News & Highlights

Is Your Credit Union Addicted to Bad Profits?

Last week I penned a blog on what it’s like being a member of a credit union. I shared my feeling that most of us do not know what the experience is like because we are in fact employees with an account where we work. An entirely different experience.

The day after that story ran I experienced first hand how awful it is to be an anonymous member. And it was my fault – I admit it. I totally forgot that I had scheduled my quarterly taxes to debit my checking account this month and it overdrew me. Luckily I had money in savings so my credit union transferred money to cover my house payment, which came in right after the taxes. They charged me $3.00 for the transfer. Not bad. But the next day three items came in and instead of transferring one time, the computer was set up to transfer individually so the credit union could collect $3.00 each time, and, for you compliance geeks out there you know what’s about to happen next … I’m dangerously close to my 6 unauthorized transfer limit from shares. The Reg D debacle.

And so it happened the next day, two more transfers and also the day when I happen to check my balance. Not only did I hit magic number six, but then courtesy pay kicked in and the fee jumped to $30.00 to cover my cell phone bill. I’m out $48.00 in fees and I am now unable to make a transfer from shares to keep this from happening again. I call the 800 number (that boasts 24 hour service) but of course this is out of their realm of assistance and I’m told a note has been put on my file for them to transfer tomorrow for another $3.00 fee.

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Do You Know What it’s Like Being a Member of Your Credit Union?

For the first 20 years of my career I worked in a credit union. Like many of you I started as a teller and worked my way up and around the org. chart holding positions like member service rep., loan officer, collector. Then I decided to take my talents “behind the scenes” in support functions such as card services, training, and a short time in HR. I had a great boss that used to remind us that “If we’re not serving a member, than we are serving someone that is.” Such a true statement about how a credit union works.

But for those first 20 years I was never a member of a credit union.  I know what some of you are thinking “Where did I have my money? In a bank?” Heck no. I was an employee of the credit union where my checking account was. That’s an entirely different relationship.

Every morning I would check the balance and history of my checking account. Because I could. This was years before we gave members that convenience with home banking. If I wanted a loan, I knew what our loan approval guidelines were and went into the process knowing I would be approved. In fact, all member loans took a back seat when an employee stepped up. It was wonderful. I never had to stand in a teller line on my lunch hour. Never had to endure the wait in a drive-up window or worse yet listen to the horrible recording on hold for the call center. I was insulated from all the torture.

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What are CUSOs Doing?

What are CUSOs doing?  This is a very common question I hear from credit union and CUSO folks.   From our vantage point of working with NACUSO and working with hundreds of CUSOs in the past 30 years, we have a unique perspective to know the CUSO universe.  Even NCUA used to call us on CUSO industry questions from time to time.  Now that CUSOs are becoming an essential part of the credit union business model, existing CUSOs are being asked to provide more services and new CUSOs are being formed.    Will there ever come a day when we have more CUSOs than credit unions…maybe?

Since the role of CUSOs is becoming so important to the success and survival of credit unions, NCUA saw the need to know more about CUSOs.   While NACUSO and NCUA had differing views on whether CUSOs could be required to report directly to NCUA, the silver lining is a better knowledge base about CUSOs.

The good news is that the NCUA’s CUSO Registry is a searchable data base and it attempts to be as comprehensive as possible.   The bad news is that NCUA does not share much data… only the CUSO’s name, address, telephone number, web site and services.  CUSOs were nervous about NCUA sharing their proprietary data and NCUA erred on the conservative side.

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I Don’t Want to Get My Shoes Wet! Or How I Learned to Get Over My Fear

This last week-end I treated myself to a trip to the Oregon coast to recharge. That meant I had to:

      go by myself (sorry dear husband)

    not engage with my electronics

    walk on the beach at least three times a day

    eat fresh seafood

    drink really good wine

    read a book

That was my plan and I was sticking with it. On walk #2 of the first day I made certain to be there around 2:30pm, low tide. This particular beach (Arch Cape) boasts some pretty cool tide pools if the ocean is out far enough. Sure you can pay to go touch a starfish or a sea anemone at the Newport Aquarium, and I have many times, but to see them in the “wild” is something altogether different.

I set out on the mile walk to the pool. When I got there, the tide was not out as far as I hoped. I was expecting more of a “desert landscape” that I could just walk on up to the edge of this giant rock and run my hand along the rough barnacles and muscles. But there was a sea of moss covered rocks and deep water between me and my destination. It was basically a river and the ocean tide was still feeding it. I studied it, tried to time the waves for minimal water interaction so I could safely cross. I walked up and down trying to find some kind of “path” with an old log or some makeshift bridge that perhaps another determined tourist had created. No luck. I did not want to get my shoes wet and I knew that if I tried to hop from one slippery mossy rock to another I was bound to fall. Gravity has never been my friend.

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The Changing Perception of Banking Marijuana Related Businesses

When the federal government issued policy guidance in 2014 as to how financial institutions (FIs) could permissibly service marijuana-related businesses (MRBs), industry reaction was swift and decisive – most FIs wanted nothing to do with the perceived reputational risks associated with marijuana.  Fast-forward three years and we are beginning to see a noticeable change in the perception of banking MRBs.   With ever growing acceptance of legalized marijuana, MRBs are increasingly viewed by FIs as opportunities to be pursued, not risks to be avoided.  Moreover, federal and state officials see FIs as the key to getting marijuana proceeds off the streets and into the financial system where they can be tracked and taxed.  In short, the image of marijuana banking is changing.

Let us begin by separating reputational risk into two categories:  Reputational risk caused by the action (or inactions) of FI’s themselves, and the reputational risk associated with servicing  clients considered to be controversial, such as MRB’s.

Reputational risk is commonly defined as the following:  “The potential that negative publicity regarding an institution’s business practices, whether true or not, will cause a decline in the customer base, costly litigation or revenue reductions.”  Certain byproducts of an institution’s direct actions or inactions can be defined.  This can be demonstrated by the $185 million dollars levied against a large institution last year for fraudulently opening accounts without their customer’s consent.  Another example would be civil money penalties for an institution’s failure to comply with various regulations.  Other examples would be negative publicity from data security breaches in an FI’s computer system, formal enforcement actions, and accounting irregularities.  Matters such as these  are typically public information, with media exposure at various levels.

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The Need For and the Impact of CUSOs

By Guy A Messick, NACUSO General Counsel & Jack Antonini, NACUSO President & CEO

Click on image to read CUES on CUSOs

There are numerous examples of companies that did not adjust to the changes in their industries that are no longer with us.  Kodak, Border Books and Blockbuster come to mind.  One disruptor has been so effective, their name is now used as a verb in describing the effect, getting “Uber-ed” referring to losing your market to a disruptor with little capital investment.  In hindsight, the disruption to these business models was obvious yet companies did not act in time.  It is human nature to be in denial when dramatic change is required, but change is often required to survive.   Netflix changed from a DVD delivery model to an online streaming model and they have flourished.

Credit unions are at such an inflection point today.  In the 1930’s credit unions were the disrupters.  In those days, people had very limited choices to obtain financial services.  You had to be within a short travel distance from a financial institution. Credit unions provided reasonably priced services to common folks.  They were service oriented.  Credit unions did so through a collaborative model.

Today there are hundreds of financial institutions and other specialized financial service providers that are just a click away.  Many competitors are convenient and provide superior customer service at relatively low costs.   The Internet only competitors do not have the costs of brick and mortar and expensive compliance with extensive regulations.  Through the use of big data, the competitors often know more about the members than a credit union knows.  More and more members demand the convenience of FinTech connections and delivery systems from their financial service providers.  They want a mortgage approval within ten minutes and a car loan in a minute.  Welcome to the digital age where new disrupters offer convenience as simple as a click on your mobile phone, and if you cannot compete with these well-financed FinTech businesses, your membership base will likely wither away over time.

CUSO AnalyzerIf you do not have the resources on staff to compete in today’s world of instant gratification through the internet, and you want to compete and survive as an independent credit union, there is only one effective choice: collaboration.  Fortunately, it is in the DNA of credit unions to collaborate.  Through the CUSO structure credit unions have fostered effective collaborations that create new revenue sources from alternative financial products, dramatically reduced costs, increased the expertise available to credit unions and inspired innovative solutions to the problems facing credit unions.  The inability to create significant spreads in net interest margins in today’s world is of great concern.  CUSOs generate much needed net income for credit unions, helping provide capital to support growth in service to members.

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5 Effective Ways for Credit Unions to Improve Member Experience

In a world that battles competition ruthlessly, every single day, the philosophy guiding credit unions comes as a whiff of fresh air. It isn’t a profit-centric mentality that guides this industry but an all-inclusive “for the benefit of members” approach. This sense of community is extremely inspiring in the day and age we live in. But how can credit unions make sure that they can keep this philosophy alive and stay relevant amidst such hectic digitization? On top of that, how can credit unions guarantee member loyalty and growth?

The secret lies in managing the member experience.  Member experience takes into account all the feedback from members and puts it into perspective in order for credit unions to address issues and tackle them. By working on member feedback, you convey to your members that “sense of community” is not merely a trending phrase but a sacrosanct philosophy which you respect and value. Managing member experience, however, doesn’t end with collecting feedback. It starts there and culminates in loop closure.

Ideally, managing member feedback should involve the following stages:

  1. Collecting Feedback from Members across all touchpoints
  2. Collating feedback data on a single dashboard
  3. Analyzing feedback to gather insights
  4. Taking action on issues reported
  5. Closing the loop with members

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Advocacy Updates

Report on Advocacy Fund spending… NACUSO Working for You

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. (more…)

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:

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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.

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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.