CURRENT Newsletter | 2 June 2020 - Virginia Credit Union League

The COVID-19 pandemic continues to have a wide-ranging impact on consumer spending behavior. We will look at fraud trends both pre-pandemic, mid-pandemic and post-pandemic. Mitigating risk is as important as ever as we emerge towards a new normal. What are you doing to meet this demand?

This session will also look at spending trends, transaction activity and the effect on credit unions. What has been the impact on the merchants and what could consumer spending look like moving forward.

Save the Date: Free June 23 Webinar

We’ll team up with Fiserv again on June 23 for a second FREE webinar. Details coming soon!

Much of Virginia to Enter Phase Two Reopening Friday

Much of Virginia will enter Phase Two of Gov. Ralph Northam’s “Forward Virginia” reopening plan on Friday.

Northern Virginia and Richmond will remain at Phase One, however, Northam said. Accomack County, which has seen an outbreak of more than 900 cases, mostly among poultry plant workers, has yet to enter Phase One but may be permitted to enter Phase Two, the governor said.

Northam cautioned, however, that the pandemic is not over, saying, “We are still safer at home. We still strongly encourage teleworking and physical distancing, and face coverings are [still] required in indoor spaces.” Virginia has 46,239 confirmed and probable COVID-19 cases as of June 2, with 1,407 Virginians dying from the virus statewide since the pandemic began in early March.

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CU Leaders Share Reopening Strategies, Thoughts on Managing Pandemic Issues

Your League hosted a series of virtual calls this week with credit union leaders from across the Commonwealth, offering a forum for credit unions to share their pandemic response initiatives, operations plans (including branch reopening), employee health and work arrangements, and member service strategies.

“Our credit unions are faced with very similar challenges, but these calls offered our leaders the opportunity to share their experiences, their resources and best practices,” noted the League’s Nicole Widell, chief member engagement officer.

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League Hosts Compliance Hot Topics Webinar with Attorneys Jay Spruill & Lindsey Moore

The Woods Rogers Law Firm's Jay Spruill and Lindsey Moore cover compliance issues surrounding PPP loans; meetings (membership/annual meetings & Board meetings); new scams; and small-dollar lending.

View video

Advocacy /Governmental Affairs

CUNA/Leagues Ask SBA, Treasury to Revamp PPP Loan Forgiveness Process for Smaller Loans

CUNA and the Leagues in a letter Friday asked Treasury and the SBA to revamp the forgiveness application process for loans under $350,000. This threshold captures the vast majority of loans and is the amount at which the CARES Act makes the lowest cutoff in determining lender processing fees.

Furthermore, the process could be simplified even more or made automatic for the smallest of borrowers requiring nothing more than a good faith certification that the funds were spent on forgivable expenses. This threshold could be set much lower, for example at $50,000.

Read the letter

Senate to Vote on House's PPP Flexibility Bill Soon – Roll Call

Senate Majority Leader Mitch McConnell, R-Ky., said the Senate would soon vote on a recently passed House bill that seeks to give small businesses more flexibility on how they use loans under the Paycheck Protection Program, Roll Call reported June 1.

The House version of the Paycheck Protection Program Flexibility Act differs from the Senate's version as the latter only aimed to extend the time period to use the loans to 16 weeks from eight weeks.

Under the House-passed bill, small businesses would be given up to 24 weeks to use the PPP funds and still have them forgiven. The House bill also reduces the required percentage of PPP loans that must be used for payroll expenses to 60% from 75%, thereby allowing businesses to allocate 40% to overhead expenses, compared to the previous requirement of 25%.

The Senate version has no provisions on lowering the 75% payroll spending cap but would allow businesses to spend money on personal protective equipment and other infection-preventing investments.

Compliance / Regulatory Affairs

Essential Employees, 'Regulator vs Litigator' Compliance Webinars Set for June

CUNA will conduct two new webinars this June that will help credit union professionals navigate complex and shifting compliance requirements.

“Regulations are changing almost daily,” said Jess MacLagan, instructional design manager – compliance at CUNA. “These webinars help attendees focus their attention on key topics in HR and operational compliance to guide professionals working to protect against regulatory infractions.”

Should I Stay or Go? Classifying Essential Employees for the Return webinar, on June 10 from 11 a.m.-noon, will explore HR compliance topics related to transitioning staff currently working remotely back to the credit union. The session will include regulatory guidance surrounding employee classifications, operations inventory and employee notification.
Regulator Versus Litigator: Who Should Concern You more and Why? webinar on June 18 from 11 a.m. - noon, will provide a breakdown of the current state of compliance, including current regulatory and litigation risks. Attendees will learn to prioritize compliance resources and communicate compliance across their organization.

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NCUA Makes Q2 Call Report Changes Based on CARES Act, Related Regulations

The National Credit Union Administration’s (NCUA) 2020 Quarter 2 Call Report changes, starting with the June report, includes changes based on the Coronavirus Aid, Relief, and Economic Security (CARES) Act and related changes to NCUA regulation §§ 702.104 and 702.2.

The Q2 Call Report changes include:

Added two accounts to capture the number and dollar amount of forbearance loans granted consistent with § 4013 of the CARES Act. These loans will NOT be reported on the Delinquency schedule (pages eight and nine) or on the Troubled Debt Restructuring schedule (Schedule A, Section 5)
Added two accounts to capture the number and dollar amount of Small Business Administration (SBA) Paycheck Protection Program (PPP) loans
Added an account to capture the amount of SBA PPP loans pledged as collateral to the Board of Governors of the Federal Reserve System’s PPP Lending Facility (PPPLF)
Added an account to capture the amount of PPPLF loans
Modified the Risk Based Net Worth calculation to apply a zero-risk rating to PPP loans
Modified the net worth ratio calculation to exclude PPP loans pledged as collateral to the PPPLF from total assets
Changed the asset threshold for the Risk Based Net Worth requirement from $50,000,000 to $500,000,000

For more information read the agency’s 5300 Call Report FAQs.

NCUA Updates Offsite Examination, Supervision Approach

NCUA’s latest Letter to Credit Unions (20-CU-17) provides an update to the agency’s offsite examination and supervision approach due to the ongoing coronavirus disease (COVID-19) pandemic. According to NCUA, the changes to NCUA’s examination and supervision approach are effective June 1.

NCUA’s offsite policy for all employees and contracted support staff will remain in effect until further notice. Generally, NCUA staff will not schedule onsite examination work until further notice.

Examiners will also be mindful of the impact information requests may have on a credit union experiencing operational and staffing challenges associated with the COVID-19 pandemic.

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Call Blocking Rulemaking Needed to Address TRACED Act

The Federal Communications Commission (FCC) should promptly initiate a rulemaking addressing TRACED Act provisions regarding blocking, safe harbors and a redress mechanism for erroneously blocked legitimate callers. The TRACED Act was signed into law in December 2019 to provide regulators resources to combat abusive robocalls.

CUNA and other financial trades filed comments in response to a proposal implementing the STIR/SHAKEN call authentication framework, as well as parts of the TRACED Act.

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Opinion: The Little-Noticed Power Grab in Regulators’ Small-Dollar Guidance

The four federal financial agencies last month released new guidance meant to create a uniform framework for banks and credit unions on how to offer small-dollar consumer loans without raising regulatory red flags, writes Karen Petrou, managing partner at Federal Financial Analytics.

However, this guidance comes with a kicker: Financial institutions may make short-term, small-dollar loans only with pricing that “reflects overall returns reasonably related to the financial institution’s product risks and costs.” This may seem a sensible bar to predatory pricing, but it’s also a precedent-setting intrusion by regulators into governing what “reasonable” is when it comes to profit.

The concept of “just pricing” is a time-honored one perhaps most effectively espoused by Pope Francis. It has also gotten considerable play as the “just capital” movement advanced. However, it’s more than unusual to see an express regulatory demand that FIs earn not what they can, but what they should. (American Banker, June 2)

Training & Education

Discovery™ 2020: Registration Now Open!

Join thousands of credit union leaders across the country on August 13th for our free virtual Discovery 2020 conference. Take advantage of this valuable opportunity to connect with others, gain insights from industry experts, and further develop your strategic planning - all in the comfort of your own home or office.

Best Practices for a Compliant Collections Program Webinar

You've verified the member, properly determined their credit eligibility and confirmed the ability to repay. However, when the ability to repay turns into a collection effort, you may find out you're not as ready as you thought. Join CUNA Mutual Group June 17 to learn how to build collection strategies around your members while staying compliant.

Financial Services / Economic News

CUNA Mutual Monthly Report: CUs Expect Loan Losses to Triple by End of 2021

Credit unions are getting the first look at economic numbers from the beginning of the coronavirus outbreak. While the numbers from March don’t sound as jarring now, it’s what is potentially down the road that could be even more alarming.

On Friday, CUNA Mutual Group released its “Credit Union Trends Report” for the month of March, when the unemployment rate increased to 4.4% and consumer spending fell -7.5%. The most recent numbers put the unemployment rate around 20%, and consumer spending has plunged by a record -13.6%.

How far we have come.

According to CUNA Mutual Group Chief Economist Steven Rick, March wasn’t all bad news for credit unions. “The loan growth in March, on a seasonally-adjusted annual basis was actually rising at an 8.8% base. Very strong!” he said in his recorded video update.

The report showed that credit union member savings rose at about a 9% pace in March and Rick forecast a “very robust” savings growth of 12% for the year.

According to Rick, delinquency rates had already been creeping up in March. “Delinquency rates came in at 0.63% in March of 2020, up from 0.58% in March of last year.” In the monthly report, Rick provided some context of where delinquency rates could be headed. “The labor market is now in free fall, however, with the unemployment rate close to 20%, which is significantly above the 4.7% considered to be full employment. With the unemployment rate expected to remain above 10% through 2021, we can expect the credit union loan delinquency rate to rise above 2.2% over the next few months.” (Credit Union Times, May 29)

Coronavirus Still a Threat to Credit Scores Despite Congressional Relief

The coronavirus relief bill enacted by Congress in March aimed to shield credit scores from the fallout of consumers skipping loan payments due the pandemic. But observers say borrowers benefiting from the provision still face risks.

The legislation aims to treat pandemic-related forbearance plans similar to the relief provided after hurricanes or other natural disasters. Creditors can now attach a "disaster code" to a loan telling the credit bureaus that a consumer was hurt financially by the coronavirus, and their score should be unaffected.

But experts warn that consumers may not realize that their credit reports could still become impaired once a forbearance plan or other type of relief expires.

As soon as the lender stops reporting with the disaster code, it ostensibly unfreezes the credit report to the consumer and they will be evaluated based on any negative events that happened,” said James Garvey, founder and CEO of Self Financial Inc., a Texas fintech firm that tries to help unbanked consumers build their credit.

Use of such disaster codes has never been so widespread and it is not even clear yet how many borrowers have sought relief. The credit reporting industry plans to release a report in the coming weeks indicating how many of the 220 million consumer credit files have been flagged with a disaster code. (Credit Union Journal, June 1)

Older Crowd Embraces Online Banking, Rewards Firms' Digital Push

It took a global pandemic to get many baby boomers to bank online. Lenders have taken notice.

Over the past two months, Americans flocked to websites and apps to manage their finances as the coronavirus limited access to branches, according industry executives. For JPMorgan Chase, existing online clients are using the offerings more frequently, while Bank of America found that older customers are seeking out its digital services.

"We may have opened some people's eyes to the future," Bank of America CEO Brian Moynihan told investors at a conference last week. "We're just on a relentless push."

The coronavirus has given a boost to digital banking, which entails less paper, greater use of electronic services and fewer in-person meetings. Tech has been viewed by banks as both an offensive and defensive tool. Online services have the potential to bring in customers, help cut costly branches and pare workforces, while also making it harder for new competitors to poach clients with the allure of better technology. In April, 23% of new logins to Bank of America's online and mobile products were by seniors and boomers, Moynihan said.

They also accounted for about 20% of customers who deposited checks using mobile phones for the first time. In its business catering to wealthy people, the use of technology has risen over the last six weeks to levels that the bank projected would take six years, according to Andy Sieg, president of Merrill Lynch Wealth Management. (American Banker, June 1)

Indirect Auto Lending Could Struggle to Rebound from Coronavirus

The coronavirus has led some credit unions to pull back from indirect auto lending even as the pandemic adds new hurdles to the car-buying process for consumers.

Indirect lending at credit unions was already slowing, dropping from double-digit growth in 2017 and 2018 to just over 3% last year, according to the National Credit Union Administration’s 2019 Annual Report. Despite that drop, delinquency rates on indirect loans have fallen every year since 2016, and some of last year’s decline could be attributed to a slight slowdown in total auto sales nationwide, along with most credit union loan growth also slowing.

Now the coronavirus could exacerbate that.

Many car dealerships across the country reduced their hours as the pandemic worsened, and dealers in some states were forced to close their doors entirely if they were deemed a nonessential business. (Credit Union Journal, June 2)

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