Good Customer Service at Large Florida CUs May Be an Urban Legend

A new report highlights the decline in customer service at Florida credit unions, as consumer complaints about Florida credit unions continue to rise.

The report looks at the number of consumer complaints filed with the Florida Department of Financial Institutions in 2015. Credit unions accounted for almost one-third of the 626 consumer complaints in 2015.

According to the "2015 FLORIDA BANK COMPLAINT ANALYSIS" by K.H Thomas Associates, LLC, the number of large Florida credit unions in the Top 10 Complaint list has risen over the last three years.

"Three of the 15 or one-fifth of the financial institutions on the Top Ten complaint list (counting ties) in 2013 were credit unions. In 2014, four of the 12 or one-third of the institutions in the Top Ten list (again counting ties) were credit unions. By 2015, five of the 12 or 42% of the institutions in the Top Ten list (again counting ties) were credit unions. Thus, the proportion of credit unions in the Top Ten complaint list increased from 20% to 33% to 42% in the last three years."

In 2015, Suncoast Credit Union tied for third with 32 complaints in 2015, Space Coast Credit Union had 29 complaints, VyStar had 19 complaints, Fairwinds Credit Union had 14 complaints, and MidFlorida Credit Union had 11.

The report also noted that a relatively high levels of complaints at Florida credit unions compared to their market share.

The Bank Complaint Index© or BCI is defined as a financial institution’s relative portion of complaints in a given year divided by its deposit market share as of the midpoint in the year. A BCI of 1.0 means that a bank’s complaints are equal to its market share. Ideally, a financial institution should strive for a BCI of 0.5 or lower. A BCI above 1.0 would suggest a problem.

According to the report, all five of the financial institutions with the highest BCIs in 2015, ranging from 3.8 to 8.8, were credit unions. Space Coast Credit Union had the highest BCI at 8.8, followed by Orlando-based Fairwinds Credit Union at 7.8.

The report stated: "Although credit unions are traditionally known for their good customer service, this complaint analysis ... suggests that this may be somewhat of an “Urban Legend” here in Florida based on these BCI results."

Below is a table listing banks and credit unions with the highest number of complaint in 2015 along with their corresponding BCI.

NCUA Should Publish Board Members Scheduled Speeches to CU Groups

On September 20, National Credit Union Administration (NCUA) Richard Metsger addressed attendees at the National Association of Federal Credit Unions (NAFCU) Congressional Caucus.

However, his remarks are not available on the NCUA website. This is a glaring lack of transparency on the part of this agency.

Individuals should not have to file a Freedom of Information Act to get access to his speech or speech notes.

Can you imagine the Chairman of the Federal Deposit Insurance Corporation giving a scheduled talk to a group the agency regulates and not releasing his/hers comments at the time the speech is giving?

It is inappropriate for the Chairman of the NCUA to give a speech to credit union groups and not make his/hers comments public.

As a society, we need more transparency from our public officials. It is how we hold our public officials accountable.

RBS Settles Lawsuit with NCUA

The National Credit Union Administration (NCUA) will receive $1.1 billion to settle legal claims against Royal Bank of Scotland (RBS) arising from the sale of faulty mortgage-backed securities to two corporate credit unions.

A settlement agreement was reached, and once payment is made, NCUA’s recoveries from various financial institutions will reach $4.3 billion.

The settlement covers claims associated with the failures of Western Corporate Federal Credit Union and U.S. Central Federal Credit Union.

Read the press release.

Wisconsin Governor Announces Major Expansion in UW CU's FOM

Governor Scott Walker joined officials from University of Wisconsin (UW) Credit Union and the Department of Financial Institutions (DFI) to announce a change in the credit union’s field of membership (FOM) eligibility requirements.

The UW Credit Union Board of Directors recently approved a change in membership eligibility. Now, in addition to UW System past or present students, any Wisconsin resident who is currently enrolled or has attended any accredited institution of higher education can do business with the UW Credit Union. The Office of Credit Unions at DFI certified this change on September 8, 2016.

According to the press release, this will provide additional opportunities for the managing educational expenses and refinancing of student loan debt across the state.

Read the press release.

ICBA Lawsuit Prompts Washington CU Regulator to Suspend MBL Rulemaking

Washington Division of Credit Unions has temporarily suspended its member business loan (MBL) rule-making process due to the Independent Community Bankers Association (ICBA) lawsuit challenging the National Credit Union Administration (NCUA) recently adopted final rule related to MBLs.

As a result of the ICBA lawsuit, some Washington state-chartered credit unions requested that the Director of Credit Unions to temporarily suspend the pending rule-making process to update the Washington State MBL Rule.

The Division of Credit Unions concurred with the requests. The state credit union regulator believes temporarily suspending the rule-making will give it time to analyze this lawsuit and its implications for Washington State.

Read the notice.

BECU's Directors Earn $40,000 to $50,000 in 2016, Up Significantly from 2014

Between 2014 and 2016, Boeing Employees Credit Union (BECU) significantly increased the pay of credit union officials.

In 2013, Washington-state authorized allowing state chartered credit unions to provide reasonable compensation to credit union officials.

Starting in 2014, BECU’s directors and audit committee members could earn annual stipends ranging from $14,000 to $25,000, depending on the position and committee service. The board’s chair received $25,000.

In 2016, annual stipends for directors and committee members will range from $40,000 to $50,0000.

The board's chair would see a doubling in compensation to $50,000 compared $25,000 in 2014.

BECU stated that the compensation of directors and audit committee members will "not exceed the median of compensation paid to directors of a peer group of organizations of similar size and complexity, including organizations such as credit unions, other types of financial institutions, financial services companies, and non-profit organizations."

To review the 2016 quarterly stipend schedule approved by the credit union's board, click here.

NYC Medallion Prices Averaged $561,000 for July and August

Taxi medallion prices in New York City averaged almost $561 thousand for the months of July and August. This is slightly higher than the $550 thousand recorded for the months of May and June.

For the months of July and August, there were 7 arm's length transactions, of which 5 were foreclosures.

Six transactions were between $550,000 and $620,000 with three transactions at $620,000. While it appears that taxi medallion values might be stabilizing, taxi medallion pries are significantly below their 2014 values of $1 million.

However, one transaction appears to be an outlier at $350,000. But if New York City taxi medallion prices follow the trends seen in other cities, this $350,000 transaction may become more prevalent in the future.

The evidence indicates that the value of the collateral backing taxi medallion loans have become significantly impaired and the credit unions holding these loans will eventually need to take impairment charges to reflect the decline in the value of the collateral.

UK FCU Extends Partnership with University of Kentucky

University of Kentucky (UK) Federal Credit Union has extended its partnership to be the official credit union of the University of Kentucky.

Under the new 15-year agreement, the UK Federal Credit Union will provide students, faculty and staff with a wide range of financial products and services, as well as continuing financial education programs and outreach.

In addition, UK Federal Credit Union will open a full-service branch in the new University of Kentucky Student Center and will have two ATMs on the main campus.

No details were disclosed on the price of the partnership agreement.

Read the announcement.

Survey: CUs Top Banks in Cross Selling Products

A recent survey found that consumers have more products with credit unions that are their primary bank relationship compared to other depository institutions.

On average, bank customers had 2.71 products at their primary bank, according to data from A.T. Kearney.

Credit union members reported on average 3.06 products.

Customers of the top 3 banks had 2.83 products and customers of the rest of the top 10 banks had 2.57 accounts.

Customers of regional banks had 2.41 products.

Customers of small and midsize banks had on average 2.2 products.

Read the story (subscription required).

TCPA Settlement Approved in Navy FCU Lawsuit

U.S. District Judge Josephine Staton on September 15 preliminarily approved a $2.75 million Telephone Consumer Protection Act class action settlement with Navy Federal Credit Union.

Ronald Munday sued Navy Federal Credit Union over its practice of using an automated telephone dialing system to reach cellphones without their owners' prior consent — and failing to halt these calls when informed they had reached the wrong person.

Navy Federal Credit Union stated it identified a glitch in its phone filtering system that was supposed to remove wrong numbers from its dialing system and agreed to take remedial measures, according to a joint motion for preliminary approval of settlement submitted in March.

Discovery in the case revealed that between Oct. 9, 2011, and March 14, 2016, Navy Federal employed an automatic phone dialing system to call 90,726 unique telephone numbers that were coded as “wrong numbers.”

Read the article.

CUSO Gives LICUs Access to Hot Institutional Money

A credit union service organization (CUSO), CU Capital Market Soultions, is providing low-income designated credit unions (LICUs) with access to the institutional cash market by utilizing the National Credit Union Administration (NCUA) pass-through insurance regulations.

LICUs can receive non-member funding up to 20 percent of their liabilities.

For example, Jefferson Financial Credit Union (Metairie, LA) received the first non-member deposit of $5 million on August 8th through the CUSO's non-member deposit program. The CUSO packaged together 20 institutional deposits of $250,000 each.

This does raise several policy issues about hot wholesale money.

Does the exposure to hot money increase the liquidity risk at LICUs?

Hot money tends to fuel more rapid asset growth. What is the National Credit Union Administration (NCUA) doing to limit the risk posed by rapid asset growth fueled by hot money to the National Credit Union Share Insurance Fund (NCUSIF)?

Should credit unions that are more reliant on hot money pay higher insurance premiums than other credit unions? This would require that Congress needs to reform the NCUSIF.

What is NCUA doing to ensure credit unions using this CUSO's program have the appropriate asset-liability management policies with respect to hot money?

Finally, should institutional money be the recipient of a taxpayer subsidy?

Half of CUs Report Fewer Members Compared to a Year Ago

While overall credit union membership continued to grow during the year ending in the second quarter of 2016, 50 percent of federally insured credit unions reported fewer members compared to a year ago.

Declining membership was concentrated among smaller credit unions. Approximately 75 percent of credit unions with declining membership had assets of less than $50 million.

Eighteen states had more credit unions with fewer members at the end of the second quarter compared to a year ago. At the median, Pennsylvania reported the largest annual membership decline at -1.6 percent.

Also, at the median, four states reported zero membership growth.

Below is a table showing the median year-over-year membership growth rate by state for those states that reported zero or negative membership growth.

Read the press release.

Read the report.

Bank and CU Trade Associations Urge Repeal of Durbin Amendment

Trade associations representing nearly every bank and credit union in the U.S. wrote to members of the House Financial Services Committee on Monday expressing their strong support for a provision in the Financial Choice Act that would repeal the Durbin Amendment. Section 335 of the bill would roll back the controversial amendment, which the associations said has led to the erosion of fee-free banking services, increased costs for banks to deliver products and services to their customers and increased the number of unbanked consumers.

“The Durbin Amendment was tacked onto the Dodd-Frank Act at the last minute… without any hearings or analysis, and was sold on the promise of delivering lower prices to consumers. A so-called exemption was supposed to ‘protect’ small community banks and credit unions from the law’s harmful price controls,” the groups wrote. “The Durbin Amendment has not delivered on any of these promises, providing benefits only to retailers, and must be repealed.”

In addition to driving up the cost of banking services, the groups pointed out that the Durbin Amendment has also slowed innovation, presenting “one of the leading obstacles to the development of a low-cost, highly functional mobile banking platform that could provide not only essential financial services for millions of low-income and young consumers, but also their first step toward full financial inclusion.”

The Financial Choice Act, which passed the House Financial Services Committee on Tuesday, includes a provision to repeal the Durbin Amendment.

Read the letter.

The Haves and Have Nots

The National Credit Union Administration (NCUA) reported a bifurcation in the industry's performance during the second quarter.

NCUA reported that smaller federally insured credit unions lagged behind their larger brethren in almost all performance metrics.

For example,

• Credit unions with at least $500 million in assets had a 76 basis point advantage with regard to operating expenses as percent of average assets compared to credit unions with under $10 million in assets. In fact, credit unions with $500 million or more in assets had a cost advantage of 70 and 76 basis points over credit unions with between $10 million and $100 million in assets and credit unions with $100 million to $500 million in assets.
• The 494 credit unions with $500 or more in assets had a 79 basis point advantage with regard to return on average assets versus credit unions with less than $10 million in assets.

Federally insured credit unions with assets of $500 million or more led the system in most performance measures in the second quarter of 2016. These large credit unions reported faster growth in loans, assets, membership and net worth compared to credit unions in the other size groups.

Further evidence of the lagging performance of small credit unions is that nearly two-thirds of the decline in the number of credit unions occurred in credit unions with less than $10 million in assets.​

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District Court Dismisses Disparate Impact Case

In a court case that has implications for banks and credit unions, a United States District Court in Dallas, TX reversed its earlier decision and dismissed Inclusive Communities Project, Inc. (ICP) disparate impact claim against the Texas Department of Housing and Community Affairs' (TDHCA) for the agency's allocation of low-incoming housing credits.

Initially, the court ruled for ICP, holding that disparate impact claims are cognizable under the Fair Housing Act (FHA). The court ordered the TDHCA to include new selection criteria for distributing the housing credits. The Fifth Circuit affirmed that disparate impact claims are cognizable under the FHA, but on the merits, the Fifth Circuit reversed and remanded in light of the U.S. Department of Housing and Urban Development’s (HUD) burden-shifting approach for disparate impact claims. The Supreme Court then granted certiorari to decide whether disparate impact claims are cognizable under the FHA.

Last year, the Supreme Court affirmed that disparate impact liability is cognizable under the FHA. In reaching its decision, the Court emphasized limitations on disparate impact liability. According to the Court, allegations of racial disparities are not enough at the pleading stage without allegations connecting that data with a “policy or policies causing that disparity."

After the Supreme Court remanded the case, the district court reversed its earlier decision and dismissed the complaint. The court held that ICP did not identify a specific practice governing the allocation low-income housing credits that creates a disparate impact and therefore failed to prove a prima facie case.

The district court rejected ICP’s argument that the TDHCA exercised discretion in allocating the housing credits in a way that adversely impacted minorities. The court found that ICP failed to identify a specific, facially neutral policy or practice that purportedly caused a racially disparate impact. According to the court, “ICP must affirmatively identify a specific policy that produced a disparate impact, rather than point to a lack of policy that caused it.” The court concluded that ICP did not adequately establish a “robust causality” between the TDHCA’s discretion and the alleged disparate impact on African-American families eligible for the Dallas Housing Authority Section 8 Housing Choice Voucher program. The court held that ICP failed to prove that the TDHCA’s exercise of discretion in scoring the tax credit applications caused the statistically-significant disparity (disparate impact).

The court also dismissed the complaint on the basis that ICP alleged a disparate treatment claim instead of a disparate impact claim. The court observed that a “fair reading of ICP’s arguments reveals that it is complaining about the results of TDHCA’s discretion, not the existence of the discretion."

Read the opinion.

Consumer Credit at CUs Grew in July by $5 Billion

The Federal Reserve reported that outstanding consumer credit at credit unions grew by approximately $5 billion in July to $362.8 billion, as both revolving and nonrevolving credit increased.

Revolving credit rose from $49.7 billion in June to $50.3 billion in July.

Nonrevolving credit at credit unions increased by $4.5 billion in July to $312.6 billion.

Read the G. 19 report.

Pen Air FCU Buys Naming Rights to UWF's Football Field

Pen Air Federal Credit Union (Pensacola, FL) bought the naming rights to university's football field.

The University of West Florida (UWF) announced a $1 million gift from Pen Air Federal Credit Union to support UWF football.

The gift will result in the football field being called the Pen Air Federal Credit Union Field.

Read the press release.

ICBA Sues NCUA over Amended MBL Rule

The Independent Community Bankers of America (ICBA) filed suit in federal court on Wednesday, challenging the National Credit Union Administration’s new member business lending (MBL) rule.

The National Credit Union Administration (NCUA) finalized its MBL rule at its February 18, 2016 board meeting.

ICBA contends that the regulation allows credit unions to exceed limitations on business loans that were established by Congress in 1998.

The lawsuit, Independent Community Bankers of America v. National Credit Union Administration, was filed in the U.S. District Court of the Eastern District of Virginia.

John Fairbanks, NCUA Public Affairs Specialist, said: "NCUA is reviewing the complaint, and the agency will respond.”

Read the story in The Hill.

Read the complaint.

Total Loans at the End of Q2 Top $800 Billion for the First Time

The National Credit Union Administration (NCUA) reported robust year-over-year loan growth at federally insured credit unions (FICUs) at the end of the second quarter of 2016.

Total loans outstanding at FICUs reached $823.4 billion at the end of the second quarter of 2016, an increase of 10.5 percent from one year earlier. Every major loan category posted year-over-year growth with new auto loans posting the fastest growth rate at 15.6 percent.

Indirect loans at FICUs were up $26.1 billion from a year ago and $8.1 billion from the first quarter of 2016 to almost $150.7 billion as of June 2016.

Deposits (shares) grew at a slower rate than loans over the last year. Deposits at federally insured credit unions totaled nearly $1.1 trillion and increased 7.3 percent from the second quarter of 2015.

As a result, the loans-to-shares ratio was 77.8 percent, up from 75.5 percent a year earlier.

Net Income Up 3.1 Percent Compared to Same Period in 2015

FICUs reported net income of $4.76 billion in the first half of 2016, up 3.1 percent from the $4.6 billion reported in the first half of 2015. Net income for the second quarter was almost $2.47 billion compared to $2.29 billion as of the first quarter of 2016.

The annualized return on average assets ratio at 77 basis points in the first half of 2016, down from 81 basis points a year earlier. The below chart shows the impact of various components of the income statement on the return on average assets. The median return on average assets was 35 basis points at an annual rate during the first half of 2016, up from 33 basis points a year earlier.

Less Than One Percent of FICUs Undercapitalized

The percentage of federally insured credit unions that were well capitalized remained steady in the second quarter with 97.8 percent reporting a net worth ratio at or above the statutorily required 7 percent. At the end of the second quarter of 2016, 0.6 percent of federally insured credit unions were less than adequately capitalized.

Overall, the credit union system’s aggregate net worth ratio was 10.85 percent as of the end of June, 7 basis points higher than the previous quarter, but 7 basis points lower than a year earlier.

Delinquencies and Net Charge-Offs

Both delinquencies and net charge-offs rose during the second quarter of 2016.

Delinquent loans increased during the second quarter of 2016 by $500 million to almost $6.2 billion. The delinquency rate on loans rose 4 basis points during the quarter to 0.75 percent as of June 2016.

Net charge-offs at FICUs increased by $1 billion during the quarter to slightly more than $2 billion as of June 2016. However, the net charge-off rate fell 1 basis point to 0.51 percent during the quarter.

Growth Concentrated at Largest CUs

NCUA reported that the bulk of the industry's growth arose from the largest credit unions. There were 494 credit unions with $500 million or more in assets as of June 2016. These institutions reported the greatest growth in loans, membership and net worth, as well as the highest return on average assets.

Read the press release.

Review the financial trends chart pack.

Fewer Employers Are Offering CU As An Employee Benefit

Marketplace is reporting that fewer employers include joining a credit union as part of their employee benefits packages.

According to the Society of Human Resource Management. almost 70 percent of organizations in 1996 offered credit union membership as an employee benefit. Today, that number is closer to 25 percent.

The story does point out that people don't need to go through their employer anymore to join a credit union. This reflects the rise of community chartered credit unions.

Read the story.

CU Officials Have Change of Heart Regarding Arbitration Clauses

The American Banker is reporting that credit unions have lined up in opposition to the Consumer Financial Protection Bureau (CFPB) proposal to rein in arbitration clause, despite credit unions historical reluctance to use them.

The article cites that the credit union industry has shifted its stance on arbitration clauses as more credit unions are hit with class action lawsuits.

According to an industry survey, 15 percent of credit unions employ arbitration agreements.

However, a credit union industry spokesperson stated that credit unions have never supported the use of mandatory arbitration clauses.

Credit union officials are worried that the CFPB proposal may go too far and restrict credit unions' ability to use arbitration clauses.

Read the article (subscription required).

Conserved Cory Methodist Church CU Merged into Eaton Family CU

The National Credit Union Administration (NCUA) announced that Cory Methodist Church Credit Union of Cleveland, Ohio, has merged into Eaton Family Credit Union of Euclid, Ohio.

The Superintendent of the Ohio Division of Financial Institutions placed Cory Methodist Church Credit Union into conservatorship on Feb. 4, 2016 and appointed NCUA as agent for the conservator.

While Cory Methodist Church CU reported a net worth ratio of 24.79 percent as of June 30, the credit union reported 37.39 percent of loans were 60 days or more past due.

NCUA and the Ohio Division of Financial Institutions determined that merging Cory Methodist Church Credit Union into Eaton Family Credit Union was in the members’ best interests.

Read tne press release.

Communication FCU Sued for Race, Age, and Gender Discrimination

A former employee, Renne Clark, in a lawsuit claims that Communication Federal Credit Union (Oklahoma City, OK) engaged in race, age, and gender discrimination and that she was wrongfully terminated by the $1 billion credit union.

The 13 page civil lawsuit filed in U.S. District Court in Oklahoma City also alleges violation of the Equal Pay Act and unethical business practices at the credit union.

The complaint further claims that male employees were not disciplined for creating a hostile work environment based on sex, gender, and race.

In paragraph 19 of the complaint, the plaintiff stated that her termination was due to her opposition to and reporting of unethical practices at the credit union, such as charging hidden fees without notifying members, not properly verifying members' identity before issuing loans or opening an account, and repossessing vehicles in violation of Oklahoma law. The complaint alleges that the credit union retaliated against her for being a whistle-blower.

Read the complaint.

Tax Foundation: Tax Expenditures Subsidizing a Specific Industry "Deserves Outright Elimination"

The Tax Foundation released an August report on tax expenditures.

The Congressional Budget and Impoundment Control Act of 1974 defines tax expenditures as "revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability."

The Tax Foundation wrote that "[l]awmakers interested in reforming this area of the tax code should examine each expenditure individually and first consider what kind of expenditure it is. Does it move us toward a different tax system? Is it spending on an important priority of society at large? Or does it narrowly provide a preference to a specific industry or activity? Answering these questions and classifying the expenditures is critical in determining which are worth keeping."

The Tax Foundation noted that tax expenditures can be divided into three categories. The first category of tax expenditures seeks to modernize our tax code and move it toward some of the tax systems used by our trading partners. The second group of tax expenditures, like the child tax credit, is designed with broader social policy priorities in mind. The final category of tax expenditures subsidizes specific activities and industries, like the credit union exemption from the corporate income taxes.

The Tax Foundation does not believe in the haphazard elimination of tax expenditures to pay for tax reform, as not all tax expenditures are equally worthy of elimination. However, the Tax Foundation believes that tax expenditures that subsidize specific industries "deserve outright elimination."

Read the report.