ABA Calls for Top-to-Bottom Assessment of CU Industry

In a June 27 letter to the National Credit Union Administration (NCUA) board and inspector general, the American Bankers Association (ABA) called for a “top-to-bottom assessment” of whether the credit union industry is living up to its statutory mandate to operate not-for-profit and serve people of “small means.”

The letter cited several troubling findings from a report published earlier this week by Federal Financial Analytics.

Among the findings in the report that ABA asks NCUA to review:

• NCUA needs to impose mission-related requirements
• NCUA regulation and supervision is substandard and poses increasing risks to the credit union system
• NCUA’s definition of “low-income” is misleading, but carries consequences in the marketplace
• Credit unions’ mandate to offer credit for “provident or productive” purposes is all but ignored by NCUA regulation
• Credit union acquisitions of banks show a changed mission

ABA wrote that these findings merit further investigation.

Read the letter.

Study Finds CUs Failing in Mission to Serve People of Small Means

Politico's Morning Money newsletter on June 25 reported that a new research study found that credit unions are not meeting their public policy mission of serving people of small means.

The research report, The Credit Union Equality Commitment: An Analytical Assessment, was conducted by Federal Financial Analytics, a Washington, D.C.-based public policy think tank.

This study is different from most recent studies examining the credit union industry because it is focused on whether credit unions are fulfilling their mission rather than looking at competitive imbalances in the financial services industry arising from the credit union tax exemption.

Small credit unions and those credit unions that continue to adhere to their social mission should pay careful attention to the findings of this study because many larger, profit-motivated credit unions are tarnishing the reputation of the industry.

The study found that credit union members are disproportionately comprised of middle- and upper-income households.

It also stated that some credit unions have engaged in risky and predatory lending practices harming vulnerable borrowers, despite the requirement to extend credit for provident and productive purposes.

The paper also held the industry's regulator, the National Credit Union Administration (NCUA), responsible for the industry's failure to fulfill their mission. The report noted that NCUA maintains no data on credit unions’ effectiveness at providing financial services to people of “small means.”

Furthermore, the study found NCUA's definition of “low-income” is far more expansive than that used by other federal agencies. As a result, these designated low-income credit unions simply replace community bank credit instead of providing new credit.

The report argued that credit unions have used their regulatory-arbitrage advantages to transform themselves from mission-driven financial service providers to for-profit financial institutions.

This lack of mission compliance -- the paper concluded -- has contributed to the deepening of inequality in the United States.

These troubling findings should be of interest to policymakers.

The paper was funded by the American Bankers Association.

Read the report.

Iowa Credit Union to Buy Branches, Loans, and Deposits from First American Bank

GreenState Credit Union (North Liberty, IA) announced on June 25 that it will purchase seven First American Bank (Fort Dodge, IA) branch locations in central Iowa.

The acquisition, which includes the bank's Des Moines metro and Fort Dodge locations, includes approximately $200 million in loans and $500 million in deposits.

GreenState Credit Union was formerly known as University of Iowa Community Credit Union.

GreenState CU is the largest Iowa credit union with almost $5.4 billion in assets.

The transaction is subject to regulatory approval and is expected to close in the fourth quarter.

Earlier this year, First American Bank announced that it was selling its three branches and assets in Florida to MIDFLORIDA Credit Union (Lakeland, FL).

Read the press release.

Senator to NCUA: Proposed Delay of Risk-Based Capital Rule Is Unacceptable

Senator Sherrod Brown (D - OH) criticized the National Credit Union Administration for proposing to delay its risk-based capital rule for two years until January 1, 2022.

This is the second delay of the agency's risk-based capital rule. The risk-based capital rule was initially scheduled to go into effect on January 1, 2019.

In a statement, Senator Brown stated:

“I am disturbed that ten years after the financial crisis, the NCUA is once again delaying important rules to increase capital at large credit unions. I commend Board Member Harper for opposing this unnecessary extension and demanding that NCUA focus on strengthening supervision and identifying risks to credit unions.”

Read the press release.

Chartway FCU Buys Naming Rights to ODU Arena

Old Dominion University (ODU) and Chartway Federal Credit Union (Virginia Beach, VA) have signed a 10-year naming rights agreement for the 8,400-seat arena in the Ted Constant Convocation Center complex.

The arena will now be named Chartway Arena in recognition of the $4.25 million agreement. Chartway will also become the official credit union of ODU Athletics.

The agreement also establishes the Chartway-Constant Athletic Scholarship Fund. The fund will award a total of $25,000 in scholarships annually to student-athletes. The fund will continue each year throughout the contract.

Read the press release.

Bill Gives NY CUs Access to Bank Development District Program

The New York Assembly passed legislation (A.3320) allowing credit unions access to the state's Banking Development District Program.

Earlier, the Senate passed the same bill (S.727-A).

The Banking Development District Program was established in 1997 to encourage financial institutions to establish branches in underserved communities throughout New York. Institutions that are approved for a Banking Development District designation are eligible to receive up to $10 million in subsidized public deposits and other benefits, including below market-rate deposits from the state of New York.

The justification to expand the program to credit unions was due to the modest number of applications from banks and other financial institutions.

The bill awaits the signature of Governor Andrew Cuomo.

Read more.

Blinder: Does NCUA and the Federal Reserve Have Same Insight into Systemic Financial Risk?

In an op-ed in the Wall Street Journal, Alan Blinder, a professor of economics and public affairs at Princeton University and a former vice chairman of the Federal Reserve, discusses flaws in the structure of the Financial Stability Oversight Council (FSOC).

The Dodd-Frank Act created FSOC. FSOC is a 10-member panel consisting mainly of the heads of the nation’s top financial regulatory agencies.

However, Blinder questions the design of FSOC.

For example, Blinder wrote:

"[Y]ou might question the FSOC’s voting structure: every agency gets one vote. So it gives equal weight to the chairmen of the Fed and the National Credit Union Administration. Do you think they have equal insight into systemic financial risk?"

Read the op-ed (subscription required).

NCUA Board Proposes Delaying Risk-Based Capital Rule by Two-Years

The National Credit Union Administration Board on June 20th voted on a proposal to delay by two-years the implementation date of its risk-based capital rule until January 1, 2022.

Currently, the risk-based capital rule was scheduled to go into effect on January 1, 2020.

NCUA staff stated that the delay would not pose undue risk to the National Credit Union Share Insurance Fund.

Also, the delay would allow the NCUA Board to examine whether asset securitization should be accounted for by NCUA's capital standards; whether certain forms of subordinated debt should qualify as capital for risk-based capital purposes; and whether a community bank leverage ratio analog should be integrated into NCUA's capital standard.

NCUA Chairman Hood stated that he intends to bring forth a proposed rule allowing subordinated debt count towards a risk-based capital standard by the end of this year.

NCUA further stated that the delay would benefit credit unions by allowing them to allocate resources to implementing the Financial Accounting Standards Board current expected credit loss (CECL) standard.

Moreover, the time delay would allow NCUA to direct additional time and resources toward modernizing its examination systems.

Board member McWatters and Chairman Hood voted for the proposal.

Board member Harper dissented to delaying the risk-based capital rule and voted no on the proposal.

Read the proposed rule.

16 Foreclosed Taxi Medallions Owned by Aspire FCU to be Auctioned

On June 27, 16 New York City taxi medallions foreclosed by Aspire Federal Credit Union (Clark, NJ) will be auctioned.

The minimum bid is $130,000 for unrestricted medallions. At their peak, New York City taxi medallions were valued at more than $1 million.

There are 15 unrestricted medallions. One medallion is for a handicap medallion.

Bidders may present bids for one, multiple, or all medallions.

Read details of the auction.

Verve CU to Acquire Chicago-based Community Bank

Crain Chicago Business is reporting that Verve Credit Union (Oshkosh, WI) has entered into a deal to buy South Central Bank (Chicago, IL).

This is the second Illinois bank to be acquired by an out-of-state credit union in the last 7 months..

Verve Credit Union has $986 million in assets.

South Central Bank has 5 locations and $295.9 million in assets.

While the sales price was not disclosed, Crain Chicago stated that the price was "higher than the going rate of about 1.5 times book value for community banks in Chicago."

Read the story.

86 Percent of CUs Reported Positive Net Income as of Q1 2019

The percentage of federally insured credit unions that were profitable in the first quarter of 2019 grew compared to a year ago.

At the end of the first quarter of 2019, 86 percent of all federally insured credit unions reported positive net income, according to the National Credit Union Administration. In comparison, 83 percent of federally insured credit unions had positive net income a year earlier.

There is a positive relationship between asset size and a credit union reporting net income.

The following table shows the number and percent of credit unions reporting positive net income by asset size groups.

14 States Report Negative Median Y-o-Y Membership Growth

Fourteen states reported negative median year-over-year (Y-o-Y) membership growth for the year ending in the first quarter of 2019.

At the median, membership fell the most in Illinois at negative 1.4 percent. This was followed by New Jersey and Pennsylvania, which each recorded negative membership growth rates of 1.3 percent.

Other states with negative year-over-year median membership growth include the District of Columbia, Massachusetts, Nebraska, Connecticut, Mississippi, North Dakota, Delaware, Michigan, Wyoming, New York, and Oklahoma.

Student CU Connect CUSO Settles with CFPB over ITT Private Student Loan Program

The Consumer Financial Protection Bureau (CFPB) on June 14 announced a settlement with Student CU Connect CUSO, LLC (CUSO), a company set up to hold and manage private loans for students at ITT Technical Institute.

Student CU Connect CUSO is headquartered in Overland Park, Kansas.

In a complaint, the CFPB alleged that the CUSO provided substantial assistance to ITT Educational Services, Inc. in engaging in unfair acts and practices.

Under the terms of the proposed stipulated judgment, CUSO must stop collecting on all outstanding CUSO loans, discharge all outstanding CUSO loans, and ask all consumer reporting agencies to which CUSO furnished information to delete tradelines relating to CUSO loans. The order also requires CUSO to provide notice to all consumers with outstanding CUSO loans that their debt has been discharged and is no longer owed and that CUSO is seeking to have the relevant tradelines deleted. The total amount of loan forgiveness is currently estimated to be $168 million.

Forty-four states plus the District of Columbia have also settled with CUSO today on the same terms.

Read the complaint.

Read the settlement.

Georgia CU Statute Amended

Georgia Governor Brian Kemp signed House Bill 185 into law on May 7, 2019.

The bill revises statutory provisions governing banks, credit unions, trust companies, bank holding companies, money service businesses, mortgage lenders and brokers, and mortgage loan originators, as well as certain provisions addressing the Department of Banking and Finance’s general powers.

The following provisions in the bill will affect credit unions. The bill:

• expressly provides that if a credit union acquires a bank, the depositors and borrowers of the bank will be deemed members of the credit union at the time of the acquisition;
• enables credit unions to adopt a policy to expel members for non-participation;
• removes a limitation on the ability of credit unions to sell or purchase certain loans;
• revises the bylaw requirements for credit unions;
• renames the supervisory committee to the audit committee for credit unions

The provisions in the bill will go into effect on July 1, 2019.

Read the bill.

CBO: SAFE Banking Act Will Increase Insured Deposits at Banks and CUs

The SAFE Banking Act (H.R. 1595) would change federal policies governing services currently offered by banks and credit unions to cannabis-related businesses.

The bill would prevent the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) from taking action against banks or credit unions that serve cannabis-related businesses.

In addition, the bill would prevent those regulators from limiting access to financial institutions by cannabis-related businesses.

At the end of 2018, there were 438 banks and 113 credit unions offering services to cannabis-related businesses.

The Congressional Budget Office (CBO) believes the bill will result in additional deposits at banks and credit unions. CBO estimates that beginning in 2022 insured deposits at banks and credit unions will increase by about $1.2 billion and $200 million, respectively. By 2029, insured deposits will increase to $2.1 billion and $350 million at banks and credit unions, respectively.

However, CBO cautions that the lack of data on deposits from cannabis-related businesses at financial institutions means its estimates new deposits could be greater or smaller than predicted.

Read the report.

CU Organizations Agree to Pay $7.5 Million to Settle ITT Student Loan Nightmare

Credit union organizations agreed to a motion to settle claims with ITT Technical Institute bankruptcy trustee.

As part of the settlement agreement, credit union organizations will pay almost $7.5 million.

The credit union organizations covered by the motion include Student CU Connect CUSO, LLC, The Rochdale Group, Inc., Elements Financial Federal Credit Union (formerly known as Eli Lilly Federal Credit Union), Bellco Credit Union, Credit Union of America, Directions Credit Union, Veridian Credit Union, Workers Credit Union and CommunityAmerica Credit Union.

Also, Student CU Connect CUSO will have an allowed general unsecured claim in the amount of $127,844,857, which constitutes a 15 percent reduction of the amount claimed by the CUSO.

Read the motion.

Read the Indianapolis Business Journal article.

Lawsuit Alleges Improper OD Practices at Mountain America CU

Mountain America Credit Union (Sandy, UT) is being sued for alleged improper overdraft (OD) practices.

The complaint claims that the credit union routinely assessed overdraft fees on debit card transactions that did not actually overdraw the checking account.

The complaint alleges the credit union of breach of contract.

The lawsuit is seeking class action status.

The lawsuit was filed in the United States District Court District of Utah, Central Division.

Read the complaint.

Consumer Credit At CUs Grew by Almost $3.4 Billion in April

Outstanding consumer credit at credit unions grew at a faster pace in April 2019 compared to March 2019, according to the Federal Reserve's G.19 report released on June 7.

After growing by approximately $300 million in March, outstanding consumer credit increased by $3.4 billion in April to $475 billion.

Outstanding revolving credit expanded by $300 million during April 2019 to $61.8 billion.

Nonrevolving credit balances grew by almost $3.2 billion during April 2019 to approximately $413.2 billion.

FICUs Report Weak Loan Growth in Q1

National Credit Union Administration reported that federally insured credit unions (FICUs) had strong share (deposit) growth in the first quarter of 2019, but weak loan growth.

Assets at FICUs expanded by 3.6 percent during the first quarter to $1.51 trillion. The number of FICUs fell by 40 during the quarter to 5,335.

Total loans grew by 0.4 percent during the first quarter of 2019 to $1.048 trillion. The following loans contracted during the first quarter -- credit card loans, other unsecured loans, Payday Alternative loans, new vehicle loans, and commercial loans not secured by real estate.

However, total shares and deposits increased by 4,4 percent during the quarter to $1.273 trillion as of March 31, 2018.

As a result of shares growing faster than loans, the loan to share fell from 85.56 percent at the end of 2018 to 82.36 percent at the end of the first quarter of 2019.

Return on Average Assets Up in Q1 2019

Net income for FICUs credit unions was $3.5 billion for the first quarter of 2019. Over the last year, net income was $14.1 billion, which was up 11.9 percent.

The return on average assets (ROAA) was 0.95 percent, 3 basis points higher than the ROAA at the end of 2018. The median ROAA was 56 basis points, down 1 basis point from the end of 2018.

Factors contributing to the improvement in ROAA during the first quarter were lower operating expenses (+3 basis points), provisions for loan and lease losses (+3 basis points), and non-operating income (+5 basis points). Factors negatively impacting ROAA were net interest margins (-2 basis points) and fee and other income (-6 basis points).

Net Worth Up, New Worth Ratio Fell

Net worth of FICUs grew by 2.1 percent during the quarter to $167.8 billion.

Secondary capital at credit unions expanded by 4.7 percent during the first quarter to $277.2 million.

Because assets grew at a faster pace than net worth, the net worth ratio for the industry fell by 16 basis points to 11.14 percent.

As of March 2019, 98.35 percent of FICUs had a net worth ratio of 7 percent or higher (the minimum requirement for being well capitalized). The number of FICUs that were undercapitalized at the end of the first quarter of 2019 was 34, up from 30 at the end of 2018.

Asset Quality Improved

Delinquent loans at FICUs fell by 18.4 percent during the quarter to $6.1 billion as of March 31, 2019. At the end of the first quarter of 2019, the delinquent loan ratio was 0.58 percent, down from 0.71 percent at the end of 2018.

Net charge-offs were $1.5 billion at the end of the first quarter of 2019. The net charge-off rate was down 1 basis point at the end of the first quarter of 2019 at 0.57 percent.

Allowances for loan and lease losses was $9.24 billion, down 0.3 percent from the end of 2018. However, the industry's coverage ratio rose during the first quarter to 152.59 percent as of March 2019, up from 124.83 percent as of December 2018.

Financial Trends Report.

Quarterly Data Summary.

Minority Designated CUs Statistics

There were 529 federally insured credit unions that were designated as minority depository institutions (MDIs) at the end of 2018, according to the National Credit Union Administration (NCUA).

To be designated as a MDI, a credit union must affirm that more than 50 percent of its current members, eligible potential members, and board of directors are from one of the four minority categories specified under Section 308 of the Financial Institutions Reform, Recovery, and Enforcement Act.

Thirty-seven states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands reported having MDIs. The states with the most MDIs were Texas, California, New York, Hawaii, Illinois, and Louisiana.

In aggregate, MDIs serve 3.9 million members and manage $38.5 billion in assets. Texas, by far, has the highest number of members with more than 1.5 million followed by Hawaii, California, Maryland, and New Mexico. Hawaii, California, Maryland, New Mexico, the District of Columbia, and North Carolina, each have more-than $1 billion in aggregate MDI assets.

According to NCUA, the agency during 2018 approved the chartering and field of membership expansions for 28 MDIs.

Also during 2018, 21 MDIs merged into other credit unions with five of the continuing credit unions being MDIs.

Arizona FCU Announces Planned Acquisition of Pinnacle Bank

Arizona Federal Credit Union (Phoenix, AZ) announced it plans to acquire Pinnacle Bank (Scottsdale, AZ).

Arizona FCU has almost $1.7 billion in assets.

Pinnacle Bank has $236 million in assets and four branches in Tempe, Scottsdale and Phoenix.

Arizona FCU stated that the acquisition of Pinnacle Bank would grant its member-owners access to additional mortgage services, expanded small business services, SBA financing options and commercial lending services.

The transaction, which is subject to regulatory and Pinnacle Bank shareholder approval, is expected to be completed in the fourth quarter of 2019.

This is the first transaction of a credit union acquiring a bank in Arizona.

Read the announcement.

Trade Groups Urge FCC Protect Lawful Calls

Ten trade groups on May 30 urged that the Federal Communications Commission (FCC) to seek feedback before moving forward on its proposal to allow telephone companies to block unwanted calls.

The FCC’s draft declaratory ruling—which is expected to be voted on during the agency’s June 6 meeting—would permit voice service providers to enroll customers automatically in a call-blocking program that is “based on any reasonable analytics designed to identify unwanted calls.” The ability for customers to opt out of the program would be required. If adopted, the ruling would be effective immediately.

The trade associations expressed concern that legitimate bank calls are currently being incorrectly labeled as spam or nuisance and may be blocked under the declaratory ruling. “Public safety alerts, fraud alerts, data security breach notifications, product recall notices, healthcare and prescription reminders and power outage updates all could be inadvertently blocked under the draft declaratory order, among other time-sensitive calls,” the groups said.

The trade groups that signed the letter were the American Bankers Association, ACA International, American Association of Healthcare Administrative Management, American Financial Services Association, Consumer Bankers Association, Credit Union National Association, Independent Community Bankers of America, Mortgage Bankers Association, National Association of Federally-Insured Credit Unions, and National Retail Federation.

Read the letter.

Read the draft declaratory ruling.

Alabama Credit Union Statute Amended

Alabama Governor Kay Ivey sgned into law legislation amending the state's credit union statute.

The bill, SB33, would:

• authorize the Alabama Credit Union Administration Board to appoint the National Credit Union Administration as conservator of a state-chartered credit union;
• provide that credit union supervisory committees may consist of more than three members;
• permit payment or reimbursement of reasonable and proper travel costs of a member of the board or any committee and one guest per member traveling on official business of the state-chartered credit union;
• increase the meeting notice period prior to the meeting to vote and approve a merger plan of a merging credit union; and
• expand the definition of an official who may serve on the Alabama Credit Union Administration Board.

Read the bill.

Credit Union One Completes Acquisition of Hantz Bank

Credit Union One (Ferndale, MI) has received approval from the Michigan Department of Insurance and Financial Services and the National Credit Union Administration to acquire and merge Hantz Bank (Southfield, MI).

As part of the transaction, Credit Union ONE gained approval from Michigan and Ohio regulators to expand its membership base outside of Michigan to include six counties in Ohio.

The effective date for completion of this transaction is June 1, 2019.

Read the press release.