I'm writing this column the morning after NCUA announced its first-quarter industry figures based on Call Report data—and what figures they were. Credit unions added 800,000 new members in the first quarter, the largest number in many years.
That comes on the heels of two million consumers joining credit unions in 2012. Consumers are waking up to the values-based power of credit unions. As not-for-profit financial cooperatives that serve only members—with no outside shareholders—credit unions are the model of the future.
But while good things are happening in the credit union system, familiar challenges remain. At press time, CUNA staff were busy reporting on the latest regulatory rules coming from the Consumer Financial Protection Bureau (CFPB), NCUA, and the Financial Accounting Standards Board (FASB).
Whenever there are a lot of new regs in play, credit unions become justifiably concerned because they’re already dealing with the costs of complying with all the new regs craft ed in recent years.
Also at press time, CFPB had just released its ability to repay/qualified mortgage rule, and CFBP Director Richard Cordray spent a few hours personally briefing CUNA CEO Bill Cheney on the rule.
The rule will extend qualified mortgage (QM) status to loans held in portfolio for credit unions with less than $2 billion in assets and making 500 or fewer first-lien mortgages annually, even if the borrower’s debt-to-income ratio exceeds the rule’s 43% QM threshold. There is also a transitional period in the final rule where small lenders can make balloon mortgage loans under certain conditions, and those will still qualify as QM loans.
These are good changes, but they’ll affect a growing number of credit unions as the industry grows. It’s important that credit unions be able to make QMs that can be sold into the secondary market, especially with NCUA’s continued focus on interest-rate risk.
Also on the regulatory front, FASB issued a proposal that would change the methodology for recognizing credit impairment. The FASB proposal is “the most critical regulatory concern credit unions have faced in quite some time, including rules or proposals that have been issued under the Dodd-Frank Wall Street Reform & Consumer Protection Act,” according to Cheney.
CUNA believes strongly that the proposal would be detrimental to the credit union system and could have serious, unintended consequences for borrowers and the economy. CUNA calls for FASB to abandon the proposal.
NCUA also recently released a proposed rule on derivatives. This is one of NCUA’s most important proposals in a long time because of the proposal’s structure. It essentially would require credit unions to pay a fee to apply to use derivatives, as well as paying an ongoing supervision fee.
Never before has the agency asked credit unions to pay for the “privilege” of using a power allowed by regulation. Credit unions, of course, pay for all of what NCUA does by paying operating fees and by funding the NCUSIF, but this is diff erent.
CUNA will work with all its key regulatory and compliance groups on this issue to make sure we have the pulse of credit unions on this precedent-setting proposal. Initially, we’ve been hearing that credit unions don’t favor a fee-based system. The comments generally fall into two camps:
• The first camp believes this moves us toward segregating the credit union system—something bankers have tried to do for years.
• The second camp believes NCUA should find a way in its existing budget to handle the cost of this new power. If credit unions are going to effectively move into the future, they need a regulator that can adjust its practices to provide regulatory oversight of that future.
A risk-based approach
If NCUA’s exam approach truly were risk-based, the agency would have sufficient resources for handling specialties like derivatives. Consider that many wellrun credit unions have seen the same number of examiners for the same number of hours over the past few years, even though the composition of their loan portfolios and risk profiles have changed very little.
An NCUA that truly embraced a risk-based approach wouldn’t have to charge for regulating new powers; it could adapt internally. These are the types of issues a “pay” proposal will bring to the surface. It’s early in the process, so credit unions and CUNA have time to weigh in. It’s commendable, however, that NCUA is trying to move derivatives from a small pilot program to a tool more credit unions can use.
Focus on the future
While all this is happening from a regulatory standpoint, credit unions must stay focused on the future.
One of the key developing issues is payments. Google recently unveiled a product that lets Gmail users send money to each other using plain, old email!
We’ve seen an increase in institutions offering person-to-person (P2P) products that use text messaging to confirm payments.
And more retailers are convincing their customers to pay with the retailers’ own pre-funded app, rather than a traditional swipe product.
Payments technology is changing rapidly. Credit unions must keep up with these changes or risk being left behind in this rapidly changing world.
PAUL GENTILE is CUNA’s executive vice president of strategic communications and engagement. Contact him at 202-508-6793.