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CURRENT Newsletter | 29 January 2021

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Headlines

Advocacy / Governmental Affairs

Compliance / Regulatory Affairs

Education / Training

Pandemic Response

Financial Services / Economy

Operations

Headlines

Round 2 for Critical State-Level FOM Case Begins

The case before the State Corporation Commission involving Virginia Credit Union’s application to add a group of medical professionals to its field-of-membership entered its next phase yesterday with a pre-hearing conference of all the parties, including your League.

In a decision earlier this month, the State Corporation Commission remanded the case back to a hearing examiner for new proceedings -- in which Virginia Credit Union will be required to prove compliance with the applicable laws governing field-of-membership expansions, while also facing a new regulatory hurdle.

“We continue this fight to protect the viability of the dual-chartering system and parity,” noted League Senior Vice President David Miles, who testified in the court case last year. “While it’s unfortunate this case will likely stretch through 2021, we are nonetheless well-prepared to make our case. These are new proceedings before a new hearing examiner, but evidence and testimony introduced previously can be re-introduced in these new proceedings.”

Miles noted that shifting of the burden of proof to Virginia Credit Union presents a new challenge, but it is not an insurmountable one.

“We still expect to win this case,” said Miles, “but we’ll need to approach it from a different angle.”

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VACUPAC Tallies $165K in Contributions for 2020; Highest Total in More Than a Decade

Thank you to all the credit unions and individuals who participated in Virginia Credit Union Political Action Committee (VACUPAC) fundraising in 2020. The $165,334 contributed in 2020 is the most money VACUPAC has raised during the past decade.

“We appreciate the tremendous support of our credit unions during the past year,” noted League President Rick Pillow. “Political fundraising is of vital importance in advancing credit unions’ legislative agenda at the state and federal levels.”

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Recorded Webinar on COVID-19 Legal Updates Now Available

On Tuesday, your League hosted a webinar with attorneys Dan Summerlin and Leah Stiegler on pandemic-related HR and employment law issues, including vaccinations and paid leave for employees.

Southeast CUNA Management School Going Virtual for 2021

Although many things have changed in the past year, Southeast Regional Credit Union Schools’ (SRCUS) commitment to providing an outstanding educational experience for credit union professionals remains strong, and in this spirit, is delighted to announce that registration will open soon for the VIRTUAL 2021 Southeast CUNA Management School.

While there will be some things that look a bit different from the traditional on-campus program, participants will also experience many of the same amazing opportunities that the in-person program offers.

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BFI’s Bob Hughes to Retire in May 2021

Virginia Bureau of Financial Institutions Deputy Commissioner Robert “Bob” Hughes has announced plans to retire May 28, 2021.

“We appreciate Bob’s 40 years of service to the Bureau,” said Virginia Credit Union League President Rick Pillow, “and his attention to the needs of the Commonwealth’s state-chartered credit unions. He has always been willing to hear us out on issues important to credit unions and our members. We wish him a happy, healthy retirement.”

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Advocacy / Governmental Affairs

Marijuana Banking Advocate Perlmutter to Chair Key House Subcommittee

Rep. Ed Perlmutter (D-Colo.), the lead House sponsor of marijuana banking legislation, will chair the Financial Services Committee’s Consumer Protection and Financial Institutions Subcommittee, Chairwoman Maxine Waters (D-Calif.) announced Tuesday.

During the last Congress, Perlmutter also was one of the lead sponsors of legislation that would simplify the process for expelling a credit union member. Credit union officials said the legislation was needed for public safety reasons.

In 2014, Perlmutter was the primary Democratic cosponsor of legislation that extended insurance coverage to Interest on Lawyer Trust Accounts (IOLTAs), and “other similar escrow accounts” held in trust at credit unions that are otherwise fully insured at FDIC insured banks. President Obama signed the legislation in 2014.

During the past several years, Perlmutter has pushed legislation that would provide credit unions and banks with a regulatory safe harbor if they provide financial services to marijuana-related businesses.

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Compliance / Regulatory Affairs

New CFPB Boss Vows to Get Tough on Military Lending, Pandemic Relief Laws

The Consumer Financial Protection Bureau's new leader is vowing to move quickly to penalize mortgage servicers, banks and other financial companies that have failed to provide relief to military veterans and others during the pandemic.

The bureau will expedite enforcement investigations tied to the Military Lending Act and Coronavirus Aid, Relief, and Economic Security Act to ensure that the industry “gets the message that violations of law during this time of need will not be tolerated,” acting Director Dave Uejio wrote in a blogpost Thursday.

Helping consumers who are suffering financially from the coronavirus pandemic is one of the CFPB's top priorities, along with enforcement of fair lending laws and identifying unlawful conduct that disproportionately harms communities of color and other vulnerable populations, he said.

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CUNA Tells NCUA It Supports Proposal Allowing CUs to Capitalize Interest

Allowing credit unions to capitalize interest would provide a consumer-friendly option and will likely lead to credit unions using it to help struggling borrowers, CUNA said in a comment letter to NCUA.

CUNA’s comments were filed in response to NCUA’s proposal to allow credit unions to capitalize interest, which they have been expressly prohibited from doing since 2012.

“Under the existing regulation prohibiting capitalization of interest, there are essentially no good options for modifying a loan for a member facing financial distress… It is clear another, more consumer-friendly option is needed,” the letter reads. “Thus, we urge the NCUA to adopt the proposed rule permitting credit unions to capitalize in connection with loan workouts and modifications. This is especially critical as it may take many months for consumers to become financially healthy given the ongoing COVID-19 crisis.”

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NCUA, CFPB Full Memorandum of Understanding Released

The NCUA and the CFPB will attempt to coordinate their interpretations of regulatory compliance and proposed remedies for violation of rules at credit unions with assets of more than $10 billion, according to a just-released Memorandum of Understanding signed by officials at the two agencies.

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CFPB Issues Rule on HPML Escrow Exemption

The CFPB has issued a final rule amending section 1026.35 of Regulation Z to implement a requirement of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).

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Compliance Professionals Say These Are the Challenges They Are Facing

LexisNexis Risk Solutions has released the results of a survey of U.S. and Canadian financial compliance professionals on the range of challenges they say they are facing.

The survey found the top three issues that compliance departments within financial institutions have experienced during the COVID-19 pandemic are:

  • 42% face difficulty accessing information sources for Know Your Customer (KYC) due diligence
  • 41% realize challenges tied to delayed new account onboarding
  • 38% experience longer times to complete due diligence for onboarding new accounts

The survey found the percentage of compliance professionals reporting negatively impacted areas included:

  • Customer risk profiling – 91%
  • Sanctions screening – 83%
  • KYC for account onboarding – 78%
  • Efficient resolution of alerts – 74%

“The ongoing pandemic-related pressures that compliance departments face will likely also drive increased compliance costs in the future. This is true for financial institutions of all sizes,” LexisNexis stated.

While technology seems to be a greater cost factor for larger financial institutions, labor costs impact smaller institutions on a greater scale, the company noted. It further found:

  • 79% expect COVID-19 to drive financial crime compliance costs during the next 12 to 24 months
  • 68% of the increased spend will be allocated to technology resources due to COVID-19
  • 32% of the increased costs will be spent on labor resources due to COVID-19

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NCUA Should Quickly Complete Review of Pending Rules

CUNA wrote to NCUA Chairman Todd Harper Thursday to congratulate him on being named chairman and to outline several rulemakings NCUA should quickly review. Harper is the agency’s 12th chair and is the first chair to have previously worked on NCUA staff.

“We appreciate your transparency in identifying your top policy priorities: capital and liquidity, consumer financial protection, cybersecurity, and diversity, equity, and economic inclusion,” wrote CUNA President/CEO Jim Nussle. “These priorities are also of utmost importance to CUNA, our member credit unions, and their consumer-members. We are excited to work with you and the agency in advancing such laudable objectives.”

CUNA strongly urges NCUA to issue an interim final rule, consistent with one issued by banking agencies, that would use asset data as of Dec. 31, 2019 to determine the applicability of certain asset-based regulatory thresholds.

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Biden Calls on HUD to Examine Trump-Era Changes to Fair Housing Rules

President Biden signed an executive action on Tuesday directing the Department of Housing and Urban Development to examine the impact of the Trump administration’s changes to fair housing rules. It also calls on HUD to develop guidelines that promote racial equity in homeownership.

The decree asks HUD to assess the effects of the Trump Administration’s termination of the Affirmatively Furthering Fair Housing rule in July 2020. The Obama-era rule, enacted in 2015, provided a guide and benchmarks for local jurisdictions on how to comply with the Fair Housing Act. Trump’s HUD secretary, Ben Carson, said the AFFH rule burdened municipalities with complications and unnecessary costs. By revoking the rule, the Trump administration replaced the tracking of fair housing data metrics with verbal confirmation from local governments on whether they are following it.

Large banks opposed the Trump administration’s change, asserting it would spur increased discrimination. However, small banks supported the changes, stating they would cut down false claims and lessen paperwork.

Biden’s executive order also calls on HUD to examine the Trump administration’s disparate impact rule, enacted in September 2020, which fair housing advocates claim increases difficulty in proving discrimination in the housing industry.

The order also reinforced the administration’s previous statements on promoting racial equity in homeownership. (American Banker, Jan. 27)

Education / Training

Virtual Event Provides Important Updates for CU Lenders

Credit union lenders juggling numerous challenges – including the effects of the pandemic, an evolving market and regulatory hurdles – have an opportunity to get caught up with industry-wide developments that affect their departments.

This is one of the many reasons why they should plan to attend CUNA Business Lending Virtual Roundtable, to be held February 9 and 10, according to Kathy Smith, instructional design manager at CUNA.

Lenders attending the event will be able to gain the latest insights from industry experts and peers, she said.

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Pandemic Response

Here’s How Much SBA Has Approved, And How Much CUs Have Lent, In New Round of PPP

The Small Business Administration (SBA) has approved 400,580 Paycheck Protection Program (PPP) loans, totaling more than $35 billion, since the program reopened earlier this month.

The SBA's newly released data reveals that of the total loans issued since reopening, 17,958 have been provided by 614 credit unions with $10 billion or less in assets; the total amount provided by credit unions is more than $1 billion.

As of Jan. 24, the average loan size for PPP loans given in 2021 was $87,000. Since the program first opened in 2020, the SBA has approved 5.5 billion applications for more than $557 billion in PPP loans.

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COVID Customer Service May Drive 1-in-4 Customers Out the Door

With increased call volume, reduced headcount and the need to help with a multitude of new consumer questions as a result of the ongoing COVID-19 pandemic, many financial institutions have been struggling to deliver optimal service to consumers and businesses and to prospective customers. Research from Deloitte Digital finds that an unsatisfying customer service experience during the pandemic — specifically slow, unavailable or unhelpful call center service due to high volume — has become the leading driver when consumers consider switching financial institutions.

According to our “HX in Uncertainty” research, which surveyed over 2,000 retail banking customers, 28% of respondents said they would be inclined to switch financial institutions due to a poor customer-service experience. The next two drivers of switching banks during COVID-19 were a poorly designed mobile platform (26% of respondents) and the price/fees of a bank’s products and services (17% of respondents).

Customer service interactions are vital for financial institutions to understand and address the immediate needs of customers, especially during challenges like COVID-19. Institutions that deliver a positive customer experience are more likely to both establish themselves as trusted leaders within the financial services industry and achieve a competitive edge.

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Financial Services / Economy

U.S. Economy Closes Out 2020 with Lower Than Expected 4% Gain

After a year in which a pandemic and politics posed challenges unlike the U.S. has seen in generations, the economy closed 2020 in fairly good shape.

Gross domestic product, or the sum of all goods and services produced, increased at a 4% pace in the fourth quarter, slightly below the 4.3% expectation from economists surveyed by Dow Jones. Thursday’s report was the Commerce Department’s initial estimate of growth for the quarter.

Also Thursday, the Labor Department reported that first-time claims for jobless benefits totaled 847,000 last week, less than the 875,000 expected by economists polled by Dow Jones

In the Commerce report, the annualized pace closed out a 2020 that saw GDP overall decline 3.5% for the full year and by 2.5% from the fourth quarter of 2019. The economy fell into recession in February, a month before the World Health Organization declared Covid-19 a pandemic. The 3.5% decline is the worst year for the U.S. since at least the end of World War II.

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Related: Last year's American economy shrank the most since 1946

Will Biden, Democrats Renew Push to Tax Big Banks?

As Democrats regain power in Washington, a tax that banks successfully opposed throughout the Obama administration is poised to get another look.

The tax, which President Biden endorsed during last year’s campaign, would be paid by financial firms with more than $50 billion of assets, and the proceeds would be used to help close gaps in the federal budget. The amount that specific banks owe would likely be calculated using a formula meant to discourage them from becoming overleveraged.

The outlines of this idea first emerged 12 years ago as a way to pay for the costs of the massive federal bank bailout. In the years since, its rationale has morphed, but it has never gained traction in Congress thanks in part to fierce opposition from industry lobbyists.

This time could be different, largely because Democrats control both houses of Congress and may be able to pass key legislation with a bare majority in the Senate. They could use a tax on large banks to help pay for Biden’s ambitious government response to curb the spread of the coronavirus and stimulate an economic recovery. (American Banker, Jan. 26)

CUs Look to Continue Strong Mortgage Credit Performance

Credit unions look to provide mortgage credit at existing or higher levels in 2021 and beyond, CUNA wrote to Senate Banking Committee leadership Thursday. The letter was sent for the record of the nomination hearing of Rep. Marcia Fudge (D-Ohio) to be Secretary of the Department of Urban Development. CUNA historically does not endorse presidential nominees.

“Spurred by the historic lows in interest rates, credit unions have continued to punch above their weight by providing a record-breaking number of mortgage loans,” the letter says. “These numbers include loan refinances that are reducing members’ monthly mortgage bills and purchase money mortgages as credit unions continue their mission of providing credit access to members who may not be able to receive financing from banks or other lenders.

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New Home Sales Recover Slightly After Losses, Still up 15% Annually

New home sales managed a small increase in December following three months of losses including a substantial downturn in November. The U.S. Census Bureau and the Department of Housing and Urban Development reported that sales of newly built homes were at a seasonally adjusted annual rate of 842,000 units. This is a 1.6 percent increase from the downward revision of the November estimate. The revision downgraded those sales from an annual rate of 841,000, a 11.0 percent decline, to 829,000. The December rate of sales represents 15.2 percent year-over-year growth.

Analysts had expected a better recovery from the November loss.

The median price of a home sold during the month was $355,900 compared to $329,500 in December of 2019. The average sales prices for the two periods was $394,900 and $377,700, respectively.

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Operations Issues

CUs, African-American Credit Union Coalition Launch 8th Cooperative Principle Microsite to Promote DEI

Local Government Federal Credit Union (LGFCU), Civic Federal Credit Union and the African-American Credit Union Coalition (AACUC) have launched DEI Talks, a website to advocate for the proposed 8th Cooperative Principle that is focused on diversity, equity and inclusion (DEI). The Credit Unions and Coalition invite other credit unions and cooperatives to adopt the 8th Principle and demonstrate their support through the site.

The site promotes DEI as an expansion of the philosophical tenets currently embraced by cooperatives globally. The values of diversity, or plurality as it is often understood outside of the U.S., equity and inclusion are ideologies already ingrained within the cooperative community. Credit Union and AACUC leaders believe It is past time to declare these as guiding principles.

 



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