salesman. About as slimy as it gets. How do we put on a performance that is the complete opposite of what people expect? We identified the things people hate about used car lots.

  • Salesmen lurking over your shoulder
  • The inaccurate or misleading data about the car
  • The outrageous up-charge
  • Dickering on the sticker price
  • The high pressure sell

To address each item we chose to do the polar opposite

  • There would never be a salesman on the lot
  • The information about the car would be clearly posted including what the broker paid for the car, what the blue book value is and what the price was
  • There was no outrageous up-charge
  • There was no dickering on the sticker price – the cars were priced fairly
  • It was not a requirement to finance the car at the credit union, they were welcome to finance it elsewhere

Once we had this script in place we got the branch staff together and we rehearsed the scene over and over again identifying situations that might come up that would cause us to “fall down,” Opening night was a hit.

In Kirk’s book CU 2.0 he states, “Gone are the days of members expecting MSRs to “sell” services to them. What they are seeking instead is a better overall experience with transactions that flow through their life stages in ways that are best suited for them.

“Branch technology has two facets: how the technology affects the design and the physical appearance of the branch, and how it is used in the branch. It is important to note that the branch environment should be designed to differentiate and personalize based on data, educate excite, validate, and automate. If the credit union fails to stay true to these principles. it will violate its digital branch promise and all this e-commerce work will be discounted in the member’s eyes as a major failure, leading to an erosion of trust.”

“Without trust, you can’t help the member.”

Thank you Kirk for writing this book. If your credit union has big DREAMS, we’d love to hear about them. Send us your story tokdrake@cu-2.com and you could win an autographed copy of CU 2.0 and receive $200 off the 2018 NACUSO Network Conference at the Disneyland Hotel in Anaheim on April 16th – 19th.

Hurricane Harvey: A Week of Hell in Houston and How You Can Help by Jack Antonini, NACUSO CEO

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It is such a strange feeling, as you prepare for a Hurricane, hoping it will not be as strong as predicted, praying for everyone in the path of the Hurricane, getting supplies to help you survive if you lose power or sustain damage … and all the while worrying about friends and family in the forecast path.  It’s a little bit excitement, since it is so unusual, combined with anxiety about the impending disaster, while trying to calm and convince those you love that everything will be okay.

One mile from Jack’s house in Conroe, TX

Last minute checks with our son and his family to be sure they were prepared, only to learn that the first 4 gas stations he went to were completely sold out of gas, and after an hour of searching and waiting in line he was finally able to fill up his vehicle at the 5th gas station the day before Hurricane Harvey made landfall in Texas, added to the feeling this might be bigger than we thought.

Finally we gathered around the TV to watch as the storm approached Texas and were amazed at how strong it became, reaching category 4 hurricane status with 130 mph winds and 938 mb of pressure, indicating it was one of the 20 strongest hurricanes of all time.  As we watched the weather people being beaten by wind and rain, and saw coastal cities record wind speeds of 120 – 132 mph, an ominous feeling crept into our subconscious.  Our reactions to what we were seeing went from “Wow, look at that!” to “Oh my God, that is terrible.”

We stayed up all night, watching the storm coverage, wincing every time we received a new Tornado Warning … the Emergency Notification on our phones would alert us, and then we would have to wait to see where it was impacting on TV.  As of 45 minutes after Harvey made landfall, 86,400 homes were without power.  We imagined how helpless we would feel in the dark, with no information about the raging storm right outside our door, and we prayed for the people who were going through this.

Finally relieved that the hurricane was not coming close to our house, and making sure our son’s family was safe, we collapsed in to bed Saturday morning.  A few hours later, when we got up to check on the storm, we discovered that Houston was experiencing severe flooding and Buffalo Bayou was expected to set a record flood depth and vehicles were already stranded in flood waters, and that over 1,000 high water rescues had taken place.  That ominous feeling grew stronger, and we were more acutely aware of the potential to be negatively affected by Hurricane Harvey.

An abandoned Houston Hobby Airport

After another sleepless night, reassuring my family that we would be okay, exhausted from worry and the weight of watching mother nature wreaking havoc on Texas, we went to bed.  When we awoke, we immediately got a storm update, only to learn that Houston was experiencing “massive flooding and torrential rains.”  After a drink to steady our nerves, we watched storm updates throughout the day and night, despite losing power several times, along with our internet connection.

By Monday, August 28th officials announced that both Houston airports would be closed through at least Wednesday, as the highways around Houston were flooded or the exits were impassable.  Forecasters were calling for another 15 inches of rain where we live, north of Houston, and another 20 inches of rain in Katy where our oldest son lives.  The high water rescues, which are occurring in areas that never previously flooded, are unbelievable, including:

4,000    Houston Fire Dept

2,000    Houston Police Dept

2,200    Harris Country Sherrif’s Dept

 1,500    U.S. Coast Guard

9,700    Total High Water Rescues reported as of Noon 8/30/17

People came from as far away as San Antonio and Louisiana with their personal boats and watercraft, bringing cases of water and other supplies, to help with rescues!  One “convoy” of 5 pick-up trucks pulling boats was spotted following Harris County Sherriff’s Deputies to areas where flood waters were rising and people needed to be rescued.  When the local news reported talking with the drivers in the first two trucks, the first was from Austin (165 miles W of Houston) and the second was from Carthage (220 miles NW of Houston), and they literally had no idea where they were or where they were going, they were simply following the Sherriff’s Deputies to locations where people needed help.

Over 30,000 people were in shelters in the greater Houston area on Monday evening, after their homes were flooded.  Thousands of cars and homes are under water, and over 350 areas in greater Houston are impassable due to dangerous high water conditions, making it very difficult to go anywhere.  Our friends from the east returned the favor of Texas providing shelter to hurricane Katrina victims, and over 200 members of the “Cajun Navy” came to Houston to help rescue flood victims with their personal boats.

By Monday, we were also finally seeing the heart-breaking pictures from Rockport, Fulton, Victoria and other areas that had suffered through hurricane Harvey’s 130 mph winds.  As one astonished reporter explained, there was not a single building in Rockport or Fulton that was not damaged, with most damaged beyond repair that would require tearing them down and rebuilding.

Late Monday or early on Tuesday, August 29th we learned that several rivers were going to exceed their historic flood levels, several by as much as 10’-12’ which will cause unimaginable damage.  On top of that, Lake Conroe (near where we live) was 5’ over “full pond” and in danger of going over the dam, which could cause significant damage to the dam itself and resulting damage to homes and business along the West Fork of the San Jacinto River, so they had to release record amounts of water flooding entire neighborhoods, especially since it was still raining.

Two large reservoirs (Addicks & Barker – 26,000 acres) had completely filled with water from the massive rains in Houston, and the Army Corps of Engineers were forced to use a controlled release after water began to “overspill” the Addicks reservoir, adding to the flooding along the Buffalo Bayou.  On top of the downstream flooding, 3,000 homes west of Addicks reservoirs flooded and another 1,000 west of Barker reservoir, where no prior flooding had ever occurred.

The County Judge in Galveston County said that they had received 43 inches of rain so far on Tuesday and their annual total is 49 inches, so they have received nearly a year of rain in 5 days, causing extensive flooding.  He was going through areas on an air boat that had been hard hit, and in Dickinson they were going OVER cars and trucks, since the water was 10′-12′ deep above the street they were going down.  He said that he was looking at some apartments that didn’t appear to be too damaged until he realized that it was the 2nd floor apartments he was looking at!!

Literally thousands of homes will have to be completely rebuilt from the flood damage, removing the flooring, replacing appliances, rewiring the electrical systems, tearing out the ruined drywall and insulation and replacing it, and some business owners had said it would be a year before they will be able to reopen, since they will have to tear down what’s left of their business and rebuild it.

On Wednesday August 30th over 32,000 people were in shelters and they are opening more, expecting victims from east Texas communities of Beaumont, that received over 20 inches of rain on Wednesday, after Tropical Storm Harvey made landfall again.

The amazing thing is the people who are volunteering to help.  I saw a truckload of food and supplies being unloaded at a Conroe ISD high school that good Samaritans sent down from Dallas.  They announced that a shelter in Fort Bend County needed clothing, bedding, cots, etc. for people who had to flee the rising water that was flooding their homes and had nothing but the wet clothes on their backs, and within an hour they had sufficient blankets, clothes, sleeping bags, pillows, etc. for the 500 people in the shelter from people who lived nearby and brought what they could to help.

We have watched amazing rescues, and two that really touched my heart included:

  • Saving a baby deer from Barker reservoir (it was happily snuggled in the fireman’s arms)
  • Two people who brought their canoe to help rescue people, went to the neighborhood early and discovered a man who was laying on his back with a young man doing compressions on his chest … they loaded him into their canoe, then got him to a pontoon boat that had 2 fireman on it, who continued the compressions, and by the time they got him to an ambulance, his heart was beating, and they had saved his life!!

I have to admit I was feeling very uneasy when I was finally able to venture out of our house and went to the grocery store only to see empty shelves, and gas stations closed with no fuel.  As of Wednesday, August 30th at Noon, there were:

  • 278,000 people without power in Texas
  • 32,000 people in evacuation shelters
  • 200 high water areas making highways and other thoroughfares impassable, down from 450 such blockages a on Monday

I honestly cannot imagine losing my home, and things most precious to me such as family photos, and winding up sleeping on a cot in a shelter with 500 to 5,000 other people … but that is exactly what thousands of people in Texas have experienced over the past 5 -6 days as Hurricane Harvey and the rain it brought devastated home after home, town after town.

With some areas receiving 52 inches of rain in Houston, this is one of the strongest and wettest hurricanes in history, causing such extensive flooding that the waters won’t recede until Labor Day in most of the rivers and bayous that are overflowing their banks into neighborhoods and people’s homes.  It will take months to recover, but in the credit union tradition of people helping people, we have seen incredible acts of love and compassion as people from all across the region, and from areas as far away as NYC, CA and FL have come to help the people of Texas.  Despite losing everything, we have seen people express their appreciation to their rescue teams, whether first responders or simple volunteers, who saved their lives.

We can make a difference in the lives of thousands who are facing the biggest, most stressful experience of their lives.  Contribute to Red Cross or CUAid.coop and you will have the satisfaction of knowing you are making a real difference in the lives of people who are truly in need of help.

Thank you to CO-OP Financial Services, PSCU and CU Direct, all NACUSO Platinum Partners for making significant donations to CUAid.  Your dedication to the credit union movement is inspiring.

 

NACUSO Spotlight on new CUSO LenderClose

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This month we are excited to feature a brand new CUSO and new NACUSO member, LenderClose. I think you’ll enjoy hearing how this company began.

PART ONE: Life Story and Experiences

What’s your current position and can you give me a brief overview of what it is you do in your work?

Omar Jordan, President/Founder

I am the President / Founder of LenderClose.

My day consists of talking to clients/staff/vendors/investors. I work 9 days a week and I enjoy every bit of it. You can say I spearhead the R&D segments of the business, sales, technology and customer service. But I wouldn’t be able to do any of it without having the right team alongside me.

What would you say most motivates you to do what you do? What are you most excited or passionate about?

My greatest joy is being part of someone’s success story. Whether it’s an employee we’ve promoted, a client we’ve helped restart or improve a process. As a culture at LenderClose we all believe in an impactful set of values. It begins with a simple formula: Take care of our clients, and it all comes full circle.

I want to hear the story of how you came to work with credit unions. What attracted you to work for LenderClose?

I’ve done my banking with Credit Unions since 1999. I’m very much a Credit Union guy. I have decades of experience in real estate and consumer lending. When the CFPB was formed in 2009, I knew Credit Unions were going to need help. That’s when I started LenderClose.

Our mission at LenderClose, is to help credit unions capture younger members, by developing state of the art technology to convert and “attract” more millennials in the decades ahead to ditch the banks for Credit Unions.

Now if we can go even further back, where did you grow up and what was it like living there? Where did you go to school?

Omar riding a “camel” with his daughter Isla

I was born in the country of Jordan. Jordan is the home of Dead Sea, Petra and the River of Jordan.

The people of Jordan have a great deal of pride in their heritage, history and culture. If you ever get a chance to visit, I highly encourage you to travel to Jordan. We spoil our guests from overseas.

I never forget where I’m from, However, home for me is Des Moines, Iowa. 😊

I attended college in Orange County, California (Santiago Canyon College)

Who were your mentors along the way? People who deeply influenced who you are, what you believe in and what you’re committed to in your work and life? Tell me about them.

We all encounter individuals who help shape up our characters. I try to learn from other people’s mistakes and perhaps take the same path others took to success. Anyone with extreme work ethics is a winner in by book. I never count working hours in correlation to my success. I work until my body tells me to rest. I try to inspire others and in return that inspires me.

Finally, can you share something interesting about you that would surprise our readers? It can be anything, a hobby, an adventure, sports, the most embarrassing thing that’s ever happened to you, 

This is supposed to be the “funny” part. So, I would say that I rode a camel a couple of times in my life time.

Most embarrassing thing: Probably falling face down while golfing with clients, because the ground was wet. 😊

PART TWO: The Business Story

Tell me the story of how your CUSO/Company was created – the early days. Tell me about some of the memorable characters in the history, some that brought your story color, drama, comedy, conflict?

Back in 2010 when the CFPB was unfolding. I saw an opportunity and a void in the market for simple, affordable and adaptable technology which will bring everything needed to originate loans under one platform. Utilizing our lending background and identifying areas of opportunities, we’ve built LenderClose.  We offer everything from Flood Determination, Tax Tracking, County Recording Services to Valuation Products. We know the mortgage market inside and out. And we are passionate about it.

What were the key relationships that mattered most? What were the key sources of support or resistance you encountered?

Someone once said, “You get what you pay for.”  It’s true. Even with staffing. I hire people that are smarter than me. Our staff at LenderClose are some of the most motivated, hardworking individuals around. Those are the kind of relationships that matter.

The most challenging part of my job is motivating Credit Unions to utilize technology. I’m puzzled when I walk into a Credit Union and they’re still using typewriters to create loan documents.

What have been the greatest successes in your opinion?

It’s exciting seeing our user base expand month after month. Looking at what we’ve done this year vs. last year, is motivating. The potential ahead is even more exciting. We have more new products to roll out in the coming months, which will bring Credit Unions that advantage to compete against the BIG BANKS.

PART THREE: Reflections and Lessons

If you could start your CUSO/Company all over again, would you do anything differently? Why and what would you do?

I can think of 300 things I could have done differently. But there’s no way of telling what works and what doesn’t until it happens. Our days go by fast and the years pass even faster. We don’t have time to dwell on the past. Let’s position ourselves “prepared” for the future.

Finally, when you think of the future for credit unions, what gives you hope and what makes you concerned?

I talk to a lot of small to midsize Credit Unions. I don’t worry much about large Credit Unions. But credit unions under 100,000 members I worry about. They need technology in order to survive the Armageddon of technology coming in the next decade. The “Digital” era is not something we talk about any more, it’s here now.

Banks and Credit Unions are competing based on who can lend the fastest, and most painless and convenient for the borrower. Everyone offers the same interest rates, terms and fees. Are Credit Unions streamlining the processes? Are Credit Unions using technology and data to their advantage? Or are we still stuck in 1993 processes?

That’s what we’re all about at LenderClose. Helping Credit Unions take charge in the “digital” age.

The “A” in DREAM is for Automate

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DREAM Big Contest Continues!

Think of the first three letters Differentiate, Recreate and Educate as the ingredients to bake a one-of-a-kind-out-of-this-world-cake. Now we put them all together and automate (or bake) it.

Kirk recommends the new member experience be the first place to try marketing automation.

I recently sat in on a conference call regarding Net Promoter Score and found out that most credit unions are not “blowing members away” when they open up their new account.  In fact, very few members will give a promoter score citing “Too early to tell” or “I just opened the account and I don’t feel I know them yet.”

But this was even more disconcerting. In a Pacific NW study of credit unions and banks they found that Chase AND Bank of America scored higher with Millennials (18-34) on the “overall recommend” question. They did not cite service as the reason but rather just the opposite. They do a great job making it possible for the Millennial customer to NEVER have to interact with a human. And they do that using automation.

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The Story of CU Lunch Local: An annual celebration of credit unions commitment to community.

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CU Lunch Local aims to raise awareness about the importance of supporting local small businesses across Michigan. Studies show that money spent at local businesses tend to stay in the community and a greater percentage of every dollar spent is recirculated at the local level when compared with non-local businesses. CU Lunch Local was founded in 2011 in collaboration with Michigan Business Connection, a commercial lending CUSO.

Bill Beardsley, CEO of Michigan Business Connection and Board Member of NACUSO sat down with us to talk about CU Lunch Local. A unique way to celebrate International Credit Union Week.

Tell me a little bit about how this movement came to be? 

CU Lunch Local was born in 2012, when MBC reached out to its credit unions’ marketing departments to come up with ideas on how to capitalize on the impact the credit union industry has on local economies. On one of those calls, the idea of a “cash mob” type of event was thrown out to the group. Everyone loved it, and from there it was just a matter of sorting out the details. Since that time CU Lunch Local has become an annual event. One that we want to continue to see grow.

What is a cash mob? 

Cash mob events are similar to flash mob events, but with one key difference. Instead of dancing in the street, people who participate in cash mob events spend money.

Their goal is to support local businesses and encourage others to buy local. On October 17th, we hope to have hundreds of credit unions from all around the country that  will commit to dine, shop, or buy local.

Do you know how many credit unions participated last year?

That’s a tough question to answer. We ask participants to sign up, but we know there are dozens of participants that just go for it, and participate without signing up. I can estimate that we’re in the hundreds though.

What is your goal for this year? 

We’d like to see more states and more credit unions, and CUSOs join the movement. We’d also love to see credit unions, leagues, and other partner organizations “tag” another organization and challenge them to join CU Lunch Local this year.

What are some of your best memories of CU Lunch Local? 

There are just so many, it’s impossible to name just one. Every year one of the best parts about this event is, that we’ve always said, CU Lunch Local can be as simple as buying a cup of coffee locally and then sharing that purchase via social media with the hashtag #culunchlocal. But, the reality is credit unions and the industry go all out, and the ideas and the impact and the fun everyone has with CU Lunch Local is amazing.  

How can credit unions and CUSOs get involved?

Getting involved is easy. First, like the official CU Lunch Local FB page, www.facebook.com/culunchlocal, then sign up, http://signup.com/go/AXePFmr, questions and requests for the logo, etc. can be emailed to: jessica@in-fusiongroup.com.

The “E” in DREAM Big Contest: Educate and Excite!

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When I was the VP Marketing for First Tech Credit Union I was in charge of the website. This is back in 1997 when websites were in their infancy. We paid an inordinate amount of money for the first one to be built (read, as much as my first home). My job was to keep the content fresh. We had pages and pages of marketing copy. But I wondered, was anyone reading it? When they land on the home page, where do they go next? Is our navigation working?

Microsoft (who was one of our SEGs) had just come out with some fancy software that could tell us just that. The guy in IT described it to me in this way “Imagine a field of freshly fallen snow, this software is going to show you the footprints in that snow so you can see the “path” people take when they go to your website. Yay! I couldn’t wait to see the results. I never could have imagined it at the time. There was a muddy trough directly to the home banking login. The majority of the pages were not visited even ONCE!

What an eye opener. Fast forward 20 years and here we have Kirk’s book telling us that members are probably still doing the same thing. That’s why most of us don’t dare bury the login to home banking for fear of losing them entirely. So how do we get our members to read our stuff? It’s so simple, make it relevant and compelling and local! Yes local.

Last week we talked about how the Google machine rules the world. If you want to be found you need to know how Google sees the world. Google loves local. Create local content that is hyper-targeted at an age group, a population, an experience or a region – whatever it is, target it in a way that Bank of America or other big banks can’t. I just looked at several credit union websites and few even have “content.” Most have copy, which isn’t the same thing. Here’s the difference.

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The “R” in the DREAM Big Contest: Recreate and Reinforce

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Kirk Drake (right) with Mike Lawson at 2017 NACUSO Network Conference

Last week we talked about the importance of differentiating with data … the “D” in Dream. Now let’s begin by talking about the Google machine. I cannot even remember my life before it? Did we go to the library to do research? Pull out our 10 year old Encyclopedia Brittanica? If you’re a Millennial reading this – Google it – it’s a thing.

Anyway- Kirk cracks the code on getting Google’s attention. Put simply, the ultimate goal is to have someone in your field of membership searching for a solution to a problem and bam – you have the answer and land on the top (or near) the first page of responses. So just for fun Google “good financing for a car loan in (insert your city name).” Was your credit union there? If so, congratulations. If not, why?

I don’t know of a credit union out there that doesn’t want to be known as the “trusted resource for financial services.”  How do you earn that trust? Not by product pushing and always leading with rate. Not with clever ads and shiny happy people on your website. It’s about identifying with your target audience and giving them resources, content, information and education, about stuff that has nothing to do with your products and services. A really good example is Point West Credit Union in Portland, Oregon. They were founded in 1932 to serve employees of Multnomah County. After the Great Recession of 2008 they focused their mission on community development. They received their CDFI designation in 2013 and merged two very small diverse credit unions in – NAACP and Hacienda Community.  In 2016 they funded $5.4 million in affordable loans to non-citizens! That’s a real differentiator. They have created a community within their community.  On Point West’s site they have a page dedicated to resources for non-citizens.

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Advocacy Updates

Report on Advocacy Fund spending… NACUSO Working for You

Posted by & filed under Advocacy Fund, Regulatory Advocacy.

Through the support of our members and partners, NACUSO raised approximately $273,000 in contributions toward its Advocacy Fund (and predecessor Legal & Litigation Fund) over the past 3 years.  The goal of the two funds together are to enable NACUSO to conduct crucial advocacy work on behalf of CUSOs and their credit union owners / partners.

In keeping with our commitment to be fully transparent and to regularly communicate our usage of these dollars (we provided detail of how the funds were spent from 2014-2015 last year, which is also included in the attached Report), we would like to provide you with the following information, which was provided in detail to each contributor in the first quarter of 2017.  NACUSO spent the following amounts from the Advocacy funds during 2016:

$24,000     Dollar Associates, LLC - paid for advocacy work with Congress and NCUA on CUSO issues
$24,000     Messick & Lauer, P.C. - paid for advocacy work with NCUA and meetings with Congress on CUSO issues
$   718     Travel to Washington DC for meetings with Congress and NCUA
$48,718    Total amount spent influencing Congress and NCUA for favorable CUSO environment

The remaining funds, out of the total $273,000 in combined contributions, equal $110,323.  This represents the balance in Restricted Cash as of 12-31-16, as per the NACUSO Advocacy and Legal Fund Analysis report (click link below).

The NACUSO Board and its Legislative & Regulatory Advocacy Committee is continuing to prioritize the advocacy of a regulatory environment that is pro-CUSO and pro-collaboration within our industry.  NACUSO needs your support for this initiative and to accomplish its purposes.  While strategies may change over time based upon circumstances and opportunities to advance the cause of CUSOs, the necessity for funding of such initiatives is essential if NACUSO is going to remain in a position to impact the decision-making process for CUSOs and the credit unions that invest in, or utilize them.

Click to Contribute

For a summary of how NACUSO has worked to maintain an environment that is supportive of collaborative investment, the following report entitled NACUSO Working For You (see below) provides a summary of the work we have done on your behalf.  To capsulize some of its key points, a summary of what we feel are the NACUSO “wins” this past year are:

  • Effectively opposing the costly extension of Vendor Authority to NCUA.
  • Worked with NCUA on the revised MBL Rule.
  • Advocating for the expansion of CUSO powers to originate loans credit unions are authorized to make, to help bring scale and expertise benefits to credit unions in all loan categories.
  • Encouraged NCUA to be transparent in its budget and rule making including the OTR calculation.
  • Working with NCUA to minimize adverse impact of the CUSO Registry and to correct the acknowledgements initially in the Registry.

To emphasize the last bullet above, initially, in its first version of the CUSO Registry documentation that CUSOs were required to submit with their data to NCUA in 2016, the agency’s acknowledgement form required CUSOs – when submitting their data – to accept responsibility under regulations that only apply to credit unions but were not intended to, apply to CUSOs.  These acknowledgments, if left unchallenged and signed by CUSO officials, could have exposed CUSOs to potential penalties under regulations that do not, and were never intended to apply to CUSOs.  Upon becoming aware of this inappropriate acknowledgement requirement, NACUSO worked directly with senior NCUA staff to bring our concerns to their attention.  NCUA agreed to the NACUSO position and made the needed changes to the acknowledgements for the CUSO Registry data submission process.  In addition, for those CUSOs who had already submitted their registration and signed the acknowledgements, NACUSO developed a letter with the appropriate wording for those CUSOs to send to NCUA to clarify this acknowledgement concern.

Effective advocacy requires ongoing diligence in following every aspect of regulatory requirements impacting CUSOs and the credit unions that invest in them and benefit from them.  It necessitates prompt response at times and the ongoing resources to interact positively on behalf of the CUSO community on issues and requirements of all types.  With a new Congress now in session, educating them on the benefits of credit unions and the collaborations that enable them to cost effectively serve their members, as well as invest in innovation, through CUSOs that help spread and minimize risk, is an important message we are delivering.  We hope that you agree such diligent advocacy initiatives are crucial to the long-term viability of the collaborative movements within the credit union community.

We hope this report helps you see how we have carefully managed the funds entrusted to us, for Advocacy purposes.  We would be happy to answer any questions that you may have.  Thank you for your support, and for giving NACUSO the opportunity to support you as you serve your members.  Please consider adding your support to our advocacy efforts by contributing today.

View NACUSO’s 2016-17 Advocacy Plan 

View NACUSO’s Advocacy & Legal Fund Analysis

 

Best Regards,

Jack M. Antonini
President & CEO
NACUSO
Jack@nacuso.org

NACUSO Working For You

Legislative & Regulatory Advocacy Update

Vendor Authority

Knowing that obtaining vendor authority was the number one legislative issue for NCUA in 2015-16, Jack Antonini and Guy Messick met with key Congressional representatives in January to tell Congress why credit unions and CUSOs oppose the extension of this expansive, costly and unnecessary authority to NCUA.  When NCUA made their official request for vendor authority, Congress was not persuaded by their arguments.

We continue to monitor the situation to ensure that the Senate and House recognize that such an unwarranted extension of regulatory and examination authority beyond the current statutory mandate of NCUA is both controversial in the industry and potentially damaging to an industry that is dependent upon third party relationships because of their smaller size in comparison to many of their competitors.  Credit unions need third party support and collaborative innovation to continue to effectively meet their members’ needs, and a burdensome regulatory and examination regime for anyone who does business with a credit union will not foster that support and innovation.

NACUSO is focused on protecting credit union collaboration through CUSOs, but we need your help, so we can continue to be vigilant in monitoring legislation in Congress, please contribute to NACUSO’s Advocacy Fund today – click here to contribute.

NCUA’s MBL Rule

NACUSO was supportive of the positive changes in NCUA’s revised MBL Rule, including the greater authority to waive personal guarantees, a more balanced approach to construction loan limitations, enhanced flexibility on counting loan participations against the MBL cap and the improved treatment of 1-4 dwelling rental property.  NACUSO also, in consultation with our business lending CUSO members, recognized that the Conflict of Interest provisions in the new MBL Rule could be misconstrued by examiners, so we have engaged with NCUA Board members and senior NCUA staff about the issue, and sent a letter to explain our concern and our recommended solution (see NACUSO’s MBL Conflict of Interest Letter to NCUA ).

Expansion of CUSO Authorized Powers

NACUSO wrote to the NCUA Board in 2015 requesting an amendment to NCUA Regulations Part 712.5 to add to the list of authorized CUSO powers to help facilitate a competitive solution to the growing Internet and peer-to-peer lending competitors for car loans and unsecured loans faced by credit unions in today’s environment (see NACUSO’s letter).  Chairman Matz responded that she was not opposed to reconsidering new authorities for CUSOs, indicating “if CUSOs can legally provide additional services to benefit credit unions and their members without compromising safety and soundness, I would strongly support those efforts.”  Chairman Matz went on to say that she had asked NCUA staff to review the policy and safety and soundness considerations relative to our request, and this review is already underway (see Chairman Matz response).

NACUSO has since asked the NCUA Board to consider updating the CUSO powers to align CUSO loan support with the loans credit unions are authorized to provide to their members  (see NACUSO’s 2017 Expansion of CUSO Authorized Powers Letter to NCUA), so CUSOs can bring scale, risk mitigation and expertise benefits to credit unions in all loan categories, not just those listed in the regulations.  While we explained the reasons for updating the NCUA Rules and Regulations Part 712.5 defining the permissible pre-approved activities a CUSO may provide, we also referred to our advocacy efforts to have auto loans and consumer loans added to the list of CUSO activities over the past two years, and the support that NCUA has communicated regarding those efforts.  We respectfully submit that now is the time to update the CUSO regulations to clarify that CUSOs are authorized to assist credit unions with any loan type that credit unions are authorized to make.

Update on CUSO Rule Implementation

Pursuant to the CUSO Rule the NCUA adopted in November 2013, CUSOs have been required to report certain information directly to NCUA pursuant to the agreement with their investing credit unions.  NCUA built an on-line reporting system that went live in the first quarter of 2016, and CUSOs updated their CUSO Registry information in the first quarter of 2017.

NACUSO continues to work with regulators minimize the regulatory burden on CUSOs and to help credit unions realize the maximum benefit from collaboration through CUSOs.  We work to ensure regulations affecting credit unions and CUSOs are as favorable as possible, but we need your help to continue this regulatory advocacy work, please contribute to the NACUSO Advocacy Fund today.

NACUSO Supported Transparency on OTR

NACUSO has long expressed its concern about the growth of NCUA and its extension of its regulatory arm, both directly and indirectly, into areas of questionable statutory authority such as the de facto regulation and examination of CUSOs through the 2013 CUSO Rule.  The extension of regulatory authority by NCUA comes with increased costs, costs that are paid for ultimately by credit union members.

NCUA takes money from the insurance fund to pay for its operations through the Overhead Transfer Rate (“OTR”).  The OTR currently funds approximately 70% of NCUA’s budget.  NCUA does not have to justify its expenses or ask permission from anyone to take as much money as it deems appropriate from the share insurance fund for its operations.  Fortunately, under new leadership, NCUA has decided to be more transparent as part of its budget process and publish details of how it calculates the OTR.

NACUSO 2016-17 Legislative & Regulatory Advocacy Plan

As we explained when we announced the formation of the NACUSO Advocacy Fund two years ago, the regulatory climate that enabled credit unions to maximize the benefits of CUSOs and collaboration is under siege, and as an industry, we need to respond.  NACUSO established an Advocacy Fund to supplement its efforts to promote and protect a collaboration/CUSO friendly regulatory climate.

At the 2016 NACUSO Annual Conference, we shared our 2016-17 NACUSO Advocacy Plan, based upon the four basic precepts upon which our advocacy work is based.  Those four pillars are designed to support an environment that:

  • Encourages credit unions to deliver a better member experience and improve the financial well-being of members
  • Encourages credit unions to seek new collaborative ways to serve members needs
  • Rewards investment in innovation and collaboration
  • Supports the use of CUSOs as the incubators for collaboration and innovation so that credit unions can reap the benefits of entrepreneurialism without direct risks

The Advocacy Plan also identifies the key associational positions that NACUSO is focused on, for the benefit of CUSOs and their credit union owners, which are summarized as follows:

  • Supports the development of clear examination guidelines that recognizes that NCUA has review powers and not examination powers over CUSOs. Such guidelines would inhibit de facto regulatory creep that would treat CUSOs as regulated entities that would discourage innovation and collaboration. NACUSO will intervene with NCUA in the more egregious cases if the CUSO or the investing credit unions request NACUSO’s assistance.  NACUSO opposes any legislative efforts by NCUA to gain statutory authority to directly regulate and examine CUSOs through an unnecessary expansion of the agency’s examination authority over credit union vendors
  • NACUSO supports the modernization of the permitted CUSO Services list to include all loan types that credit unions can originate to help bring scale benefits as well as risk mitigation and expertise benefits to credit unions
  • NACUSO will encourage regulators to view innovation and collaboration as an essential part of a revitalized credit union model and adapt their regulations and supervision to encourage the responsible and prudent development of the collaborative model

Key strategies for accomplishing the NACUSO 2016-17 Legislative and Regulatory Advocacy Plan are detailed in the Advocacy Plan.  In order to have a maximum impact upon the regulators and the industry, CUSOs and their credit union owners must stand united as we promote the unique collaborative opportunities and risk sharing benefits that our CUSOs provide.   Together, our participation in collaboration advocacy efforts through NACUSO will be our most effective way of impacting the future regulatory environment under which CUSOs operate.

NACUSO will focus its advocacy efforts on those issues most critical to the CUSO community as a whole and will attempt to avoid watering down its message on key issues by taking public positions on all issues that may impact CUSOs or credit unions in a more indirect manner.

In the current environment it has become increasingly important for credit unions to find new sources of non-interest income in order to enhance earnings, build capital, and support member growth.  Thus, collaboration and innovation are more critical now than ever before to create sustainability for the credit union movement.  NACUSO educates the industry as a whole (CUSOs, credit unions and other providers) on the benefits of collaboration and innovation, facilitates cooperative business opportunities, and provides leadership on how to implement these strategies within a favorable legislative and regulatory environment.

It is the desire of NACUSO to be recognized as an effective organization in support of building a favorable legislative and regulatory environment through what we consider the four pillars of future credit union success – collaboration, innovation, growth and entrepreneurship.  NACUSO will be balanced in approach, but bold in action to aggressively promote this agenda and will seek to join with other like-minded organizations, when appropriate, to work in collaboration with NACUSO to see these key agenda items accomplished.

All of the organizations associated with the NACUSO Board of Directors have already made contributions to the NACUSO Advocacy Fund.   We urge you to add your collaborative voice to NACUSO’s advocacy efforts.  Please complete the commitment form today, and send your contributions to NACUSO so we can help you.  Please share with your friends in the industry who want to ensure a bright innovative, collaborative future for our industry and our members.  If you or your industry friends are not yet members of NACUSO, now is the time to join, and be part of the collaborative solution.  If you have questions about the NACUSO Advocacy Fund, click the link to go to the NACUSOAdvocacy Fund FAQ’s.

Thank you very much for your support, and for giving NACUSO the opportunity to serve you as you serve your members.  It is a privilege that we truly appreciate.

Sincerely,

Jack M. Antonini
President & CEO
NACUSO
Jack@nacuso.org

Jack M Antonini
President & CEO – NACUSO
jantonini@aol.com  (713) 208-0989
NACUSO’s 2018 Network Conference April 16-19 at Disneyland Resort in Anaheim, CA
Learn more about NACUSO in this short video!




            

            

                

                                


        

        

        

	

	
            

                


                    

                        
                            NCUA Meeting Provides CUSO Guidance 6/16/16
                    

                    

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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
                    

                    

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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:




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                            CUSO Registry Clean Up Period 4/22/16
                    

                    

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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
                    

                    

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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.


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                            Change to the CUSO Registry Acknowledgement 3/14/16
                    

                    

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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
                    

                    

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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.