The state of Massachusetts set the maximum dishonored check fee that state-chartered banks and credit unions may assess at $7.23. This fee will go into effect on July 1, 2017.
The 2017 deposit return items (DRI) fee is based upon deposit return item cost data from a sample of state-chartered banks and credit unions.
The state surveyed 72 financial institutions. The sample was evenly divided between banks and credit unions.
The cost of processing deposit returned items ranged from $1.21 to $30.38 per item with a median cost of $7.23.
The survey found that credit unions had a higher average cost of processing dishonored checks than banks -- $9.35 versus $7.43.
Unfortunately, this state-mandated price control will cause half of the state's institutions to incur a loss in processing dishonored checks.
This is bad public policy.
Read the decision.
Friday, June 30, 2017
Thursday, June 29, 2017
Financial Trades Urge DOD to Clarify MLA Rules, Extend Credit Card Compliance Date
Seven financial trade groups wrote to the Department of Defense (DOD) on June 21 urging the department to take additional steps to clarify inconsistencies and confusion that still surround the amended Military Lending Act (MLA) rules and a subsequent interpretive rule issued by DOD. The financial trade associations added that changes are necessary to ensure military personnel and their families have access to safe and responsible credit products.
The groups encouraged DOD to issue an interim final rule that would address lingering problems with the rule, and provided detailed comments and suggested regulatory language. They added that the rule was never intended to apply to mainstream loans, but rather, to payday loans, title loans and tax refund anticipation loans.
Among the recommended changes were clarification that the exemption for purchase money loans includes loans that are used not only to purchase the item securing the loan but also to purchase related items, such as extended warranties on a car. In addition, the associations recommended exempting credit cards from the rule, noting the requirements are unworkable; for example, it is not possible to discern which fees are “bona fide” and thus excludable from the military annual percentage rate.
The group also asked DOD to extend the mandatory compliance date for credit card accounts to October 3, 2018. This extension in the compliance date would allow time for changes in the regulation.
The letter was signed by the American Bankers Association, the American Financial Service Association, the Association of Military Banks of America, the Consumer Bankers Association, Credit Union National Association, the Independent Community Bankers of America, and National Association of Federally-Insured Credit Unions.
Read the letter.
The groups encouraged DOD to issue an interim final rule that would address lingering problems with the rule, and provided detailed comments and suggested regulatory language. They added that the rule was never intended to apply to mainstream loans, but rather, to payday loans, title loans and tax refund anticipation loans.
Among the recommended changes were clarification that the exemption for purchase money loans includes loans that are used not only to purchase the item securing the loan but also to purchase related items, such as extended warranties on a car. In addition, the associations recommended exempting credit cards from the rule, noting the requirements are unworkable; for example, it is not possible to discern which fees are “bona fide” and thus excludable from the military annual percentage rate.
The group also asked DOD to extend the mandatory compliance date for credit card accounts to October 3, 2018. This extension in the compliance date would allow time for changes in the regulation.
The letter was signed by the American Bankers Association, the American Financial Service Association, the Association of Military Banks of America, the Consumer Bankers Association, Credit Union National Association, the Independent Community Bankers of America, and National Association of Federally-Insured Credit Unions.
Read the letter.
Wednesday, June 28, 2017
Legal Opinion: Asset Securitization Is An Incidental Power
On June 21, the National Credit Union Administration (NCUA) published a legal opinion letter stating that asset securitization is an incidental power for federal credit unions.
But the agency pointed out that it is not a pre-approved activity. Before a federal credit union (FCU) securitizes any assets, it needs to complete and submit an application to NCUA.
The letter also stated that in the case of Government National Mortgage Association (Ginnie Mae) securities, the Federal Credit Union Act (FCUA) expressly authorizes this activity.
The letter noted that that an activity is an “incidental power,” even if not expressly authorized under the FCUA or NCUA’s regulations, if it:
NCUA wrote: "[I]ssuing and selling securities is consistent with the FCUA, and is convenient and useful in carrying out the mission or business of FCUs." Securitizing assets provide an FCU with an important source of liquidity to further facilitate its lending activities and makes it less dependent on share deposits to fund its member loan demand.
NCUA further noted that "[s]ecuritization can increase the amount of credit available to consumers and businesses, due to the fact that an FCU can make more loans to its members with a given level of capital. It also provides an FCU with a vehicle to transfer credit risk to investors. NCU concludes that securitization is a logical outgrowth of providing credit.
NCUA concluded that "securitization involves risks that are similar in nature to those already assumed as part of the business of credit unions."
Large federal credit unions are the credit unions most likely to take advantage of this legal opinion.
Read the letter.
Read the American Banker article (subscription required).
But the agency pointed out that it is not a pre-approved activity. Before a federal credit union (FCU) securitizes any assets, it needs to complete and submit an application to NCUA.
The letter also stated that in the case of Government National Mortgage Association (Ginnie Mae) securities, the Federal Credit Union Act (FCUA) expressly authorizes this activity.
The letter noted that that an activity is an “incidental power,” even if not expressly authorized under the FCUA or NCUA’s regulations, if it:
(a) Is convenient or useful in carrying out the mission or business of credit unions consistent with the [FCUA];
(b) Is the functional equivalent or logical outgrowth of activities that are part of the mission or business of credit unions; and
(c) Involves risks similar in nature to those already assumed as part of the business of credit unions.
NCUA wrote: "[I]ssuing and selling securities is consistent with the FCUA, and is convenient and useful in carrying out the mission or business of FCUs." Securitizing assets provide an FCU with an important source of liquidity to further facilitate its lending activities and makes it less dependent on share deposits to fund its member loan demand.
NCUA further noted that "[s]ecuritization can increase the amount of credit available to consumers and businesses, due to the fact that an FCU can make more loans to its members with a given level of capital. It also provides an FCU with a vehicle to transfer credit risk to investors. NCU concludes that securitization is a logical outgrowth of providing credit.
NCUA concluded that "securitization involves risks that are similar in nature to those already assumed as part of the business of credit unions."
Large federal credit unions are the credit unions most likely to take advantage of this legal opinion.
Read the letter.
Read the American Banker article (subscription required).
Monday, June 26, 2017
LOMTO Federal Credit Union Placed into Conservatorship
The National Credit Union Administration (NCUA) on June 26th placed LOMTO Federal Credit Union in Woodside, New York, into conservatorship.
NCUA placed LOMTO Federal Credit Union into conservatorship because of unsafe and unsound practices at the credit union.
The credit union's financial performance has been battered by bad taxi medallion loans due to the disruption of the taxi industry by ridesharing companies such as Uber and Lyft.
Read my blog post from May 10 on LOMTO FCU's financial performance through the first quarter of 2017.
LOMTO Federal Credit union has 2,958 members and $236,468,882 in assets, according to the credit union’s most recent Call Report.
This is the third New York City taxi medallion lending credit union to be seized by regulators.
Melrose Credit Union was placed into conservatorship earlier this year and Montauk was seized in 2015 and merged into Bethpage FCU in 2016.
Read the press release.
NCUA placed LOMTO Federal Credit Union into conservatorship because of unsafe and unsound practices at the credit union.
The credit union's financial performance has been battered by bad taxi medallion loans due to the disruption of the taxi industry by ridesharing companies such as Uber and Lyft.
Read my blog post from May 10 on LOMTO FCU's financial performance through the first quarter of 2017.
LOMTO Federal Credit union has 2,958 members and $236,468,882 in assets, according to the credit union’s most recent Call Report.
This is the third New York City taxi medallion lending credit union to be seized by regulators.
Melrose Credit Union was placed into conservatorship earlier this year and Montauk was seized in 2015 and merged into Bethpage FCU in 2016.
Read the press release.
Trade Groups Support Structural Change in CFPB to Five-Member Commission
In a June 22nd joint letter to House and Senate Appropriations Committee leadership, 22 financial and business trade associations supported the inclusion of language in the fiscal year 2018 spending bill that would transition the governance structure of the Consumer Financial Protection Bureau (CFPB) from a single director to a bipartisan, five-member commission.
The trade groups noted that by a three-to-one margin, registered voters support such a structure for the regulatory watchdog agency, according to data from Morning Consult.
“A Senate-confirmed, bipartisan commission will provide a balanced and deliberative approach to supervision, regulation, and enforcement for consumers and the financial institutions the CFPB oversees by encouraging input from all stakeholders,” the associations said. “The current single director structure leads to regulatory uncertainty and instability for consumers, industry, and the economy, leaving vital consumer financial protection subject to dramatic political shifts with each changing presidential administration.”
Read the letter.
The trade groups noted that by a three-to-one margin, registered voters support such a structure for the regulatory watchdog agency, according to data from Morning Consult.
“A Senate-confirmed, bipartisan commission will provide a balanced and deliberative approach to supervision, regulation, and enforcement for consumers and the financial institutions the CFPB oversees by encouraging input from all stakeholders,” the associations said. “The current single director structure leads to regulatory uncertainty and instability for consumers, industry, and the economy, leaving vital consumer financial protection subject to dramatic political shifts with each changing presidential administration.”
Read the letter.
Friday, June 23, 2017
NCUA Conserves Citizens Community CU
The National Credit Union Administration (NCUA) on June 23 placed Citizens Community Credit Union, located in Devils Lake, North Dakota, into conservatorship.
NCUA placed Citizens Community Credit Union into conservatorship because of unsafe and unsound practices at the credit union.
Citizens Community Credit Union posted a loss of $933,194 during the first quarter of 2017 due to provisions for loan losses of $978,000. A year earlier provisions for loan and lease losses were zero.
While the credit union was well-capitalized at the end of the first quarter, the credit union reported that 6.79 percent of its loans were 60 days or more past due. Delinquent loans were $10.8 million. Early delinquencies (loans 30 to 59 days past due) were almost $5.9 million.
Citizens Community Credit Union appears to be under-reserved with a coverage ratio (allowances for loan and lease losses to delinquent loans) of 27.47 percent.
Citizens Community Credit Union is a federally insured, state-chartered credit union with 11,399 members and assets of $201,255,973, according to the credit union’s most recent Call Report.
Read the press release.
NCUA placed Citizens Community Credit Union into conservatorship because of unsafe and unsound practices at the credit union.
Citizens Community Credit Union posted a loss of $933,194 during the first quarter of 2017 due to provisions for loan losses of $978,000. A year earlier provisions for loan and lease losses were zero.
While the credit union was well-capitalized at the end of the first quarter, the credit union reported that 6.79 percent of its loans were 60 days or more past due. Delinquent loans were $10.8 million. Early delinquencies (loans 30 to 59 days past due) were almost $5.9 million.
Citizens Community Credit Union appears to be under-reserved with a coverage ratio (allowances for loan and lease losses to delinquent loans) of 27.47 percent.
Citizens Community Credit Union is a federally insured, state-chartered credit union with 11,399 members and assets of $201,255,973, according to the credit union’s most recent Call Report.
Read the press release.
NCUA Calls on Congress to Give It Regulatory Flexibility
In testimony before the Senate Committee on Banking, Housing, and Urban Affairs on June 22, National Credit Union Administration (NCUA) Acting Chairman J. Mark McWatters requested legislation to ease regulatory burdens on credit unions.
His testimony discussed steps that the agency had already taken or plans to take to provide regulatory relief to credit unions. But he also noted that there are limits on the agency's ability to provide regulatory relief.
Acting Chairman McWatters pointed out that the Federal Credit Union Act contains numerous rigid statutory requirements that ties the agency's hands. NCUA asked Congress to provide it with greater discretion to write rules to limit additional burdens on credit unions.
In addition, McWatters called on congressional action with regard to field of membership issues. NCUA believes that all federal credit unions, just not multiple common bond credit unions, should be allowed to add underserved areas. In addition, Congress should eliminate the requirement that the underserved areas be local communities and Congress could simplify the “facilities” test for determining if an area is underserved.
McWatters further requested that Congress eliminate the provision that requires a multiple common bond credit union to be within “reasonable proximity” to the location of a group the credit union wishes to serve.
He also asked Congress for the explicit authority for web-based communities as a basis for a credit union charter.
Other legislative initiatives advanced in his testimony included support for the Credit Union Residential Loan Parity Act (S. 836) and allowing more credit unions to access supplemental capital.
Read testimony.
His testimony discussed steps that the agency had already taken or plans to take to provide regulatory relief to credit unions. But he also noted that there are limits on the agency's ability to provide regulatory relief.
Acting Chairman McWatters pointed out that the Federal Credit Union Act contains numerous rigid statutory requirements that ties the agency's hands. NCUA asked Congress to provide it with greater discretion to write rules to limit additional burdens on credit unions.
In addition, McWatters called on congressional action with regard to field of membership issues. NCUA believes that all federal credit unions, just not multiple common bond credit unions, should be allowed to add underserved areas. In addition, Congress should eliminate the requirement that the underserved areas be local communities and Congress could simplify the “facilities” test for determining if an area is underserved.
McWatters further requested that Congress eliminate the provision that requires a multiple common bond credit union to be within “reasonable proximity” to the location of a group the credit union wishes to serve.
He also asked Congress for the explicit authority for web-based communities as a basis for a credit union charter.
Other legislative initiatives advanced in his testimony included support for the Credit Union Residential Loan Parity Act (S. 836) and allowing more credit unions to access supplemental capital.
Read testimony.
Thursday, June 22, 2017
Riverdale Credit Union Conserved
The Alabama Credit Union Administration today placed Riverdale Credit Union, in Selma, into conservatorship and appointed the National Credit Union Administration (NCUA) as agent for the conservator.
The Alabama Credit Union Administration and NCUA placed Riverdale into conservatorship because of unsafe and unsound practices at the credit union.
The credit union was well-capitalized at the end of the first quarter of 2017 and had an annualized return on average assets of 3.88 percent. The credit union reported that 3.69 percent of its loans were 60 days or more delinquent. Net charge-offs as a percent of average loans was 1.88 percent.
Riverdale has 12,433 members and $76,181,951 in assets, according to the credit union’s most recent Call Report.
Read NCUA press release.
The Alabama Credit Union Administration and NCUA placed Riverdale into conservatorship because of unsafe and unsound practices at the credit union.
The credit union was well-capitalized at the end of the first quarter of 2017 and had an annualized return on average assets of 3.88 percent. The credit union reported that 3.69 percent of its loans were 60 days or more delinquent. Net charge-offs as a percent of average loans was 1.88 percent.
Riverdale has 12,433 members and $76,181,951 in assets, according to the credit union’s most recent Call Report.
Read NCUA press release.
Study: CUs and Community Banks Face Serious Demographic Challenge
The Financial Brand recently commented that credit unions and community banks face the threat of generational obsolescence.
TA study by FIS examined the age composition of bank and credit union customers.
According to the study, approximately 32 percent of credit union members are millennials -- almost the same as regional banks (34 percent). In comparison, 18 percent of bank customers are millennials. On the other hand, the 50 largest banks have a millennial penetration rate of 42 percent.
While credit unions have roughly the same penetration rate as regional banks, credit unions are losing ground to the largest banks, as large and regional banks scoop up a disproportionately larger share of the millennial generation.
In addition, the FIS study found that community banks and credit unions tend to serve an older population base. Approximately 57 percent of community bank customers and 46 percent of credit union members are over the age of 52.
Read the story.
TA study by FIS examined the age composition of bank and credit union customers.
According to the study, approximately 32 percent of credit union members are millennials -- almost the same as regional banks (34 percent). In comparison, 18 percent of bank customers are millennials. On the other hand, the 50 largest banks have a millennial penetration rate of 42 percent.
While credit unions have roughly the same penetration rate as regional banks, credit unions are losing ground to the largest banks, as large and regional banks scoop up a disproportionately larger share of the millennial generation.
In addition, the FIS study found that community banks and credit unions tend to serve an older population base. Approximately 57 percent of community bank customers and 46 percent of credit union members are over the age of 52.
Read the story.
Wednesday, June 21, 2017
Anheuser-Busch Employees' CU Buys New HQ Building
Anheuser-Busch Employees’ Credit Union (St. Louis, MO) and its divisions, American Eagle Credit Union and Purina Credit Union, finalized the purchase of a state-of-the-art corporate headquarters building located at 423 Lynch Street in St. Louis, Missouri.
The credit union will take possession on October 1 and anticipates a 5 to 6 month renovation process.
Some of the property's amenities include an on-site cafe, a dramatic building lobby entrance, a fourth floor boardroom, a gated lot with 466 parking spaces, and a large sales training/meeting area.
The four-story, 129,397 square-foot building had a list price of $10.75 million.
However, the press release did not disclose the purchase price.
Read the story.
Read the property flyer.
The credit union will take possession on October 1 and anticipates a 5 to 6 month renovation process.
Some of the property's amenities include an on-site cafe, a dramatic building lobby entrance, a fourth floor boardroom, a gated lot with 466 parking spaces, and a large sales training/meeting area.
The four-story, 129,397 square-foot building had a list price of $10.75 million.
However, the press release did not disclose the purchase price.
Read the story.
Read the property flyer.
Tuesday, June 20, 2017
A Class Action Complaint Filed Against Centra Credit Union for Violating FCRA
In case you missed it, a class action complaint was filed earlier this year against Centra Credit Union (Columbus, IN) for violating the Fair Credit Reporting Act (FCRA).
The complaint alleged that the credit union willfully, deliberately, and intentionally procured credit reports of consumers whose debts had been discharged in bankruptcy in violation of the FCRA.
The complaint further stated that the credit union obtained and used credit reports of consumers under false pretenses.
According to the complaint, the credit union is liable for statutory and punitive damages, as well as attorneys' fees and cost.
Read the complaint.
The complaint alleged that the credit union willfully, deliberately, and intentionally procured credit reports of consumers whose debts had been discharged in bankruptcy in violation of the FCRA.
The complaint further stated that the credit union obtained and used credit reports of consumers under false pretenses.
According to the complaint, the credit union is liable for statutory and punitive damages, as well as attorneys' fees and cost.
Read the complaint.
Monday, June 19, 2017
Company Chartering a Credit Union to Finance Loans to Its Customers Raises Policy Concerns
A clean energy company is looking to charter a new credit union to fund clean energy loans for its customers.
According to BizWest, Namasté Solar, an employee-owned solar-energy firm, has been working about three years to secure a federal charter.
Blake Jones, co-founder of Namasté Solar, stated that the he expects "to receive our charter sometime this summer."
Part of its motivation to start a credit union is due to the difficulty its customers have in securing loans for clean-energy projects.
Namasté Solar designs, installs and maintains solar-electric systems throughout the United States for commercial, nonprofit, government and residential customers.
If a charter is granted, the credit union will finance residential and commercial solar installations. Also, loans will be made for purchases of used electric vehicles and energy-efficient home-improvement projects.
While the credit union will be located in Colorado, it will operate nationwide.
However, it seems that the primary purpose of the credit union is to finance Namasté Solar projects to future customers.
Unfortunately, being a customer of this clean energy company is not a valid common bond.
But I suspect the National Credit Union Administration can creatively identify an association that would allow customers of the company to become eligible for membership.
Moreover, this proposed credit union charter raises a policy concern as it appears to breach the separation between banking and commerce.
In closing, this proposed credit union should not be allowed to become nothing more than a captive finance company of this clean energy company.
Read the story.
According to BizWest, Namasté Solar, an employee-owned solar-energy firm, has been working about three years to secure a federal charter.
Blake Jones, co-founder of Namasté Solar, stated that the he expects "to receive our charter sometime this summer."
Part of its motivation to start a credit union is due to the difficulty its customers have in securing loans for clean-energy projects.
Namasté Solar designs, installs and maintains solar-electric systems throughout the United States for commercial, nonprofit, government and residential customers.
If a charter is granted, the credit union will finance residential and commercial solar installations. Also, loans will be made for purchases of used electric vehicles and energy-efficient home-improvement projects.
While the credit union will be located in Colorado, it will operate nationwide.
However, it seems that the primary purpose of the credit union is to finance Namasté Solar projects to future customers.
Unfortunately, being a customer of this clean energy company is not a valid common bond.
But I suspect the National Credit Union Administration can creatively identify an association that would allow customers of the company to become eligible for membership.
Moreover, this proposed credit union charter raises a policy concern as it appears to breach the separation between banking and commerce.
In closing, this proposed credit union should not be allowed to become nothing more than a captive finance company of this clean energy company.
Read the story.
Friday, June 16, 2017
American Banker: Cross-Industry Mergers Expected to Grow
The American Banker is reporting that banks and credit unions should expect more cross-industry mergers; however, these cross-industry deals tend to be a one way street with credit unions acquiring banks.
The article notes that over the last 18 months seven banks have agreed to be sold to credit unions. These seven banks tended to be relatively small with an average asset size of almost $83 million.
The American Banker speculates that such cross-industry mergers are likely to continue as as regulatory costs, revenue pressure, succession and other issues spur more industry consolidation. One attorney commented that he is currently working on at least 13 deals, although some deals are not likely to occur.
One credit union official stated that a benefit for credit unions acquiring banks is the expansion of their customer base and footprint.
Moreover, the article stated that credit unions can be favorable acquirers of small, privately-held banks because credit unions can only pay cash and they tend to retain staff after the merger is completed.
Read the American Banker (subscription required).
The article notes that over the last 18 months seven banks have agreed to be sold to credit unions. These seven banks tended to be relatively small with an average asset size of almost $83 million.
The American Banker speculates that such cross-industry mergers are likely to continue as as regulatory costs, revenue pressure, succession and other issues spur more industry consolidation. One attorney commented that he is currently working on at least 13 deals, although some deals are not likely to occur.
One credit union official stated that a benefit for credit unions acquiring banks is the expansion of their customer base and footprint.
Moreover, the article stated that credit unions can be favorable acquirers of small, privately-held banks because credit unions can only pay cash and they tend to retain staff after the merger is completed.
Read the American Banker (subscription required).
Thursday, June 15, 2017
McWatters: Closing the Stabilization Fund and Reg Relief Are Top Priorities
Credit unions can expect more regulatory relief and streamlined operations from the National Credit Union Administration (NCUA) in the future, Acting Board Chairman J. Mark McWatters said at the annual conference of the National Association of Federally-Insured Credit Unions.
According to the press release, McWatters stated he wants the Board to revisit the risk-based capital and stress testing rules.
Earlier this week, The United States Department of the Treasury (Treasury) recommended raising the asset threshold for credit unions subject to stress testing rule from $10 billion to $50 billion. Also, Treasury recommended that NCUA either eliminate the risk-based capital requirement or raise the asset threshold for credit unions subject to the risk-based capital rule from $100 million to $10 billion.
Acting Chairman McWatters told the attendees that closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) is a top priority. This would allow the agency to return surplus funds to federally-insured credit unions in 2018. A plan for closing the TCCUSF is expected within weeks.
Other areas that McWatters would like to see the agency address include cyber security, fighting fraud, and identifying ways to help small and low-income credit unions to thrive.
According to the press release, McWatters stated he wants the Board to revisit the risk-based capital and stress testing rules.
Earlier this week, The United States Department of the Treasury (Treasury) recommended raising the asset threshold for credit unions subject to stress testing rule from $10 billion to $50 billion. Also, Treasury recommended that NCUA either eliminate the risk-based capital requirement or raise the asset threshold for credit unions subject to the risk-based capital rule from $100 million to $10 billion.
Acting Chairman McWatters told the attendees that closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) is a top priority. This would allow the agency to return surplus funds to federally-insured credit unions in 2018. A plan for closing the TCCUSF is expected within weeks.
Other areas that McWatters would like to see the agency address include cyber security, fighting fraud, and identifying ways to help small and low-income credit unions to thrive.
Wednesday, June 14, 2017
Treasury Recommendations Could Impact Credit Unions and NCUA
The United States Department of the Treasury (Treasury) released on June 12th a report, A Financial System that Creates Economic Opportunities, on reforming the financial sector regulatory framework.
The report makes a number of regulatory and legislative recommendations that could impact credit unions and the National Credit Union Administration (NCUA).
First, Treasury recommended that Congress take action to reduce fragmentation, overlap, and duplication in the U.S. regulatory structure. This could include consolidating regulators with similar missions and more clearly defining regulatory mandates. For example, this could involve merging the NCUA with other federal banking regulators or merging the National Credit Union Share Insurance Fund with the Federal Deposit Insurance Corporation.
The report noted that the following two recommendations can be implemented by NCUA regulation.
Treasury notes that if supplemental capital is made available to all credit unions to meet their net worth leverage ratio, this action would require Congressional action.
As with banks, credit unions should be granted relief from the current level, design, and lack of notice and transparency of the supervision and examination processes. Examination should be more tailored and cost efficient to avoid burdensome and unnecessary procedures. This would require coordination between NCUA, CFPB, and state regulators. Procedures that are redundant between regulators should be streamlined.
Moreover, Treasury recommends that Congress raise the asset threshold for small banks and credit unions to be eligible for an 18-month examination cycle.
Treasury believes that a significant restructuring in the authority and regulatory responsibilities of the Consumer Financial Protection Bureau (CFPB) is necessary. The report notes that the CFPB's unaccountable structure and unduly broad regulatory powers have led to predictable regulatory abuses and excesses. Treasury stated the CFPB has hindered consumer access to credit, limited innovation, and imposed unduly high compliance burdens, particularly on small institutions.
Treasury’s recommendations include: making the Director of the CFPB removable at will by the President or, alternatively, restructuring the CFPB as an independent multi-member commission or board; funding the CFPB through the annual appropriations process; adopting reforms to ensure that regulated entities have adequate notice of CFPB interpretations of law before subjecting them to enforcement actions; and curbing abuses in investigations and enforcement actions.
The CFPB’s Consumer Complaint Database should be reformed to make the underlying data available only to federal and state agencies, and not to
the general public.
Treasury recommended raising the total asset threshold for making Small Creditor Qualified Mortgage loans from the current $2 billion to a higher asset threshold of between $5 and $10 billion to accommodate loans made and retained by small depository institutions.
In addition, Treasury is recommending that the CFPB delay the 2018 implementation of the new Home Mortgage Disclosure Act reporting requirements until borrower privacy is adequately addressed and the industry is better positioned to implement the new requirements. The new requirements should be examined for utility and cost burden, particularly on smaller lending institutions.
Treasury recommended that Congress repeal Section 1071 of the Dodd-Frank Act. Section 1071 requires the CFPB to establish regulations and issue guidance for small business loan data collection. The purposes of section 1071 include enabling creditors to identify the needs of small, minority-owned, and women-owned businesses, and to facilitate enforcement of fair lending laws.
Read the report.
The report makes a number of regulatory and legislative recommendations that could impact credit unions and the National Credit Union Administration (NCUA).
First, Treasury recommended that Congress take action to reduce fragmentation, overlap, and duplication in the U.S. regulatory structure. This could include consolidating regulators with similar missions and more clearly defining regulatory mandates. For example, this could involve merging the NCUA with other federal banking regulators or merging the National Credit Union Share Insurance Fund with the Federal Deposit Insurance Corporation.
The report noted that the following two recommendations can be implemented by NCUA regulation.
- Treasury recommendeds raising the asset size threshold for stress-testing requirements for federally-insured credit unions from its current level of $10 billion in assets to $50 billion in assets. This would mean only one credit union, Navy Federal Credit Union, would be subject to stress-testing.
- Treasury believed that NCUA should revise its risk-based capital requirements to only apply to credit unions with total assets in excess of $10 billion or eliminate altogether risk-based capital requirements for credit unions satisfying a 10 percent simple leverage (net worth) requirement. Treasury noted that if the asset threshold for the risk-based capital requirement is raised to $10 billion in assets, it would support allowing such credit unions to rely in part on appropriately designed supplemental capital to meet a portion of their risk-based capital requirements. If NCUA eliminates the risk-based capital rule, then the agency does not need to pursue its supplemental capital proposal.
Treasury notes that if supplemental capital is made available to all credit unions to meet their net worth leverage ratio, this action would require Congressional action.
As with banks, credit unions should be granted relief from the current level, design, and lack of notice and transparency of the supervision and examination processes. Examination should be more tailored and cost efficient to avoid burdensome and unnecessary procedures. This would require coordination between NCUA, CFPB, and state regulators. Procedures that are redundant between regulators should be streamlined.
Moreover, Treasury recommends that Congress raise the asset threshold for small banks and credit unions to be eligible for an 18-month examination cycle.
Treasury believes that a significant restructuring in the authority and regulatory responsibilities of the Consumer Financial Protection Bureau (CFPB) is necessary. The report notes that the CFPB's unaccountable structure and unduly broad regulatory powers have led to predictable regulatory abuses and excesses. Treasury stated the CFPB has hindered consumer access to credit, limited innovation, and imposed unduly high compliance burdens, particularly on small institutions.
Treasury’s recommendations include: making the Director of the CFPB removable at will by the President or, alternatively, restructuring the CFPB as an independent multi-member commission or board; funding the CFPB through the annual appropriations process; adopting reforms to ensure that regulated entities have adequate notice of CFPB interpretations of law before subjecting them to enforcement actions; and curbing abuses in investigations and enforcement actions.
The CFPB’s Consumer Complaint Database should be reformed to make the underlying data available only to federal and state agencies, and not to
the general public.
Treasury recommended raising the total asset threshold for making Small Creditor Qualified Mortgage loans from the current $2 billion to a higher asset threshold of between $5 and $10 billion to accommodate loans made and retained by small depository institutions.
In addition, Treasury is recommending that the CFPB delay the 2018 implementation of the new Home Mortgage Disclosure Act reporting requirements until borrower privacy is adequately addressed and the industry is better positioned to implement the new requirements. The new requirements should be examined for utility and cost burden, particularly on smaller lending institutions.
Treasury recommended that Congress repeal Section 1071 of the Dodd-Frank Act. Section 1071 requires the CFPB to establish regulations and issue guidance for small business loan data collection. The purposes of section 1071 include enabling creditors to identify the needs of small, minority-owned, and women-owned businesses, and to facilitate enforcement of fair lending laws.
Read the report.
Tuesday, June 13, 2017
Fifty-one Percent of CUs See Year-over-Year Decline in Membership
More than half of the nation's federally insured credit unions reported fewer members at the end of the first quarter of 2017 compared to a year ago.
The National Credit Union Administration reported that 51 percent of federally insured credit unions had fewer members at the end of the first quarter of 2017 than a year earlier. This is the third consecutive quarter where over half of all federally insured credit unions had fewer members compared to the same quarter a year earlier.
The median year-over-year credit union membership growth rate was -0.1 percent.
Median membership growth was negative in 22 states. At the median, membership declined the most in the District of Columbia (-2.4 percent), followed by Pennsylvania (-1.5 percent). Other states reporting median year-over-year membership growth rate of negative 1 percent or less were Ohio (-1 percent), Nebraska (-1.1 percent), New Jersey (-1.2 percent), Oklahoma (-1.2 percent), and Montana (-1.3 percent).
About 75 percent of credit unions with declining membership had assets of less than $50 million.
Read the press release.
The National Credit Union Administration reported that 51 percent of federally insured credit unions had fewer members at the end of the first quarter of 2017 than a year earlier. This is the third consecutive quarter where over half of all federally insured credit unions had fewer members compared to the same quarter a year earlier.
The median year-over-year credit union membership growth rate was -0.1 percent.
Median membership growth was negative in 22 states. At the median, membership declined the most in the District of Columbia (-2.4 percent), followed by Pennsylvania (-1.5 percent). Other states reporting median year-over-year membership growth rate of negative 1 percent or less were Ohio (-1 percent), Nebraska (-1.1 percent), New Jersey (-1.2 percent), Oklahoma (-1.2 percent), and Montana (-1.3 percent).
About 75 percent of credit unions with declining membership had assets of less than $50 million.
Read the press release.
Monday, June 12, 2017
Almost 1300 Federally Insured CUs Reported a Loss in Q1 2017
According to Call Report data, 1,294 credit unions reported a loss for the first quarter of 2017.
In other words, 22.6 percent of federally insured credit unions had a loss.
Thirteen credit unions reported a quarterly loss of $1 million or more for the quarter (see table below). Three of the credit unions reporting a loss of $1 million or more are currently under conservatorship -- Melrose CU, Shreveport FCU, Community United FCU.
In other words, 22.6 percent of federally insured credit unions had a loss.
Thirteen credit unions reported a quarterly loss of $1 million or more for the quarter (see table below). Three of the credit unions reporting a loss of $1 million or more are currently under conservatorship -- Melrose CU, Shreveport FCU, Community United FCU.
Friday, June 9, 2017
Almost 20 Percent of CU Industry Loans Were Indirect Loans
The National Credit Union Administration (NCUA) this week reported that at the end of the first quarter 2017 19.5 percent of all federally insured credit union loans were indirect loans.
As of the end of the first quarter of 2017, 1,901 federally insured credit unions had outstanding indirect loans, according to a NCUA spokesperson.
Credit unions reported $172.6 billion in outstanding indirect loans as of March 31, 2017 -- up almost 21 percent or $29.9 million from a year earlier.
In comparison, total loans outstanding grew by 10.6 percent over the same time period.
Since the end of 2012, indirect lending at credit unions has more than doubled. Outstanding indirect loans were $78.2 billion at the end of 2012. Almost 13.1 percent of all loans were indirect loans.
I suspect that indirect lending has played an important role in the membership growth at credit unions over the last couple of years.
As of the end of the first quarter of 2017, 1,901 federally insured credit unions had outstanding indirect loans, according to a NCUA spokesperson.
Credit unions reported $172.6 billion in outstanding indirect loans as of March 31, 2017 -- up almost 21 percent or $29.9 million from a year earlier.
In comparison, total loans outstanding grew by 10.6 percent over the same time period.
Since the end of 2012, indirect lending at credit unions has more than doubled. Outstanding indirect loans were $78.2 billion at the end of 2012. Almost 13.1 percent of all loans were indirect loans.
I suspect that indirect lending has played an important role in the membership growth at credit unions over the last couple of years.
Thursday, June 8, 2017
Achieva CU Launches Bank Merger Consulting Service
Achieva Credit Union (Dunedin, FL) has launched a merger consulting service that would help larger credit unions buy smaller community banks.
The credit union service organization, Achieva Merger Services, hopes to make a profitable business out of telling credit unions of the merits behind buying smaller commercial banks, and urging banks to consider credit unions a rich new resource of potential buyers.
Services to be provided by Achieva Merger Services include identifying targets, due diligence, pricing analysis, merger applications, regulatory advice, acquisition accounting, and integration of operations and technologies.
Achieva CU purchased Calusa Bank in 2015 in a whole bank deal.
Read the story.
The credit union service organization, Achieva Merger Services, hopes to make a profitable business out of telling credit unions of the merits behind buying smaller commercial banks, and urging banks to consider credit unions a rich new resource of potential buyers.
Services to be provided by Achieva Merger Services include identifying targets, due diligence, pricing analysis, merger applications, regulatory advice, acquisition accounting, and integration of operations and technologies.
Achieva CU purchased Calusa Bank in 2015 in a whole bank deal.
Read the story.
Wednesday, June 7, 2017
Consumer Credit Growth at CUs Accelerated in April
The Federal Reserve's G.19 report stated that the growth of outstanding consumer credit at credit unions accelerated for the month of April.
Outstanding consumer credit at credit unions grew by $6.4 billion in April to $398.2 billion. In comparison, outstanding consumer credit in March expanded by $4.1 billion.
Both revolving and non-revolving credit expanded in April.
After contracting in March, outstanding revolving credit increased by almost $300 million to $52.4 billion.
Non-revolving credit in April increased by approximately $6 billion to $345.8 billion.
Read the G.19 report.
Outstanding consumer credit at credit unions grew by $6.4 billion in April to $398.2 billion. In comparison, outstanding consumer credit in March expanded by $4.1 billion.
Both revolving and non-revolving credit expanded in April.
After contracting in March, outstanding revolving credit increased by almost $300 million to $52.4 billion.
Non-revolving credit in April increased by approximately $6 billion to $345.8 billion.
Read the G.19 report.
Tuesday, June 6, 2017
Is the Chicago Taxi Industry on the Verge of Collapse?
USA Today is reporting that ride-sharing companies are pushing the Chicago taxi industry to the brink of extinction.
According to the story, approximately 42 percent of Chicago's taxi fleet was idle during the month of March 2017.
Average monthly income per active medallion fell from $5,276 in January 2014 to $3,206 this year. The number of monthly street hails of taxis has fallen by more than half over the same time period to about 1.1 million monthly riders.
Moreover, foreclosures are on the rise, as taxi medallion owners cannot generate sufficient income to service their loans. In 2015, there were 59 foreclosure notices or foreclosure lawsuits initiated against medallion owners. This increased to 266 in 2016. This year, there has been more than 350 foreclosure notice or foreclosure lawsuits filed against medallion owners.
This is not good news for credit unions that are holding Chicago taxi medallion loans.
Read the story.
According to the story, approximately 42 percent of Chicago's taxi fleet was idle during the month of March 2017.
Average monthly income per active medallion fell from $5,276 in January 2014 to $3,206 this year. The number of monthly street hails of taxis has fallen by more than half over the same time period to about 1.1 million monthly riders.
Moreover, foreclosures are on the rise, as taxi medallion owners cannot generate sufficient income to service their loans. In 2015, there were 59 foreclosure notices or foreclosure lawsuits initiated against medallion owners. This increased to 266 in 2016. This year, there has been more than 350 foreclosure notice or foreclosure lawsuits filed against medallion owners.
This is not good news for credit unions that are holding Chicago taxi medallion loans.
Read the story.
Monday, June 5, 2017
Assets, Loans, Deposits, Membership Up in Q1 2017
The National Credit Union Administration (NCUA) reported that assets, loans and shares (deposits) at federally insured credit unions expanded during the first quarter.
According to the NCUA, loans grew by 10.6 percent over the last year to to $884.6 billion. However, loan growth slowed during the first quarter of 2017 to an annualized rate of 7.12 percent. With the exception of credit card loans, all other major loan categories posted an increase during the first quarter.
Insured shares and deposits rose $78 billion, or 7.8 percent, over the four quarters ending in the first quarter of 2017 to $1.1 trillion. However, the pace of share growth accelerated during the first quarter of 2017 to 16.62 percent.
So, while the loan-to-share ratio of 77.73 percent was up from a year ago, it was down from the end of 2016.
Federally insured credit unions added 4.3 million members over the year, and credit union membership in these institutions reached 108.0 million in the first quarter of 2017.
Net Income Up Year-over-Year, But Return on Average Assets Down
Net income for federally-insured credit unions was $2.35 billion for the first quarter of 2017. In comparison, net income was almost $2.29 billion one year earlier.
The return on average assets (ROA) was 0.71 percent for the first quarter of 2017. This was down from 0.77 percent at the end of 2016 and 0.75 percent from a year earlier. The median return on average assets across all federally insured credit unions was 33 basis points, unchanged from the first quarter of 2016.
Higher net interest margins and lower operating expenses as a percent of average assets had a positive impact on the credit union industry's ROA, while lower non-interest income as a percent of average assets and higher provisions for loan loan losses as a percent of average assets had a negative impact on ROA.
Net interest margins as a percent of average assets was 2.89 percent at the end of the first quarter of 2017. This was an improvement of 1 basis point compared to the end of 2016 and 2 basis points compared to a year ago.
Non-interest income as a percent of average assets was 1.28 percent for the first quarter of 2017. This fell by 11 basis points compared to the end of 2016 and by approximately 3 basis points from a year ago.
Operating expenses as a percent of average assets fell 6 basis points during the quarter to 3.04 percent.
Net Worth Increases
Net worth increased during the first quarter of 2017. Net worth was $143.1 billion as of March 31, 2017. This was up from $140.8 billion at the end of 2016 and 133.8 billion at the end of the first quarter of 2016.
However, the net worth ratio fell 19 basis points during the first quarter to 10.70 percent. Compared to a year ago, the net worth ratio was down 8 basis points.
As of March 31, 2017, 97.75 percent of all federally-insured credit unions had a net worth ratio of at least 7 percent. Forty-one credit unions had net worth ratios below 6 percent.
Delinquency Rates Nearly Unchanged Over the Year, But Net Charge-Off Rate Was Higher
The NCUA reported that delinquent loans were $6.1 billion as of March 31, 2017. The percentage of loans 60 days or more past due was 0.69 percent. This is down 2 basis points and 14 basis points from a year ago and last quarter, respectively.
Net charge-offs rose from $1 billion as of March 2016 to $1.3 billion as of March 2017. the net charge-off rate rose from 0.52 percent to 0.58 percent over the same time period.
Large CUs Outperform Small CUs
Credit unions with assets greater than $1 billion reported the strongest growth in loans, membership and net worth over the year ending in the first quarter of 2017. Credit unions with less than $50 million in assets reported declines in loans, membership and net worth over the year.
The number of credit unions with $1 billion or more in assets increased rom 263 in the first quarter of 2016 to 278 in the first quarter of 2017. These 278 federally insured credit unions held 62 percent of total system assets. Loan growth was 14.7 percent over the year. Membership rose 9.8 percent. Net worth increased 11.3 percent.
Read the press release.
Financial Trends Chart Book.
According to the NCUA, loans grew by 10.6 percent over the last year to to $884.6 billion. However, loan growth slowed during the first quarter of 2017 to an annualized rate of 7.12 percent. With the exception of credit card loans, all other major loan categories posted an increase during the first quarter.
Insured shares and deposits rose $78 billion, or 7.8 percent, over the four quarters ending in the first quarter of 2017 to $1.1 trillion. However, the pace of share growth accelerated during the first quarter of 2017 to 16.62 percent.
So, while the loan-to-share ratio of 77.73 percent was up from a year ago, it was down from the end of 2016.
Federally insured credit unions added 4.3 million members over the year, and credit union membership in these institutions reached 108.0 million in the first quarter of 2017.
Net Income Up Year-over-Year, But Return on Average Assets Down
Net income for federally-insured credit unions was $2.35 billion for the first quarter of 2017. In comparison, net income was almost $2.29 billion one year earlier.
The return on average assets (ROA) was 0.71 percent for the first quarter of 2017. This was down from 0.77 percent at the end of 2016 and 0.75 percent from a year earlier. The median return on average assets across all federally insured credit unions was 33 basis points, unchanged from the first quarter of 2016.
Higher net interest margins and lower operating expenses as a percent of average assets had a positive impact on the credit union industry's ROA, while lower non-interest income as a percent of average assets and higher provisions for loan loan losses as a percent of average assets had a negative impact on ROA.
Net interest margins as a percent of average assets was 2.89 percent at the end of the first quarter of 2017. This was an improvement of 1 basis point compared to the end of 2016 and 2 basis points compared to a year ago.
Non-interest income as a percent of average assets was 1.28 percent for the first quarter of 2017. This fell by 11 basis points compared to the end of 2016 and by approximately 3 basis points from a year ago.
Operating expenses as a percent of average assets fell 6 basis points during the quarter to 3.04 percent.
Net Worth Increases
Net worth increased during the first quarter of 2017. Net worth was $143.1 billion as of March 31, 2017. This was up from $140.8 billion at the end of 2016 and 133.8 billion at the end of the first quarter of 2016.
However, the net worth ratio fell 19 basis points during the first quarter to 10.70 percent. Compared to a year ago, the net worth ratio was down 8 basis points.
As of March 31, 2017, 97.75 percent of all federally-insured credit unions had a net worth ratio of at least 7 percent. Forty-one credit unions had net worth ratios below 6 percent.
Delinquency Rates Nearly Unchanged Over the Year, But Net Charge-Off Rate Was Higher
The NCUA reported that delinquent loans were $6.1 billion as of March 31, 2017. The percentage of loans 60 days or more past due was 0.69 percent. This is down 2 basis points and 14 basis points from a year ago and last quarter, respectively.
Net charge-offs rose from $1 billion as of March 2016 to $1.3 billion as of March 2017. the net charge-off rate rose from 0.52 percent to 0.58 percent over the same time period.
Large CUs Outperform Small CUs
Credit unions with assets greater than $1 billion reported the strongest growth in loans, membership and net worth over the year ending in the first quarter of 2017. Credit unions with less than $50 million in assets reported declines in loans, membership and net worth over the year.
The number of credit unions with $1 billion or more in assets increased rom 263 in the first quarter of 2016 to 278 in the first quarter of 2017. These 278 federally insured credit unions held 62 percent of total system assets. Loan growth was 14.7 percent over the year. Membership rose 9.8 percent. Net worth increased 11.3 percent.
Read the press release.
Financial Trends Chart Book.
Friday, June 2, 2017
Central One FCU Buys Naming Rights to High School Stadium
Central One Federal Credit Union (Shrewsbury, MA) will make a one-time sponsorship payment of $750,000 towards the Shrewsbury High School synthetic turf field project.
In return for the sponsorship, the Shrewsbury Public Schools School Committee unanimously voted to name the stadium after the credit union.
The stadium will be named Central One Federal Credit Union Stadium.
Read the Memorandum of Understanding.
Read the Minutes.
In return for the sponsorship, the Shrewsbury Public Schools School Committee unanimously voted to name the stadium after the credit union.
The stadium will be named Central One Federal Credit Union Stadium.
Read the Memorandum of Understanding.
Read the Minutes.
Thursday, June 1, 2017
IBM Southeast Employees' CU Completes Acquisition of Mackinac Savings Bank
IBM Southeast Employees' Credit Union (Delray Beach, FL) announced the merger and acquisition of Mackinac Savings Bank, in Boynton Beach, Florida.
The $109 million Mackinac Savings Bank has offices in Palm Beach County, Florida and lending offices in Florida, Massachusetts and Michigan.
IBM Southeast Employees Credit Union has $980 million in assets and 16 branches in Georgia and Florida.
Read the press release.
The $109 million Mackinac Savings Bank has offices in Palm Beach County, Florida and lending offices in Florida, Massachusetts and Michigan.
IBM Southeast Employees Credit Union has $980 million in assets and 16 branches in Georgia and Florida.
Read the press release.
Interagency Advisory Addresses Appraiser Shortage, Especially in Rural Areas
Responding to concerns over the limited availability of state-certified and -licensed appraisers, particularly in rural areas, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency issued an advisory that highlights two options to help insured depository institutions and bank holding companies facilitate the timely consideration of loan applications.
Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) requires appraisals for federally related transactions to be performed by individuals who meet certain state-certification or -licensing requirements.
The two options to address the shortage of appraisers are temporary practice permits or temporary waivers.
Temporary practice permits allow appraisers credentialed in one state to provide their services on a temporary basis in another state experiencing a shortage of appraisers, subject to state law.
Temporary waivers set aside requirements relating to the certification or licensing of individuals to perform appraisals under Title XI of FIRREA in states or geographic political subdivisions where certain conditions are met. Temporary waivers may be granted when it is determined that there is a scarcity of state-certified or -licensed appraisers leading to significant delays in obtaining an appraisal.
Read the interagency advisory.
Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) requires appraisals for federally related transactions to be performed by individuals who meet certain state-certification or -licensing requirements.
The two options to address the shortage of appraisers are temporary practice permits or temporary waivers.
Temporary practice permits allow appraisers credentialed in one state to provide their services on a temporary basis in another state experiencing a shortage of appraisers, subject to state law.
Temporary waivers set aside requirements relating to the certification or licensing of individuals to perform appraisals under Title XI of FIRREA in states or geographic political subdivisions where certain conditions are met. Temporary waivers may be granted when it is determined that there is a scarcity of state-certified or -licensed appraisers leading to significant delays in obtaining an appraisal.
Read the interagency advisory.