News & Highlights

What should be disclosed to credit union members in mergers?

 

 

There has been a flurry of news articles and opinion pieces about what a credit union should disclose to its members when members are asked to vote on a merger of their credit union.   It is a worthwhile question to ask but there are legitimate privacy interests of credit union management that we should be mindful of and respect.  The key is to determine where the line is.  If a Merger Information Disclosure was created, it might have the seven questions below.  The first three questions are of obvious concern to members and need no explanation.   I will comment on the others.

  1. What will be the impact of the merger upon the types of products and services offered to members?
  2. What will be the impact of the merger upon the cost of products and services offered to members?
  3. What will be the impact of the merger upon the branches and electronic access available to members?
  4. What will happen to the credit union’s capital as a result of the merger?

In most cases, the capital of the merging credit union will be merged with the continuing credit union for the benefit of all the members.  In some cases there is a special dividend to the members of the merging credit union.  This question gives the merging credit union the opportunity to disclose a special dividend without drawing attention to the possibility if that is not being done.

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Regulatory Expectations Regarding the Banking of Money Service Businesses

The regulatory expectations surrounding the banking of money service businesses (MSBs) are a frequent source of confusion for financial institutions. Many financial institutions are surprised to receive deficiencies and matters requiring attention in examinations, even though they believe they have followed the regulatory guidance. Because of this confusion, the National Credit Union Administration (NCUA) has announced that it intends to make providing services to MSBs or other types of high-risk businesses a supervisory priority this year, with field staff tasked with targeting this area. This article will discuss potential problem areas for credit unions with MSB customers.

MSBs and regulation

MSBs are defined generally as businesses transacting largely with cash: currency dealers, check cashers, issuers and redeemers of traveler’s checks, money orders, stored value, money transmitters, and the U.S. Postal Service. MSBs are regulated by the Internal Revenue Service, and with just a few exceptions, all MSBs must register with the Department of the Treasury. In addition to the IRS, most states have Money Transmitter requirements regulated by their DFIs (Department of Financial Institutions) that certain types of MSBs are subject to follow.

The FFIEC guidance regarding MSBs clearly states that the Bank Secrecy Act (BSA) does not require, and neither FinCEN nor the federal banking agencies expect, financial institutions to serve as the de facto regulator of their MSB customers. Specifically, the guidance states:

“While banks are expected to manage risk associated with all accounts, including MSB accounts, banks will not be held responsible for the MSB’s BSA/AML program.”

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What’s the Doughboy Afraid of?

How many of you remember the fight of the century?  It was Haagen-Dazs v. Ben & Jerry’s in 1984.  Okay, maybe not Ali vs. Liston, but in the business world it was comparable.

It was a classic David vs. Goliath tale.  In 1978, two young hippies, Ben and Jerry, started an ice-cream shop in a renovated gas station in Vermont.  By 1980, the popularity of their ice cream made them dream bigger and by 1984, they had grown the business to $4 million in sales.  Independent ice cream distributors started selling Ben & Jerry’s in big grocery stores in Boston.  And that’s how the fight started.

“That year, Haagen-Dazs, owned at the time by Pillsbury, had enough of our upstart small business,” said Ben Cohen, co-founder in a special CNN story in 2011.  “Did they try to promote their ice cream harder, develop some new flavors or cut prices to competitively beat us?

No.  Their game plan was to try to stop our distributors from carrying our ice cream.  Pillsbury, a $4 billion corporation back then, was a major source of income for these distributors and they were told, in no uncertain terms, not to do business with Ben & Jerry’s.”

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Strengthening Portfolio Performance is Critical in Today’s Auto Lending Marketplace

By Michael Cochrum, Vice President of Analytics and Advisory Services, CU Direct

Since the beginning of time, lenders have sought a way to accurately measure and predict risk in their loan portfolios.  Understanding risk allows lenders to make sound credit decisions and properly price loans.  Ideally, lenders need to make, at the very least, a high enough return on loans to cover the principle and any costs, including losses, associated with the loan.  Unfortunately, the inability to properly measure, manage and predict risk appropriately has been the ruin of many lenders.  Putting one’s finger on the cause and effect of the multitude of factors that can influence a borrower’s desire to originate a loan and ability to repay can be a time consuming endeavor. Most lenders, like myself, were trained to read a credit report and consider each loan request independently.  We never really looked beyond that individual credit application or borrower.  Considering aggregate trends in a portfolio, and even market performance, can be helpful to gaining a greater insight into future performance.

Let’s take a close look at how external factors influenced consumers’ behavior during the most recent recession cycle.  One might assume that inflation and fuel costs would have had a role to play in consumer demand for new vehicles.  Yet, more than any other factor, since 2010, the unemployment rate had a direct, inverse correlation to auto sales.  Auto sales decreased as the unemployment rate rose, and increased as the unemployment fell.  Therefore, it would be reasonable, based on recent trends, to predict auto loan growth based on unemployment forecasts.

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Linda Bodie, CUSO Power-User. An interview with CUES

Linda Bodie, CU CEO and Warrior

As part of “CUES on CUSO’s” month-long focus on credit union service organizations, they featured  Linda Bodie, CEO and chief innovator at Element Federal Credit Union on their weekly podcast. Linda works with several CUSOs to make her small credit union act big. CUES will learn more about CUSO’s, their impact on the industry and what partnering can mean for your CU by publishing a series of articles, offering two webinars taught by our own Guy Messick and Denise Wymore and feature coverage of the Next Big Idea Competition next week at the NACUSO Network Conference.

Click here to listen to the podcast.

Read this NACUSO Spotlight article we featured on our blog earlier this year to learn more about the many CUSOs Linda’s credit union uses to compete with the big boys.

ProMedica FCU Takes its Card Program to the Forefront of its Business: A Case Study

ProMedica FCU takes its card program to the forefront of its business

Over the past five years, the payments landscape has rapidly evolved and many credit unions are now taking advantage of various initiatives and solutions to remain relevant and improve their business portfolios. One credit union in particular has experienced significant growth in business after partnering with CSCU. ProMedica Federal Credit Union’s Marketing/Business Development Director, Chris Tarsha, shares the experience of being a part of CSCU’s Optimize Program. He and his team used the Portfolio Growth Solutions (PGS) product with expert guidance from their CSCU portfolio consultant.

There may be challenges but opportunities abound

ProMedica Hospital & Health Care is the largest employer in northwest Ohio and southeast Michigan with over 17,000 employees, 2,300 physicians and more than 800 healthcare providers employed by ProMedica Physicians. Additionally, it offers a health plan, which serves over 300,000 members.

With Promedica Hospital’s system extending to such a large network, there is an opportunity for ProMedica Federal Credit Union (PFCU), which aims to serve ProMedica Hospital & Health Care employees, their immediate family and affiliates.

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Five Reasons to Make Convenience a Strategic Priority

Consumer demand for convenience is impacting the customer experience like never before. As one credit union representative put it in this short video, “technology has spoiled us completely. Everything’s about accessibility, being convenient.”

With January’s credit union trends report projecting loan growth in 2017 to exceed 10 percent, credit unions have a huge opportunity ahead of them.1 Your success this year and beyond may well depend on how convenient it is for members to do business with you.

Here’s why:

Your Competition Gets It

Competitors realize that consumers increasingly prefer conducting business when and where it suits them, not around office hours or locations. It’s no surprise that 71 percent of financial institutions said improving the customer’s digital experience was their top priority for 2017.2

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What are Credit Unions’ Pain Points?

In 2016, Denver-based CUSO CU Service Network conducted a sweeping survey on top credit union issues and burdens. The findings revealed fascinating trends in the credit union landscape. Take a look at this infographic.

Also, be sure and stop by the NACUSO Network Lounge at the 2017 NACUSO Network Conference to learn more about CU Service Network.

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.