CURRENT Newsletter | 20 October 2020 - Virginia Credit Union League

HR professionals: Join us Oct. 21 (10 a.m.-11:30 a.m.) for a peer-to-peer discussion of the key challenges you face day-to-day, including labor law compliance, training, workplace safety in the age of COVID-19, hiring, employee relations and much more!

This is an excellent opportunity to share, collaborate and network with your peers.

Learn more and register for this free program.

Free Compliance Update Webinar Oct. 28

Join attorney Jay Spruill, who coordinates the League Compliance Hotline through the Woods Roger law firm, for a free webinar Oct. 28 on compliance updates and hot topics. Jay will cover recent regulatory changes and issues that should be on your radar in 2020 and beyond.

Fraud Trends During COVID-19; Free Webinar Oct. 29

Join us Oct. 29 for a session with Fiserv’s Joe Schwartz on key fraud trends during the pandemic and how credit unions can best position themselves to combat that fraud.

CUNA Mutual Group’s ULEND Academy Set for Nov. 2-6

Your League is proud to offer CUNA Mutual Group’s popular ULEND Academy Nov. 2-6 as a virtual learning experience for credit union lenders looking for real-world solutions to today’s toughest lending challenges.

The curriculum guides lenders from foundational to advanced skill levels in all lending communication channels and across all stages of the loan process - origination, underwriting, and closing - with cross-selling, consultation, and compliance woven throughout. ULEND Academy is set up as a virtual learning workshop within six, 60-to-90-minute daily sessions where participants will discuss, learn, and then apply.

Learn more | Register

FinCEN Advisory on Unemployment Insurance Fraud

FinCEN has issued FIN-2020-A007, an "Advisory on Unemployment Insurance Fraud During the Coronavirus Disease 2019 (COVID-19) Pandemic." The advisory contains descriptions of COVID-19-related unemployment insurance (UI) fraud, associated red flag indicators, and information on how to report suspicious activity that may involve UI fraud. Representative types of such fraud include:

Fictitious employer-employee fraud: filers falsely claim they work for a legitimate company, or create a fictitious company and supply fictitious employee and wage records to apply for UI payments;
Employer-employee collusion fraud: the employee receives UI payments while the employer continues to pay the employee reduced, unreported wages;
Misrepresentation of income fraud: an individual returns to work and fails to report the income in order to continue receiving UI payments, or in an effort to receive higher UI payments, an applicant claims higher wages than he/she previously earned;
Insider fraud: state employees use credentials to inappropriately access or change UI claims, resulting in the approval of unqualified applications, improper payment amounts, or movement of UI funds to accounts that are not on the application; or
Identity-related fraud: filers submit applications for UI payments using stolen or fake identification information to perpetrate an account takeover.

FinCEN asks that SARs for possible UI fraud include the key term "COVID19 UNEMPLOYMENT INSURANCE FRAUD FIN-2020-A007” in SAR field 2 (Filing Institution Note to FinCEN) and the narrative to indicate a connection between the suspicious activity being reported and the activities highlighted in the advisory. Filers should also select SAR field 34(z) (Fraud-other) as the suspicious activity type, and include certain other information detailed in the Advisory, if available, to assist law enforcement.

Source: FinCEN

Advocacy / Governmental Affairs

CUNA, Leagues Launch ‘Advancing Community’ Website to Reach Lawmakers

With the general election just two weeks away, some credit union groups are beginning to pivot to how they might advance the industry’s agenda once a new Congress is seated.

With that in mind, the Credit Union National Association on Monday launched its Advancing Communities campaign, aimed at ensuring lawmakers at the state and federal level – along with consumers – understand the role credit unions play in their communities and how CUs are assisting with the economic recovery following the coronavirus pandemic.

“As policymakers consider the pathway toward economic recovery, we want to make sure that credit unions have a platform to share the work they’ve done to preserve their local economies while assisting members and small business that might otherwise be left behind. It is an important message that both federal and state lawmakers need and want to hear,” CUNA President and CEO Jim Nussle said in a press release Monday.

Learn more

Congress Must Take Action to Solve PPP/EIDL Issues

CUNA joined other organizations Monday to call on House and Senate Small Business Committee leaders to fix an issue reducing value of Paycheck Protection Program (PPP) loan forgiveness.

Many small businesses applied for both PPP loans and Economic Injury Disaster Loan (EIDL) Advances, the latter of which was directly provided by the Small Business Administration without the intervention of lenders.

Conflicting guidance and timing issues, followed by the SBA’s reversal of original guidance now mean that the forgiven amount of PPP loans must be reduced by the borrower’s EIDL Advance, effectively turning a grant into a loan, or wiping out PPP loan forgiveness altogether.

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Registration Now Open for 2021 CUNA GAC, March 2-4

Registration for the 2021 CUNA Governmental Affairs Conference (GAC) is now open. Next year’s CUNA GAC will be held March 2-4 and delivered in real-time using a full-feature, interactive digital platform.

The online format will integrate many of the conference’s most popular events including live speakers and breakout sessions, a virtual exhibit hall, and the opportunity to (virtually) Hill Hike.

Learn more

Compliance / Regulatory Affairs

NCUA Board Finalizes Corporate CU Rule, Issues Derivatives Proposal

The NCUA board finalized its corporate credit union rule and proposed a new rule on derivatives at its Thursday meeting. Detailed coverage of the meeting can be found on CUNA’s Removing Barriers Blog.

The corporate credit union final rule amends updates, clarifies, and simplifies several provisions of the corporate credit union regulation.

These include:

Permitting a corporate credit union to make a minimal investment in a CUSO without the CUSO being classified as a corporate CUSO under the NCUA’s rules;
Expanding the categories of senior staff positions at member credit unions eligible to serve on a corporate credit union’s board; and
Amending the minimum experience and independence requirement for a corporate credit union’s enterprise risk management expert.

CUNA filed a comment letter largely in support of the rule, which will become effective 30 days after it is published in the Federal Register.

The derivatives proposal is intended to modernize the derivatives rule and make it more principles based. It would retain key safety and soundness components, while providing more flexibility for federal credit unions to manage their interest rate risk through the use of derivatives.

The proposed changes are intended to streamline the regulation and expand credit unions’ authority to purchase and use derivatives for the purpose of managing interest rate risk, according to NCUA. Comments will be accepted for 60 days following publication in the Federal Register.

Learn more

MLA Card Fee Spreadsheet Updated for 3Q 2020

CUNA has updated its Military Lending Act (MLA) credit card fee spreadsheet for the third quarter of 2020. The updated resource can be found in the CUNA Compliance Community’s “CUNA Compliance Tools” folder in the file share library, and under the “Resources” tab in CUNA’s MLA e-Guide.

The spreadsheet is necessary because a credit union may exclude a bona fide credit card fee from the military annual percentage rate (MAPR) if the fee is considered “reasonable,” under the MLA rule.

This means that the fee must be less than or equal to the average fee for the same or similar product charged by five separate card issuers that each have at least $3 billion in outstanding credit card balances at any time during the three-year period preceding the time the average is determined.

Currently, there are approximately 20 large card issuers that meet this requirement and only one of those is a credit union.
Together these card issuers have about 260 card agreements in the Consumer Financial Protection Bureau’s Card Agreement Database, but since many appear to be Private Label cards, only around 85 of the agreements seem to be useful for MLA purposes.

The exclusion generally applies to finance charges under Regulation Z such as cash advance fees, foreign transaction fees, balance transfer fees, and transaction fees for purchases and minimum interest charges. Other charges, which are not finance charges under Regulation Z, such as a late fee or an over-limit fee are not included in the calculation of the MAPR, so the exclusion does not apply.

The exclusion does not apply to fees or premiums for credit insurance, fees for a debt cancellation contract, fees for a debt suspension agreement, or to fees for a credit-related ancillary product. Those fees must be included in the calculation of the MAPR.

Credit unions can also find in the above-mentioned locations:

First and second quarter spreadsheet for 2020;
All four quarterly spreadsheets from 2019;
All four quarterly spreadsheets from 2018; and
The Initial spreadsheet from September 2017.

In addition to the CompBlog, CUNA’s Compliance Community contains discussion boards and a number of other resources for credit union compliance professionals around the country.

Learn more

CUNA Backs CECL Exemption for CUs Under $10M in Assets

CUNA supports NCUA’s proposed current expected credit loss (CECL) transition methodology, it wrote to the agency Monday. CUNA also strongly supports the proposal’s effective exemption of credit unions with less than $10 million in assets from CECL.

CECL is a new accounting standard that recognizes lifetime expected credit losses. CUNA has maintained that it is inappropriate for credit unions and will present capital and compliance challenges.

Upon adoption of CECL an institution will record a cumulative-effect adjustment to retained earnings. CUNA believes credit unions will likely experience a (potentially sharp) increase in expected credit losses on the effective date as a result of the day-one adjustment, which could lower prompt corrective action (PCA) classification.

Credit unions are required to comply with CECL for fiscal years beginning after Dec. 15, 2022. NCUA’s proposal would provide that, for the purposes of net worth classification, the agency will phase in over a three-year period the day-one capital effects of CECL.

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NCUA Chief Unveils Plan to Tackle 'the Civil Rights Issue of Our Time'

The National Credit Union Administration is expanding the work it does to focus on financial inclusion efforts, a key priority for NCUA Chairman Rodney Hood.

In remarks Monday at the Hope Global Forum, Hood announced the launch of ACCESS, a new initiative from the agency focused on broadening the work NCUA and the wider industry do to bring consumers into the financial mainstream.

In an exclusive interview with Credit Union Journal announcing the program, Hood said that while helping vulnerable and marginalized communities has been a focus throughout his financial services career, the death of George Floyd and subsequent social-justice protests exacerbated the need for affordable financial services to help bring more consumers into the fold.

“Financial inclusion is the civil rights issue of our time,” Hood said, echoing a phrase he frequently uses on this topic. “We are now seeing that play out disproportionately in communities of color throughout the United States.” While about 40% of Americans were unable to come up with $400 for an emergency before the COVID-19 pandemic hit, Hood said, that figure was 60% for communities of color.

The program’s name, ACCESS, is an acronym for Advancing Communities through Credit, Education, Stability and Support, and Hood emphasized that each component of the name ties in with much of what the credit union industry already does, including providing affordable products, financial literacy and financial coaching, lifting up minority depository institutions and more.

Under Hood’s chairmanship, NCUA has already tackled several matters related to financial inclusion, including a new rule on payday alternative loans and a second-chance initiative that would make it easier for those with low-level criminal convictions to gain employment in the industry. ACCESS aims to go beyond that by incorporating new partnerships both inside and outside of the industry, and ensuring that the program is spread across the entirety of NCUA and not just in its Credit Union Resources and Expansion division. (Credit Union Journal, Oct. 19)

News About Credit Unions

Credit Unions Capture Just 4.8% of COVID Checking Funds: Moebs

COVID-19 drove consumers to deposit money into their financial institution accounts in droves – bringing in about $3.4 trillion to commercial banks, savings banks, fintechs and credit unions since the beginning of the pandemic. And around 30% of those funds went into checking accounts, with credit unions receiving the smallest pile, according to new data from financial institution research firm Moebs $ervices.

According to the Lake Forest, Ill.-based company, commercial banks have received 61.3% of checking account deposits during COVID, followed by savings banks (thrifts) at 26%, other types of depositories (mainly fintech firms) at 7.9% and credit unions at 4.8%. The firm said commercial banks fell short 20% compared to their typical influx of new money, while savings banks and fintechs gained more than their usual shares of new money (which are 13% and 3%, respectively), and credit unions fared the worst.

“Severely concerned about preserving capital – more so than banks – credit unions fell 40% of what they would normally get in new dollars,” Moebs Services CEO and Economist Michael Moebs said. “All depositories won, but savings banks and fintechs exceeded expectations, capitalizing on the influx of COVID money.”

Moebs $ervices also broke down where consumers deposited their money during the COVID-19 pandemic across all financial institutions by account type. Seeing the biggest increase in deposits were interest-bearing checking accounts, with a 67.9% jump; institutional money market mutual funds with a 40% jump; non-interest-bearing checking accounts with a 34.4% increase; IRA and Keogh retirement accounts with an 18.6% increase; savings and share accounts with a 15.6% jump; and retail money market mutual funds with a 13.1% jump.

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Education & Training

CUNA CU Board Leadership Virtual Roundtable Set for December

Credit union board and committee members will come together virtually to discuss pressing industry topics for CUNA Credit Union Board Leadership Virtual Roundtable, Dec.14 and 15.

“Reviewing and rethinking strategies is critical in these unprecedented economic times,” said James Carrick, vice president of learning events at CUNA. “At this roundtable, board members will hear from industry leaders and their peers about the current environment, how it can affect your credit union and how to make plans that adapt with change.”

Credit union board and committee members will gain important information from their peers by:

Attending panel discussions with high-performing boards and CEOs across the industry
Hearing from industry leaders about how the external environment can affect your credit union
Getting insights for ways to plan to address the ever-changing environment

Learn more

Webinar Series for Small CUs

Start adopting industry best practices to address the unique challenges of your small credit union. CUNA-League System Small CU Webinar Series is a new live and recorded webinar series that’s free for CUNA and League members. It runs through Spring 2021.

Get impactful best practices relevant to small credit unions on hot topics, including member experience, digital marketing, lending and more.

See a full list of free webinars and register here.

Financial Services / Economic News

New Pressure on Banks to Offer Affordable Consumer Accounts

Pressure is mounting on banks to offer low-cost accounts that could help bring more unbanked households into the financial mainstream.

On Monday, both the American Bankers Association and the Federal Deposit Insurance Corp. called on banks that do not already offer accounts designed for previously unbanked consumers to start doing so.

The basic accounts cost $10 or less per month and they usually do not come with paper checks, and don’t charge fees for either overdrafts or low balances. JPMorgan Chase, Citigroup, Bank of America and Wells Fargo are among more than 40 banks that offer such accounts, and on Monday ABA President and CEO Rob Nichols urged “the rest of the industry” to join them. (American Banker, Oct. 19)

Community Banks Combining in MOEs to Gain Scale Amid Tough Operating Environment

The tough operating environment and changing consumer behaviors have intensified the need for scale among community banks, leading some to pair up in mergers of equals to be better positioned for the future and remain competitive.

Despite an M&A drought during most of the year, four community bank MOEs have been announced in 2020, up from three in 2019. All four MOEs were in discussions before President Donald Trump on March 13 declared a national emergency in the U.S. related to COVID-19, but the pandemic intensified their reasons for combining.

Partnering with a similar-sized institution in a MOE rather than acquiring a smaller bank with a small fraction of one's assets is an attractive option for some community banks looking to gain scale, Christopher Marinac, an analyst for Janney Montgomery Scott, said in an interview.

"There's a realization that this could be a tough operating environment the next couple of years," he said. "You can take advantage of scale, you can take advantage of slow growth right now at a time when you could do the integration with less distractions and then be positioned, poised for success in a better operating environment." (S&P Global Market Intelligence, Oct. 20)

More Than 7 Million Households Lacked Bank, Credit Union Accounts in 2019: FDIC

Roughly 7.1 million U.S. households did not have an account with a bank or credit union in 2019, according to a report released Monday by the Federal Deposit Insurance Corp. (FDIC).

Last year, 5.4 percent of U.S. residents was “unbanked,” the FDIC reported in its biannual survey of how American households interact with the financial system. The unbanked rate fell 1.1 percentage points from 2017 and has declined in every survey conducted since 2011.

The FDIC estimated that of the 124.2 million U.S. households with a bank or credit account in 2019, roughly 1.5 million did not have one in 2017. The survey was conducted with the Census Bureau in June 2019 and received responses from nearly 33,000 households.

Learn more

Bank Loan Quality Remains High, but Worries Persist

A sample of large banks in the past week reported a slowdown in mortgage originations, but an improvement in auto loan production in the third quarter and overall loan quality that one banker called “better than anticipated.”

Nonetheless, several mentioned concerns about joblessness and household financial distress that might hurt results down the road.

Banks began reporting their earnings in the second week of October, while most credit union Call Reports won’t be available until the end of the month.

For Bank of America of Charlotte, N.C., JPMorgan Chase of New York and Wells Fargo of San Francisco, mortgage originations in the three months that ended Sept. 30 were $90 billion, up 4.9% from 2019’s third quarter. The results were well below their second-quarter originations, which rose 15.1% to $92 billion.

The Mortgage Bankers Association on Sept. 18 forecast that third-quarter originations of first mortgages would rise 32% to $860 billion, following the second quarter’s 85% rise to $928 billion.

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Ex-Trump Adviser Cohn Predicts Bleak Future for Community Banks

Former Trump administration economic adviser Gary Cohn anticipates more banking industry consolidation as smaller institutions struggle to keep up with technological innovations that are altering the financial services landscape.

Cohn, who headed the National Economic Council in 2017 and 2018 after serving as chief operating officer at Goldman Sachs, said handling the evolving technological and regulatory changes require size.

“I just don't think you can really be a one- or two- or three-branch regional bank in this world with the legal component, regulatory and digital needs that you have today,” he said in an interview with Rob Blackwell, former editor-in-chief of American Banker and now chief content officer for IntraFi Network — previously known as Promontory Interfinancial Network — as part of an American Bankers Association event.

The trend of disappearing community banks will likely only be hastened by the coronavirus pandemic, added Cohn.

But Cohn said that while the decreasing number of community banks is “probably not a good thing overall,” it could be a trend that represents a natural evolution toward a bigger role for financial technology. (American Banker, Oct. 19)

Risk Management

Mortgage Closings Targeted in Compromised Email Scams

Real estate loan closing funds are being targeted by fraudsters through compromised emails. The fraudsters are hacking title company and/or closing agent email accounts and sending “updated” wire transfer instruction resulting in losses.

Title companies and closing agents for real estate transactions often use wire transfers to fund the closings and payoff existing mortgages due to the high dollar amounts. In recent losses, title company and closing agent email accounts are being hacked to look for upcoming real estate closing transactions. Shortly before, or during the closing process, fraudsters then send spoofed emails to the member/closing agent posing as the real estate agent, settlement agent, closing attorney, or another

trusted entity with "updated” wire transfer instructions. These “updated” instructions are bogus and are intended to have funds sent to an account under the fraudster's control.

Learn more

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