A recently released report by the Consumer Financial Protection Bureau (CFPB) found mixed outcomes for participants enrolling in credit-builder loan (CBL) program at a credit union.
CBLs are designed to allow individuals with no credit files or poor credit histories to build or repair their credit.
The CFPB’s study examined 1,531 CBL borrowers at a Midwestern credit union. Enrollment took place from September 2014 through February 2015.
About 82 percent of participants that entered the study had a credit score. Among participants who entered the study with a credit score, the average credit score was a subprime 560. Seventy percent of participants had an existing loan when entering the study, and 32 percent had a non-CBL loan from the credit union. Forty-five percent had been delinquent on one or more loans in the past twelve months. Sixty-two percent of participants had annual household income under $30,000. The majority of participants were female, nearly 90 percent were African American, the average age was 43, and about one in four had a college degree.
According to the study, when a borrower opened the CBL, the credit union moved $600 of its own dollars into a locked savings account. Borrowers were then required to make 12 monthly payments of $50 plus interest. After each payment, the lender released $50 to the borrower’s regular savings account. The credit union reported the borrowers’ payment histories to the three major credit reporting agencies: Equifax, Experian, and
TransUnion.
According to the study, CBLs were most likely to have positive outcomes for borrowers with no existing debt or credit score. For participants without an existing loan, opening a CBL increased their likelihood of having a credit score by 24 percent. Participants without existing debt saw their credit scores increase by 60 points higher than participants with existing debt. Forty-five of the participants entering the study without existing debt made at least one late payment on CBL.
However, the study found that CBLs appeared to cause a slight decrease in credit scores for participants with existing debt.
The CFPB concluded that borrowers with existing debt may have had difficulty making payments on their CBLs and their current debts. The CBL was associated with a higher late-payment rate on non-CBL loans, and nearly four in 10 CBL borrowers made at least one late payment on their CBL.
The CBL was associated with an average increase in participants’ savings balances of $253. This increase was entirely driven by borrowers with existing debt.
“Overall, the results suggest that the CBL worked as intended for people without existing debt, but not for consumers who already had debt,” the bureau found, adding that “CBL delinquency rates serve as a reminder that CBLs may harm some consumers’ credit.”
According to the National Credit Union Administration, 1,509 federally insured credit unions offer credit builder loans, as of March 2020.
Read the study.
Showing posts with label Report. Show all posts
Showing posts with label Report. Show all posts
Thursday, July 16, 2020
Tuesday, July 7, 2020
AMAC Adequately Safeguards Personal Identifiable Information at Liquidated CUs
The National Credit Union Administration (NCUA) Office of Inspector General (OIG) conducted a self-initiated audit to assess the NCUA’s Asset Management and Assistance Center’s (AMAC) ability to protect personally identifiable information (PII) found within the records of liquidated credit unions.
NCUA’s liquidation process consists of three phases: liquidation planning, on-site liquidation tasks, and off-site liquidation tasks.
The OIG found that AMAC’s control activities over its liquidation process adequately safeguarded PII during: (1) the pre-liquidation planning process, (2) records maintenance, and (3) destruction of records of liquidated credit unions.
As a result, the OIG did not make any recommendations.
Read the report.
NCUA’s liquidation process consists of three phases: liquidation planning, on-site liquidation tasks, and off-site liquidation tasks.
The OIG found that AMAC’s control activities over its liquidation process adequately safeguarded PII during: (1) the pre-liquidation planning process, (2) records maintenance, and (3) destruction of records of liquidated credit unions.
As a result, the OIG did not make any recommendations.
Read the report.
Wednesday, April 29, 2020
OMWI Report: Men Outnumber Women in Leadership Positions at Large CUs
Recently, the National Credit Union Administration Office of Minority and Women Inclusion (OMWI) released its 2019 Annual Report.
The report provides information on diversity practices at credit unions.
While a slight majority of credit union managers and chief executive officers are women, female managers and CEOs outnumber men only in credit unions with less than $100 million in assets. Men primarily run credit unions with $100 million or more in assets.
NCUA reported that in 2019, 118 federally insured credit unions (76 federal and 42 state-chartered) submitted Credit Union Diversity Self-Assessments. This was up from 81 credit unions in 2018.
According to the Self-Assessment survey, 55.6 percent of responding credit unions reported a leadership and organizational commitment to diversity, while 48.2 percent reported taking steps to implement employment practices to demonstrate that commitment. But only 29.0 percent of the reporting credit unions were monitoring and assessing their diversity policy and practices.
The Self-Assessment survey found that few credit unions had developed solid business practices with regard to supplier diversity (7.7 percent) and transparency of diversity and inclusion practices (17.2 percent).
NCUA stated that 44 credit unions that did the self-assessment in both 2018 and 2019 reported a year over year improvement in their diversity practices.
However, these self-assessment results should not be generalized to the entire industry, as the results are probably skewed by sample selection bias.
Read the report.
The report provides information on diversity practices at credit unions.
While a slight majority of credit union managers and chief executive officers are women, female managers and CEOs outnumber men only in credit unions with less than $100 million in assets. Men primarily run credit unions with $100 million or more in assets.
NCUA reported that in 2019, 118 federally insured credit unions (76 federal and 42 state-chartered) submitted Credit Union Diversity Self-Assessments. This was up from 81 credit unions in 2018.
According to the Self-Assessment survey, 55.6 percent of responding credit unions reported a leadership and organizational commitment to diversity, while 48.2 percent reported taking steps to implement employment practices to demonstrate that commitment. But only 29.0 percent of the reporting credit unions were monitoring and assessing their diversity policy and practices.
The Self-Assessment survey found that few credit unions had developed solid business practices with regard to supplier diversity (7.7 percent) and transparency of diversity and inclusion practices (17.2 percent).
NCUA stated that 44 credit unions that did the self-assessment in both 2018 and 2019 reported a year over year improvement in their diversity practices.
However, these self-assessment results should not be generalized to the entire industry, as the results are probably skewed by sample selection bias.
Read the report.
Thursday, April 9, 2020
Survey: Small Businesses Not Equipped to Handle Long-Term Disruption in Revenues
The latest Small Business Credit Survey by the Federal Reserve Banks found that most small businesses were not equipped to handle a long-term loss of revenues.
The survey, which was based on responses collected in the third and fourth quarter of 2019, prior to the outbreak of the coronavirus in the U.S., serves as a benchmark for how these firms entered the crisis period and highlights the challenges many were already facing.
In the last twelve months, 66 percent of small businesses faced financial challenges with paying operating expenses being the most frequent cited financial challenge at 43 percent.
Seventeen percent of small businesses said that they would have to close or sell if they experienced a two-month loss in revenue, according to the survey.
Over the last five-years, the primary source of funding for small employers was personal savings, family, or friends at 56 percent. This was followed by banks at 44 percent. Credit unions as a source of funding was 6 percent.
In addition, the share of firms that applied for financing remained flat at 43 percent between 2018 and 2019. Large banks received the most credit applications from small businesses (40%) during the survey period, followed by small banks (36%), online lenders (33%), finance companies (18%), credit unions (9%) and CDFIs (3%).
The survey found that banks were the most common source of credit for small businesses that had not applied for credit. Credit unions were a source of credit for 8 percent of small businesses that had not applied for credit in the prior 12 months.
The survey found that nonapplicant small businesses were more satisfied with credit unions and small banks compared to other lenders.
Read more.
A second report by the Federal Reserve Bank of New York uses the results from the survey to look at whether small businesses can weather the economic impact of COVID-19.
At the time of the survey, 23 percent of the small businesses were at-risk and 6 percent were distressed. while 70 percent were either healthy or stable.
Only 1 and 5 healthy small businesses have cash reserves to meet a two-month loss of revenue.
Read the brief.
The survey, which was based on responses collected in the third and fourth quarter of 2019, prior to the outbreak of the coronavirus in the U.S., serves as a benchmark for how these firms entered the crisis period and highlights the challenges many were already facing.
In the last twelve months, 66 percent of small businesses faced financial challenges with paying operating expenses being the most frequent cited financial challenge at 43 percent.
Seventeen percent of small businesses said that they would have to close or sell if they experienced a two-month loss in revenue, according to the survey.
Over the last five-years, the primary source of funding for small employers was personal savings, family, or friends at 56 percent. This was followed by banks at 44 percent. Credit unions as a source of funding was 6 percent.
In addition, the share of firms that applied for financing remained flat at 43 percent between 2018 and 2019. Large banks received the most credit applications from small businesses (40%) during the survey period, followed by small banks (36%), online lenders (33%), finance companies (18%), credit unions (9%) and CDFIs (3%).
The survey found that banks were the most common source of credit for small businesses that had not applied for credit. Credit unions were a source of credit for 8 percent of small businesses that had not applied for credit in the prior 12 months.
The survey found that nonapplicant small businesses were more satisfied with credit unions and small banks compared to other lenders.
Read more.
A second report by the Federal Reserve Bank of New York uses the results from the survey to look at whether small businesses can weather the economic impact of COVID-19.
At the time of the survey, 23 percent of the small businesses were at-risk and 6 percent were distressed. while 70 percent were either healthy or stable.
Only 1 and 5 healthy small businesses have cash reserves to meet a two-month loss of revenue.
Read the brief.
Wednesday, February 19, 2020
Taxpayer Group Calls on Congress to Take a Fresh Look at CU Tax Exemption
The National Taxpayers Union, a nonpartisan taxpayer advocacy group, is calling on Congress to re-examine the tax exemption of large, bank-like credit unions.
The issue briefing paper noted the trend of large credit unions acquiring community banks. For example, the National Taxpayers Union cited Lake Michigan Credit Union's acquisition of a southwest Florida bank, despite the credit union's headquarter being 1,000 miles away.
The National Taxpayers Union wrote: "Permanently taking taxpaying business entities off treasuries’ tax rolls and shrinking the tax base is a textbook example of poor tax policy."
The paper also pointed out the erosion of the credit union's field of membership as another reason for Congress to take a look at the credit union industry's preferential tax treatment.
In addition, federal credit unions are not required to file Form 990 to the Internal Revenue Service. The National Taxpayers Union believes that large federal credit unions should be subject to Form 990 filing requirements, just like other tax-exempt entities. Requiring large federal credit unions to files a Form 990 would result in greater transparency and accountability at these institutions.
Furthermore, the Form 990 "is the main enforcement mechanism to ensure compliance with Section 13602 of the Tax Cuts and Jobs Act, which requires a 21 percent excise tax on not-for-profit executive compensation above $1 million."
Moreover, the taxpayer group noted that federal credit unions are not subject to Unrelated Business Income Tax, because they are viewed as instrumentalities of the federal government. This allows federal credit unions to avoid paying taxes on profits that are not related to their core mission. For example, the paper notes that some federal credit unions have gotten into the commercial real estate business and are leasing out excess office space to other businesses. This activity is not part of the core business of federal credit unions and should be taxed.
The taxpayer group concluded that "[w]ith many credit unions growing significantly in both size and scope, it is time for Congress to reevaluate the tax exemption and other tax-related provisions governing credit unions."
Read the paper.
The issue briefing paper noted the trend of large credit unions acquiring community banks. For example, the National Taxpayers Union cited Lake Michigan Credit Union's acquisition of a southwest Florida bank, despite the credit union's headquarter being 1,000 miles away.
The National Taxpayers Union wrote: "Permanently taking taxpaying business entities off treasuries’ tax rolls and shrinking the tax base is a textbook example of poor tax policy."
The paper also pointed out the erosion of the credit union's field of membership as another reason for Congress to take a look at the credit union industry's preferential tax treatment.
In addition, federal credit unions are not required to file Form 990 to the Internal Revenue Service. The National Taxpayers Union believes that large federal credit unions should be subject to Form 990 filing requirements, just like other tax-exempt entities. Requiring large federal credit unions to files a Form 990 would result in greater transparency and accountability at these institutions.
Furthermore, the Form 990 "is the main enforcement mechanism to ensure compliance with Section 13602 of the Tax Cuts and Jobs Act, which requires a 21 percent excise tax on not-for-profit executive compensation above $1 million."
Moreover, the taxpayer group noted that federal credit unions are not subject to Unrelated Business Income Tax, because they are viewed as instrumentalities of the federal government. This allows federal credit unions to avoid paying taxes on profits that are not related to their core mission. For example, the paper notes that some federal credit unions have gotten into the commercial real estate business and are leasing out excess office space to other businesses. This activity is not part of the core business of federal credit unions and should be taxed.
The taxpayer group concluded that "[w]ith many credit unions growing significantly in both size and scope, it is time for Congress to reevaluate the tax exemption and other tax-related provisions governing credit unions."
Read the paper.
Thursday, December 26, 2019
OIG Examines Joint Examination Process with State CU Regulators
The National Credit Union Administration (NCUA) Office of Inspector General (OIG) conducted an audit to assess the NCUA’s joint examination process with state supervisory authorities (SSAs).
The report found NCUA provides shared oversight of federally insured state-chartered credit unions (FISCUs) and that the NCUA effectively monitors FISCUs using off-site monitoring tools. However, the OIG determined there are aspects of the joint examination process with the SSAs that need improvement.
The OIG found that NCUA’s regional offices did not have updated operating agreements with each individual SSA that defined roles and responsibilities for joint on-site examinations of FISCUs. The OIG determined that NCUA had 18 signed operating agreements on file and 11 unsigned operating agreements on file. There were no operating agreement on file with 16 SSAs. Five state do not have FISCUs. The OIC concludes that because NCUA did not having updated and useable operating agreements with each SSA, there could be confusion regarding roles and responsibilities during joint on-site examinations. The OIG concluded that having an executed operating agreement in place would help bring consistency to the working relationship and across the joint examination process.
The OIG also determined supervisory examiners did not consistently document their decisions on follow-up actions recommended by examiners after completing WCC 26 reviews. OIG believed that it is a prudent and sound practice to consistently document supervisory examiner decisions regarding examiner recommendations. Doing so would ensure that examiners’ supervisory concerns would be consistently communicated and addressed.
The OIG recommended that NCUA management create a formal process to capture supervisory examiner decisions regarding recommended follow-up actions taken or not taken from work classification code 26 reviews to ensure concerns identified by examiners are properly documented. NCUA management agreed with the recommendation and indicated they will implement a formal process that addresses the recommendation by December 31, 2020.
Read more.
The report found NCUA provides shared oversight of federally insured state-chartered credit unions (FISCUs) and that the NCUA effectively monitors FISCUs using off-site monitoring tools. However, the OIG determined there are aspects of the joint examination process with the SSAs that need improvement.
The OIG found that NCUA’s regional offices did not have updated operating agreements with each individual SSA that defined roles and responsibilities for joint on-site examinations of FISCUs. The OIG determined that NCUA had 18 signed operating agreements on file and 11 unsigned operating agreements on file. There were no operating agreement on file with 16 SSAs. Five state do not have FISCUs. The OIC concludes that because NCUA did not having updated and useable operating agreements with each SSA, there could be confusion regarding roles and responsibilities during joint on-site examinations. The OIG concluded that having an executed operating agreement in place would help bring consistency to the working relationship and across the joint examination process.
The OIG also determined supervisory examiners did not consistently document their decisions on follow-up actions recommended by examiners after completing WCC 26 reviews. OIG believed that it is a prudent and sound practice to consistently document supervisory examiner decisions regarding examiner recommendations. Doing so would ensure that examiners’ supervisory concerns would be consistently communicated and addressed.
The OIG recommended that NCUA management create a formal process to capture supervisory examiner decisions regarding recommended follow-up actions taken or not taken from work classification code 26 reviews to ensure concerns identified by examiners are properly documented. NCUA management agreed with the recommendation and indicated they will implement a formal process that addresses the recommendation by December 31, 2020.
Read more.
Thursday, December 12, 2019
Is Your Institution Ready for the End of LIBOR?
The London InterBank Offer Rate (LIBOR) is likely to cease being an active index by the end of 2021.
I have not seen any guidance issued by the National Credit Union Administration on this issue; however, the Office of the Comptroller of the Currency (OCC) in its most recent Semi-Annual Risk Perspective for Fall 2019 stated the cessation of LIBOR may increase operational risk and other risks at financial institutions.
The OCC recommended that financial institutions perform an accurate inventory of balance-sheet assets, liabilities, and off-balance sheet contracts that could be affected by a movement to an alternative index, including assets serviced by third party providers. This inventory would allow a financial institution to determine its potential exposure to the end of LIBOR.
Additionally, the OCC noted that the anticipated end of LIBOR poses compliance and reputation risks associated with transitioning customers to a new rate or offering new products or services that are tied to a new and untested index. The agency advised that financial institution's risk assessment "should include analysis of customer impact, repapering contracts, updating system applications, revising and testing models, and ensuring appropriate contractual fallback language and disclosures to clients."
The OCC noted that many products may be affected by the transition away from LIBOR including adjustable rate mortgages, private student loans, credit cards, reverse mortgages, and home equity lines of credit.
The OCC wrote that disclosures and communication with consumers about the end of LIBOR and the adoption of an alternative reference rate need to be easily understood. Also, financial institution should limit expected pricing issues with observable and objective rules.
In addition, management should determine whether third-party providers are on track to modify their systems.
Read more.
I have not seen any guidance issued by the National Credit Union Administration on this issue; however, the Office of the Comptroller of the Currency (OCC) in its most recent Semi-Annual Risk Perspective for Fall 2019 stated the cessation of LIBOR may increase operational risk and other risks at financial institutions.
The OCC recommended that financial institutions perform an accurate inventory of balance-sheet assets, liabilities, and off-balance sheet contracts that could be affected by a movement to an alternative index, including assets serviced by third party providers. This inventory would allow a financial institution to determine its potential exposure to the end of LIBOR.
Additionally, the OCC noted that the anticipated end of LIBOR poses compliance and reputation risks associated with transitioning customers to a new rate or offering new products or services that are tied to a new and untested index. The agency advised that financial institution's risk assessment "should include analysis of customer impact, repapering contracts, updating system applications, revising and testing models, and ensuring appropriate contractual fallback language and disclosures to clients."
The OCC noted that many products may be affected by the transition away from LIBOR including adjustable rate mortgages, private student loans, credit cards, reverse mortgages, and home equity lines of credit.
The OCC wrote that disclosures and communication with consumers about the end of LIBOR and the adoption of an alternative reference rate need to be easily understood. Also, financial institution should limit expected pricing issues with observable and objective rules.
In addition, management should determine whether third-party providers are on track to modify their systems.
Read more.
Tuesday, December 10, 2019
Survey: Compliance Worries Rise in 2019
U.S. banks and credit unions are reporting increased anxiety levels over compliance obligations, according to a survey released on December 4, 2019 by Wolters Kluwer.
This year’s regulatory and risk management indicator score was 95, up 10 points from 2018.
Specific points of high concern contributing to the overall indicator score were the effects of new Home Mortgage Disclosure Act rules, overall risk management concerns, and ongoing challenges from compliance change management.
The report cited that nearly eight in 10 respondents will continue to prioritize cybersecurity risk over the next year. Other areas being prioritize over the next 12 months were credit risk, compliance risk, third-party risk and operational risk, which all saw double-digit percentage increases.
Among top obstacles in implementing effective compliance programs, 47 percent of respondents stated manual compliance processes and 45 percent cited inadequate staffing.
The survey was conducted nationwide between August 7 and September 3, 2019 and generated 704 responses.
Read the press release.
This year’s regulatory and risk management indicator score was 95, up 10 points from 2018.
Specific points of high concern contributing to the overall indicator score were the effects of new Home Mortgage Disclosure Act rules, overall risk management concerns, and ongoing challenges from compliance change management.
The report cited that nearly eight in 10 respondents will continue to prioritize cybersecurity risk over the next year. Other areas being prioritize over the next 12 months were credit risk, compliance risk, third-party risk and operational risk, which all saw double-digit percentage increases.
Among top obstacles in implementing effective compliance programs, 47 percent of respondents stated manual compliance processes and 45 percent cited inadequate staffing.
The survey was conducted nationwide between August 7 and September 3, 2019 and generated 704 responses.
Read the press release.
Wednesday, December 4, 2019
Report: CU Branches Not a Direct Substitute for Bank Branches
A report the the Federal Reserve stated that credit union branches are not direct substitutes for bank branches, especially in rural America.
The study examined the closure of bank branches between 2012 and 2017. The report found that the number of bank branches declined by 7 percent across all counties during the time period studied.
While urban communities lost more branches than rural areas, the study noted that the effect of branch closures tends to be magnified in rural areas.
Participants in listening sessions described instances in which credit unions moved into or expanded their operations in the community in response to the closure of the local bank branch. Participants, who used a credit union, commented that credit unions were able to meet some of their financial needs.
However, some participants noted areas where their local credit union did not meet their financial needs.
For example, participants raised concerns about "a lack of robust small business account and credit products, overly restrictive lending policies, a lack of direct deposit services for employers, and low maximum cash withdrawal limits."
The study was not sure if these challenges identified by participants were due to the fact that the institutions cited were credit unions or these credit unions were smaller financial institutions with a more limited product and service offering.
The report also noted that when a bank branch is closed, the effects are not just limited to financial services access. Communities lose an important source of financial advice and civic leadership.
Read the study.
The study examined the closure of bank branches between 2012 and 2017. The report found that the number of bank branches declined by 7 percent across all counties during the time period studied.
While urban communities lost more branches than rural areas, the study noted that the effect of branch closures tends to be magnified in rural areas.
Participants in listening sessions described instances in which credit unions moved into or expanded their operations in the community in response to the closure of the local bank branch. Participants, who used a credit union, commented that credit unions were able to meet some of their financial needs.
However, some participants noted areas where their local credit union did not meet their financial needs.
For example, participants raised concerns about "a lack of robust small business account and credit products, overly restrictive lending policies, a lack of direct deposit services for employers, and low maximum cash withdrawal limits."
The study was not sure if these challenges identified by participants were due to the fact that the institutions cited were credit unions or these credit unions were smaller financial institutions with a more limited product and service offering.
The report also noted that when a bank branch is closed, the effects are not just limited to financial services access. Communities lose an important source of financial advice and civic leadership.
Read the study.
Sunday, December 1, 2019
Moebs Study: Banks Paying Higher Deposit Rates Than CUs
A study by Moebs Services found that banks are paying higher deposit rates than credit unions.
The study found that for the first time since 2007 total interest expense divided by assets at credit unions is less than banks. So far this year, banks are 90 basis points (BPs), while CUs are 83 BPs or 7.8 percent less.
However, the study found that credit unions with greater than $10 billion in assets are paying 116 BPs, while similarly-sized banks are paying 91 BPs.
In contrast, community banks are paying 66 BPs compared to only 43 BPs by credit unions.
The study found that for the first time since 2007 total interest expense divided by assets at credit unions is less than banks. So far this year, banks are 90 basis points (BPs), while CUs are 83 BPs or 7.8 percent less.
However, the study found that credit unions with greater than $10 billion in assets are paying 116 BPs, while similarly-sized banks are paying 91 BPs.
In contrast, community banks are paying 66 BPs compared to only 43 BPs by credit unions.
Wednesday, November 20, 2019
Banks Top CUs in Customer Satisfaction
The American Customer Satisfaction Index (ASCI) is reporting that banks topped credit unions in customer satisfaction.
This is the first time in the history of the index where banks scored higher than credit unions.
After being tied last year, customers gave banks a satisfaction score of 80 out of 100, while credit union customers rated their satisfaction at 79 out of 100, a 2.5-point dip from 2018.
Banks either tied or outpaced credit unions on every individual element of the satisfaction rating.
What is especially telling is that credit unions lag behind banks with regard to digital satisfaction.
Read the press release.
This is the first time in the history of the index where banks scored higher than credit unions.
After being tied last year, customers gave banks a satisfaction score of 80 out of 100, while credit union customers rated their satisfaction at 79 out of 100, a 2.5-point dip from 2018.
Banks either tied or outpaced credit unions on every individual element of the satisfaction rating.
What is especially telling is that credit unions lag behind banks with regard to digital satisfaction.
Read the press release.
Monday, October 21, 2019
The Financial Brand: CU Marketing Expenses Study
A study by The Financial Brand provides interesting metrics on credit union marketing expenditures.
The study examines promotional and educational expenses at 227 credit union with at least $250 million in assets between 2015 and 2018.
The report noted that the average marketing spending in 2018 as a percent of assets was 0.12 percent. However, 31.3 percent of credit unions spent at least 0.15 percent on marketing expenses as a percent of assets.
The study also looks at marketing expenses per member. The following graph shows marketing expenses per member by asset size for 2018.
Read more.
The study examines promotional and educational expenses at 227 credit union with at least $250 million in assets between 2015 and 2018.
The report noted that the average marketing spending in 2018 as a percent of assets was 0.12 percent. However, 31.3 percent of credit unions spent at least 0.15 percent on marketing expenses as a percent of assets.
The study also looks at marketing expenses per member. The following graph shows marketing expenses per member by asset size for 2018.
Read more.
Monday, October 7, 2019
Report: CUs Buying Banks Pays Off as Growth Strategy
S&P Global Market Intelligence is reporting that credit unions buying banks as part of a growth strategy appear to be paying off.
Membership and deposit (share) growth at credit unions that acquired banks has outpaced membership and deposit growth of the rest of the industry.
Since the fourth quarter of 2015, membership and deposit growth at credit unions that acquired a bank was 22.7 percent and 45.9 percent, respectively.
For credit unions that did not acquire a bank, membership and deposit growth over the same time period was 15.1 percent and 25.3 percent, respectively.
The study found that only one credit union saw a decline in membership in the quarter following the closing of the acquisition. However, 7 credit unions reported a decline in shares and deposits in the quarter after the acquisition was completed.
Read more.
Membership and deposit (share) growth at credit unions that acquired banks has outpaced membership and deposit growth of the rest of the industry.
Since the fourth quarter of 2015, membership and deposit growth at credit unions that acquired a bank was 22.7 percent and 45.9 percent, respectively.
For credit unions that did not acquire a bank, membership and deposit growth over the same time period was 15.1 percent and 25.3 percent, respectively.
The study found that only one credit union saw a decline in membership in the quarter following the closing of the acquisition. However, 7 credit unions reported a decline in shares and deposits in the quarter after the acquisition was completed.
Read more.
Wednesday, October 2, 2019
GAO Reports on Information Sharing Between Regulators and FinCEN
The Government Accountability Office (GAO) recently released a report on the Bank Secrecy Act (BSA).
The report examined, among other objectives, how the Financial Crimes Enforcement Network (FinCEN) and supervisory and law enforcement agencies (1) collaborate and (2) provide metrics and feedback on the usefulness of BSA reporting.
However, GAO found that FinCEN did not consistently communicate available metrics and when FinCEN did so, it did it on an ad-hoc basis.
Below is information specific to credit unions from the report.
According to the report, each federal credit union must receive a BSA examination each examination cycle — although the frequency and scope of these examinations may vary based on the credit union’s size and other risk factors. National Credit Union Administration (NCUA) officials noted that certain small credit unions with limited separation of duties may be examined more frequently.
According to the report, NCUA made 50 referrals for potential BSA violations to FinCEN between fiscal year 2015 and 2018 (see Table 3).
Appendix II has statistics on the number of BSA examinations and violations.
The most common BSA violations cited by the federal banking regulators were violations of requirements to report suspicious activities, 314(a) information-sharing requirements, rules for filing of reports, BSA training, and a system of internal controls.
NCUA accounted for the majority of 314(a) information-sharing violations, which include a financial institution failing to expeditiously search its records after receiving an information request from FinCEN based on credible evidence concerning money laundering.
Between fiscal year 2015 and the first half of fiscal year 2018, NCUA did 14,575 BSA examinations. During that time period, NCUA found 8,477 BSA violations, which resulted in 4,588 informal enforcement actions. NCUA counts each BSA violation in a Document of Resolution as an informal action.
However, NCUA did not issue any formal enforcement action against a credit union during that time period.
The report examined, among other objectives, how the Financial Crimes Enforcement Network (FinCEN) and supervisory and law enforcement agencies (1) collaborate and (2) provide metrics and feedback on the usefulness of BSA reporting.
However, GAO found that FinCEN did not consistently communicate available metrics and when FinCEN did so, it did it on an ad-hoc basis.
Below is information specific to credit unions from the report.
According to the report, each federal credit union must receive a BSA examination each examination cycle — although the frequency and scope of these examinations may vary based on the credit union’s size and other risk factors. National Credit Union Administration (NCUA) officials noted that certain small credit unions with limited separation of duties may be examined more frequently.
According to the report, NCUA made 50 referrals for potential BSA violations to FinCEN between fiscal year 2015 and 2018 (see Table 3).
Appendix II has statistics on the number of BSA examinations and violations.
The most common BSA violations cited by the federal banking regulators were violations of requirements to report suspicious activities, 314(a) information-sharing requirements, rules for filing of reports, BSA training, and a system of internal controls.
NCUA accounted for the majority of 314(a) information-sharing violations, which include a financial institution failing to expeditiously search its records after receiving an information request from FinCEN based on credible evidence concerning money laundering.
Between fiscal year 2015 and the first half of fiscal year 2018, NCUA did 14,575 BSA examinations. During that time period, NCUA found 8,477 BSA violations, which resulted in 4,588 informal enforcement actions. NCUA counts each BSA violation in a Document of Resolution as an informal action.
However, NCUA did not issue any formal enforcement action against a credit union during that time period.
Sunday, August 4, 2019
Report Highlights Top Management and Performance Challenges Facing Financial Regulators
The Council of Inspectors General on Financial Oversight (CIGFO) released its second annual report on the top management and performance challenges facing Financial-Sector Regulatory Organizations in 2019.
This report focused on seven areas:
• Enhancing Oversight of Financial Institution Cybersecurity
• Managing and Securing Information Technology at Regulatory Organizations
• Sharing Threat Information
• Ensuring Readiness for Crises
• Strengthening Agency Governance
• Managing Human Capital
• Improving Contract and Grant Management
CIGFO members include the Inspectors General of the Department of the Treasury, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, the Department of Housing and Urban Development, the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection, the Federal Housing Finance Agency, the National Credit Union Administration, the Securities and Exchange Commission, and the Special Inspector General for the Troubled Asset Relief Program.
Read the report.
This report focused on seven areas:
• Enhancing Oversight of Financial Institution Cybersecurity
• Managing and Securing Information Technology at Regulatory Organizations
• Sharing Threat Information
• Ensuring Readiness for Crises
• Strengthening Agency Governance
• Managing Human Capital
• Improving Contract and Grant Management
CIGFO members include the Inspectors General of the Department of the Treasury, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, the Department of Housing and Urban Development, the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection, the Federal Housing Finance Agency, the National Credit Union Administration, the Securities and Exchange Commission, and the Special Inspector General for the Troubled Asset Relief Program.
Read the report.
Thursday, June 27, 2019
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.
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.
Wednesday, April 24, 2019
Audit: NCUA Did Not Adequately Monitor, Account, and Dispose of IT Equipment
An audit by the National Credit Union Administration (NCUA) Office of Inspector General (OIG) found that NCUA did not adequately monitor, account, and dispose of all of its information technology (IT) equipment.
The audit had two objectives -- to determine: 1) whether the NCUA has IT equipment inventory policies and procedures; and 2) whether the NCUA adequately monitors and accounts for its IT equipment from acquisition through final disposition.
The audit covered the period from January 1, 2014, through June 30, 2017.
The OIG found that the NCUA did not follow its instruction to dispose of IT equipment “as promptly as possible”. For example, in 2009, management did not dispose of approximately 300 laptops that it had identified as “exhausted or excess” until 2018.
Also, the report concluded that the NCUA did not use existing procedures to remove disposed equipment from its financial systems and that its current financial system did not provide reliable information for inventory verifications and was not a comprehensive asset management system.
The OIG found the 25 percent of the NCUA’s inventory records did not match to items on hand.
In addition, the NCUA does not immediately reconcile what it ordered with what it received. The OIG stated that NCUA ran the risk of paying for IT equipment that it had not received.
The OIG found that NCUA spent $440,000 on IT equipment it did not need. The report noted that NCUA staffing projections failed to materialize due to government-wide hiring freeze and agency reorganization, which reduced staffing levels.
The OIG made seven recommendations to NCUA management that will help with IT equipment inventory management.
Read the report.
The audit had two objectives -- to determine: 1) whether the NCUA has IT equipment inventory policies and procedures; and 2) whether the NCUA adequately monitors and accounts for its IT equipment from acquisition through final disposition.
The audit covered the period from January 1, 2014, through June 30, 2017.
The OIG found that the NCUA did not follow its instruction to dispose of IT equipment “as promptly as possible”. For example, in 2009, management did not dispose of approximately 300 laptops that it had identified as “exhausted or excess” until 2018.
Also, the report concluded that the NCUA did not use existing procedures to remove disposed equipment from its financial systems and that its current financial system did not provide reliable information for inventory verifications and was not a comprehensive asset management system.
The OIG found the 25 percent of the NCUA’s inventory records did not match to items on hand.
In addition, the NCUA does not immediately reconcile what it ordered with what it received. The OIG stated that NCUA ran the risk of paying for IT equipment that it had not received.
The OIG found that NCUA spent $440,000 on IT equipment it did not need. The report noted that NCUA staffing projections failed to materialize due to government-wide hiring freeze and agency reorganization, which reduced staffing levels.
The OIG made seven recommendations to NCUA management that will help with IT equipment inventory management.
Read the report.
Thursday, April 18, 2019
Survey: No Change In the Percent of Small Businesses Seeking Credit from CUs
The percentage of small businesses with employees applying for financing from credit unions was flat, according to the latest Small Business Credit Survey — a joint effort by the 12 regional Federal Reserve Banks.
The survey had responses from 6,614 small employer firms.
The 2018 survey found that 43 percent of employer firms applied for financing in the previous 12 months.
Traditional bank lending remains the primary source of financing for the nation’s small businesses, although the share of applicants seeking financing from online borrowers has grown markedly.
The survey found that 9 percent of these small businesses applied for loans, lines of credit, or cash advances from credit unions. The same percentage of small businesses sought credit from credit unions in 2016 and 2017.
There was a slightly higher percentage of medium/high credit risk borrowers that sought financing from from credit unions compared to low credit risk borrowers. The survey found 12 percent of medium/high credit risk borrowers sought credit from credit unions versus 9 percent of borrowers with low credit risk.
Among firms that did not apply for credit, 7 percent identified using credit unions regularly for loans, lines of credit, or cash advances. This is up from 5 percent in 2016, but down slightly from 8 percent in 2017.
Review the results of the survey.
The survey had responses from 6,614 small employer firms.
The 2018 survey found that 43 percent of employer firms applied for financing in the previous 12 months.
Traditional bank lending remains the primary source of financing for the nation’s small businesses, although the share of applicants seeking financing from online borrowers has grown markedly.
The survey found that 9 percent of these small businesses applied for loans, lines of credit, or cash advances from credit unions. The same percentage of small businesses sought credit from credit unions in 2016 and 2017.
There was a slightly higher percentage of medium/high credit risk borrowers that sought financing from from credit unions compared to low credit risk borrowers. The survey found 12 percent of medium/high credit risk borrowers sought credit from credit unions versus 9 percent of borrowers with low credit risk.
Among firms that did not apply for credit, 7 percent identified using credit unions regularly for loans, lines of credit, or cash advances. This is up from 5 percent in 2016, but down slightly from 8 percent in 2017.
Review the results of the survey.
Monday, April 15, 2019
KBW Report Looks at Competitive Impact of CUs on Banks
A report, The Non-Bank Chronicles: The Rise of Credit Unions, by Keefe, Bruyette & Woods (KBW) examines the competitive impact of the credit union industry on banks.
KBW launched The Non-Bank Chronicles with the objective of examining various non-bank competitors, analyzing the scope and methods to which each competes, and how banks can effectively fight back to protect and profitably grow their market share.
The report notes that the credit union tax exemption affords credit unions considerable room to competitively price loan and deposit products, which has helped drive significant growth over the last several decades.
In fact, credit unions are the only non-bank competitor that can offer customers a federally insured deposit product.
Since 2005, credit unions have seen their market share of United States consumers steadily grow, with deposits expanding 108 percent from $578 billion to $1.2 trillion or approximately 9.2 percent of all federally insured deposits in the country.
According to a survey of 114 bank executives covered by KBW, 52 percent identified credit unions as the “greatest threat” to their ability to profitably grow in the future.
Moreover, 68 percent of the respondents indicated that they expect credit union market share to increase in future years.
Bankers noted that the most challenging areas from credit union competition are retail deposits, followed by retail lending. Unsurprisingly, 82 percent of respondents selected “rate offered on loans / deposits” as a credit unions’ top method of competing, followed by 54 percent indicating that loan structure is the second most likely form of competition.
The report also notes that credit unions are expanding into the commercial lending space, which poses a significant competitive threat to for banks with under $10 billion in assets. Eighty-nine percent of the bankers reported noticing an increase focus on small business customers over the last five years.
While KBW analysis found that credit unions offer better rates on loans and deposits, KBW noted that the recent improved profitability of credit unions could suggest the full tax advantage benefit is not being passed through to consumers.
KBW believes competitive challenges posed by credit unions can be added to the list of reasons supporting further bank consolidation.
Despite the challenges posed by credit unions to community banks, KBW does not expect any changes in the political status quo in the near term.
Read the report.
KBW launched The Non-Bank Chronicles with the objective of examining various non-bank competitors, analyzing the scope and methods to which each competes, and how banks can effectively fight back to protect and profitably grow their market share.
The report notes that the credit union tax exemption affords credit unions considerable room to competitively price loan and deposit products, which has helped drive significant growth over the last several decades.
In fact, credit unions are the only non-bank competitor that can offer customers a federally insured deposit product.
Since 2005, credit unions have seen their market share of United States consumers steadily grow, with deposits expanding 108 percent from $578 billion to $1.2 trillion or approximately 9.2 percent of all federally insured deposits in the country.
According to a survey of 114 bank executives covered by KBW, 52 percent identified credit unions as the “greatest threat” to their ability to profitably grow in the future.
Moreover, 68 percent of the respondents indicated that they expect credit union market share to increase in future years.
Bankers noted that the most challenging areas from credit union competition are retail deposits, followed by retail lending. Unsurprisingly, 82 percent of respondents selected “rate offered on loans / deposits” as a credit unions’ top method of competing, followed by 54 percent indicating that loan structure is the second most likely form of competition.
The report also notes that credit unions are expanding into the commercial lending space, which poses a significant competitive threat to for banks with under $10 billion in assets. Eighty-nine percent of the bankers reported noticing an increase focus on small business customers over the last five years.
While KBW analysis found that credit unions offer better rates on loans and deposits, KBW noted that the recent improved profitability of credit unions could suggest the full tax advantage benefit is not being passed through to consumers.
KBW believes competitive challenges posed by credit unions can be added to the list of reasons supporting further bank consolidation.
Despite the challenges posed by credit unions to community banks, KBW does not expect any changes in the political status quo in the near term.
Read the report.
Monday, April 8, 2019
Impact of Risk-Based Loan Pricing on CU Credit Availability and Risk
Credit unions are increasingly employing risk-based loan pricing models.
A 2018 paper in the Journal of Empirical Finance, Risk-based Loan Pricing Consequences for Credit Unions, examines whether risk-based pricing increases the availability of loans, particularly for high-risk borrowers.
The study uses credit union data obtained from fourth quarter call reports published by the National Credit Union Administration over the period from 2006 through 2015.
The paper found that credit unions that adopt risk-based loan pricing strategies:
Data on the number of loans per credit union member and loan delinquency rates are used to analyze loan access and average risk-levels, respectively.
The authors, Walke, Fullerton, and Tokle, contend that the number of loans issued is a better measure of loan availability than the dollar value of loans.
The study found that risk-based pricing adopters increase the availability of loans relative to otherwise similar non-adopters.
However, delinquency rates were somewhat lower for adopters of risk-based pricing compared to matched non-adopters. This finding appears to be at odds with a priori expectations.
The authors conclude that the lower delinquency rate at risk-based pricing adopters suggests that the increased availability of loans went to lower risk borrowers.
The authors posit that risk-based pricing results in charging higher interest rates to riskier borrowers, which might suppress loan demand by this group of borrowers, and charging lower interest rates to less risky borrowers, which would increase the demand for loans by this group.
A 2018 paper in the Journal of Empirical Finance, Risk-based Loan Pricing Consequences for Credit Unions, examines whether risk-based pricing increases the availability of loans, particularly for high-risk borrowers.
The study uses credit union data obtained from fourth quarter call reports published by the National Credit Union Administration over the period from 2006 through 2015.
The paper found that credit unions that adopt risk-based loan pricing strategies:
- are larger,
- have lower net worth ratios,
- are more dependent on fee income, and
- have higher loan interest rates.
Data on the number of loans per credit union member and loan delinquency rates are used to analyze loan access and average risk-levels, respectively.
The authors, Walke, Fullerton, and Tokle, contend that the number of loans issued is a better measure of loan availability than the dollar value of loans.
The study found that risk-based pricing adopters increase the availability of loans relative to otherwise similar non-adopters.
However, delinquency rates were somewhat lower for adopters of risk-based pricing compared to matched non-adopters. This finding appears to be at odds with a priori expectations.
The authors conclude that the lower delinquency rate at risk-based pricing adopters suggests that the increased availability of loans went to lower risk borrowers.
The authors posit that risk-based pricing results in charging higher interest rates to riskier borrowers, which might suppress loan demand by this group of borrowers, and charging lower interest rates to less risky borrowers, which would increase the demand for loans by this group.
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