The enemy of a good plan is the perfect plan!
Someone just reminded me that I have not posted to this blog since late 2013. Time flies!
Lots of good and bad credit union related issues to post about - perhaps too many.
I envy folks who keep on on weekly (or even daily) blogs.
In the last few months, I have noticed many types of apparent “Unintended Consequences” of Federal Government Legislative and Regulatory actions.
Federal regulations governing International wire transfers of funds from the US to other countries are so onerous that many credit unions have decided to stop offering such services to their members.
The upcoming changes to Home Mortgage Lending (currently to be effective in January 2014) may cause lenders to discontinue making such loans to borrowers who may well have qualified for such loans in the past.
Changes to regulations for almost any type of “student loan”, even if only for books and/or tuition for a class at a Community College, are so onerous that many credit unions are not making these types of personal loans.
Finally, as the headlines all show, almost daily in recent weeks, some number of folks with health insurance currently may face adverse (to them) changes in such policies or even their cancellation because of the Affordable care Act (”Obamcare”). For the same reason, many part time employees of companies, organizations and agencies have had their work hours cut below 30 hours per week so that the employers do not have to provide health insurance benefits.
Many credit unions and credit union officials (including me) have believed that offering fair and “good value” products and services to members and potential members should convince those members and potential members to use the credit union. While, it still seems to me that should be the case, I have concluded that it is not.
Increasingly as everyone is bombarded with advertising and information (of varying degrees of truthfulness), it is much more difficult to get noticed. We might, for example, be offering a great deal (rates and terms) on car loans - but when the member has to get through the “encounter” with the dealer’s F&I (Finance and Insurance) person, they often finance the car on the spot from the dealer financing.
There is still lots of information/advertising on the old standbys of radio and TV, but now emails, telemarketing calls, text messages, Twitter, facebook, and a few more. I believe accuracy and “full disclosure” of this method of advertising/communication suffer greatly - but that is a “fact of life” today.
CUNA Mutual just announced that it is terminating credit union Loan Protection and Life Savings coverage for its US credit union customers by the end of 2014. Queen of Peace Arlington stopped Life Savings in the late 1980’s and phased out Loan Protection about ten years ago, with the last covered loan paid off in early 2009. In my opinion, these products, at one time a real mark of distinction for credit unions, had become quite expensive and not practical for almost all credit unions many years ago. Their time had passed.
Loan Protection (where the credit union purchases life insurance on member loans) goes back to the 1930’s and was the embodiment of “The debt shall die with the debtor”. At one time, this was a very affordable benefit for credit unions to provide. It protected the credit union, as well as the member’s family if the member died before the loan was paid off. Over time, as lending became more competitive, the cost to the credit union became more of a factor. In addition, I believe, members did not value such insurance when comparing rates on loans. Most credit unions moved towards member pay life insurance, which often covered higher loan balances, as well as joint borrowers.
Life Savings Insurance was matching life insurance purchased by the credit union based on the balance in the member’s share account, up to a certain maximum, most commonly $2,000. So, if a member had, say, $1,500 in a share account, and the member died, the beneficiary would get the $1,500 in shares and another $1,500 from the life insurance. There were various age limits (typically over 55), where only part of the balance was matched and then only if the funds were continuously on deposit before that age. This coverage was less expensive when most credit union members were young (and healthy). Decades ago, as well, there was a cap on the dividend rate credit unions (and interest rates banks could pay) could pay – so such insurance was a competitive advantage. As time passed, though, members valued this less and less. The costs increased with an aging membership, and it was difficult and complicated to track all the ages of deposit. Members became more “rate conscious” on savings, and the cost of this insurance ate into the rates credit unions could pay.
In the heyday of Life Savings and Loan Protection, some credit unions actively promoted taking out a share secured loan, pledging the proceeds against the loan – just to build up insurable share and loans.
It is not clear, at this time, whether any other insurance companies will continue to offer this product to US credit unions.
In all kinds or businesses and organizations, “economies of scale” are often critical factors in the success or failure of the business or organization. That is certainly true with credit unions. Even at slightly over $2 Million in assets, which is larger than many credit unions, we face higher costs (as a percentage of assets or members) than larger credit unions for most products and services. While there are some cost breaks for smaller credit unions from NCUA and from some trade associations, it seems to me that we are facing more “increased minimum charges” on many products and services.
An absolute necessity today for almost all credit unions is pulling credit reports on loan applicants. We were just notified by the credit bureau we use that our minimum monthly fee will double. Because we are small, we rarely ever reached the minimum before this doubling of our monthly costs to pull credit reports. On the credit reporting of our borrowers, although I am working on a creative solution, credit bureaus will not accept reporting below a certain threshold of reported loans. With the increasing importance of credit scores and credit reports today, if we can not report our borrowers (good and bad), we are not fully serving our members.
Being able to accept and initiate electronic transfers and payroll deductions from our members is also vital to us. Most of our loans are paid electronically, as are a significant part of savings deposits. The costs of using these services keeps increasing because of the basic “minimum charges”, both from the federal reserve and from our Corporate credit union.
The list goes on, but I see this trend of increased “minimum charges” as a factor leading so many small credit unions to go out of business (merge or liquidate).
The good news for us, so far at least, is that we are successfully dealing with these cost issues. The trend, however, worries me.
I sometimes wonder if credit unions could do a better job of serving members (and potential members) that have various forms of disabilities. Even though our credit union is very small and offers limited services, we regularly receive phone calls (and the occasional email) from someone, who has a disability, asking about joining the credit union. These calls come from all over the country. They call us because an internet search for “disabled” and “credit union” (or a similar search) gets a hit. It appears that the reprint (on our web site) of an article from NAFCU’s “The Federal Credit Union” titled “Meaningful Inclusion” http://www.qpafcu.com/7734.html is what leads such folks to us. This article goes back many years, and is somewhat dated. However, most of the substance is still valid today.
It is, I believe, unfortunate that credit unions (like so many other organizations) must focus resources on activities (many of them VERY expensive) to prevent or defend against (in my opinion frivolous) lawsuits alleging some kind of improper aspect of the organization related to disabled individuals. Would it not be better if those same resources could be spent on better services to disabled individuals?
I am continually puzzled every time I use a drive-up ATM that the ATM is 100% capable of being used by someone whose vision is such that Braille can be used on this ATM. Banks and Credit Unions, though, seem to be closing down “walk up” ATMs and often, the only ATM is a drive-up. It is, I believe, hazardous for a pedestrian (especially a pedestrian with certain kinds of disabilities) to use a drive up ATM. If my small sample is accurate, though, the walk-up ATMs seem to be on the decline - so only those with cars can safely use the ATM. Many banks and credit unions are decreasing lobby hours as well, pushing customers/members to use the ATM, that may have many more capabilities - as long as you have a car!
All U.S. Credit Unions have defined fields of membership (FOMs). Some may have very large and expansive ones, while others may have much smaller FOMs. Much to the chagrin of the bankers, many large credit unions have created easy-to-open “back doors” to membership. A great many smaller credit unions, though, have not expanded their defined FOM.
Such small credit unions (such as Queen of Peace Arlington - QPAFCU) face challenges today, ranging from low loan demand to the compliance burden to increased competitiion, often from larger credit unions that have expanded to community charters and easy “back doors” to membership. Yet, for various reasons, many such small credit unions fail to take advantage of the membership options available to them, even without making a single change to their Charter or FOM.
Some such small credit unions, often with a history of serving a single employer FOM or a single group, such as a Church, even seem to look for ways of excluding people from credit union membership and services. Words often betray or influence attitudes, I believe, in this matter. A few years ago, I even found myself describing the FOM of QPACU as “limited to …”. While technically accurate and in the credit union’s charter and bylaws, I concluded that it was not very “welcoming”. As best I can, now we try to describe and explain the FOM of QPAFCU as “OPEN TO …”
I GOOGLED “credit union” and “limited to” and got hits on many credit unions that describe their FOM that way. Although the defined FOM of QPAFCU has not changed in the nearly 50 years since it was chartered, many of the federal rules have changed in how the FOM is interpreted. Federally chartered credit unions now have “once a member, always a member” actually in the Federal Credit Union Act, as has including household members. “Immediate Family” members, wherever they live are included, as well as the expansion of both household and immediate family to any current credit union member.
I believe many small credit unions, with a change in words and attitudes from “limited to” to “OPEN TO” could use this to grow the credit union in a very positive way.
As we move to the latter half of 2013, we are approaching the 50th anniversary of the issuing of a federal credit union charter (March 23, 1964) to the Queen of Peace Arlington Federal Credit Union. I was not part of that process, arriving in the area years later, but I suspect that the efforts of deciding to start a credit union at the parish and forming a credit union were probably underway in August of 1963.
The Civil Rights Act was not passed until July 1964, and the Equal Credit Opportunity Act was not law until 1974. Racial discrimination in lending was not uncommon.
So, it was in this environment, in the Commonwealth of Virginia, that the Pastor, Father David Ray, and a group of “activist” parishioners at Our Lady Queen of Peace in Arlington began the process of starting a credit union.
Three down and one to go!
In these days of “Social Media”, Web Sites, Blogs, FaceBook and Twitter are vital to almost all organizations. Credit unions (of all sizes) are no exception.First, I have started posting regularly to this Blog. Second, I have started sending Tweets from the Queen of Peace Arlington FCU (@QueenOfPeaceAFC). Third, I cleaned up the Queen of Peace Arlington FCU’s facebook accounts (deactivating a duplicate one that caused some problems).
The next step is to get a general email information list going on Constant Contact for the Credit Union.
There are renewed threats in Congress to repeal the tax exempt status of credit unions. The Bankers and Banking lobby are leading that campaign. Credit Unions are countering with the Campaign, “Don’t Tax My Credit Union” http://www.donttaxmycreditunion.org/ . The environment for this push by the banking lobby is proposed “Tax Reform” - starting with a “Blank Page” eliminating tax exemptions, deductions and so on. Then, each tax exemption would need to be justified before going back on the list,
One “fact” and “detail” that the bankers, and others proposing to tax credit unions, seem to either leave out or unfairly state is just what taxes credit unions currently are exempt from. Contrary to the impression given by the banking lobby, as far as I know, there are only two types of taxes on credit unions that receive favorable treatment. The first is an exemption from Corporate Income Taxes. The second, for federally chartered credit unions, is an exemption for most state and local sales and use taxes, as well as hotel occupancy taxes.
There are lots of taxes that credit unions, credit union employees and credit union members pay. Depending on the state, a state chartered credit union (about 1/3 of US Credit Unions are state charters) may pay sales and use taxes. In Virginia, for example, only federally chartered credit unions are exempt from sales and use taxes. If a credit union owns real property, such as an office building or branch office, the credit union pays real estate taxes. If the state has a “personal property tax”, on vehicles for example, a credit union that owned a vehicle would pay that tax. Credit Union employees pay state and federal income taxes on wages and salaries, as well as Social Security taxes. Dividends earned by members on share accounts (savings or checking) or share certificate accounts in a credit union are taxed as “Interest” and a 1099-INT is issued in the same way that a bank would issue a 1099-INT for interest on a Bank CD.
Many of those advocating an end to the tax exempt status of credit unions are saying that they are only advocating taxing the big credit unions and that small (or very small) credit unions, such as Queen of Peace Arlington, would not have an added tax burden. The goal and strategy here seems to be to divide credit union and pit the small (or very small) credit unions against the larger credit unions. I hope that such a division in the credit union movement does not increase to the point that any of us are aligned with the bankers against our larger fellow credit unions.
It continues to getting more lonely as a very small credit union (we at just over $2 Million at Queen of Peace Arlington FCU http://www.qpafcu.com/ ). Several small credit unions, where I have known the manager/CEO, have hit the credit union trade press with NCUA liquidating the credit union as “insolvent” with not hope of returning to financial soundness.
As local and nearby small credit unions disappear (liquidation, voluntary merger, or NCUA ‘assisted’ merger), the importance of statewide, regional and national affiliations becomes more important.
For its part, the National Credit Union Administration (NCUA) seems to be trying, in some degree anyway, to offer assistance to small credit unions. In the last month, I attended an NCUA workshop in Richmond and a CEO “Bootcamp” for small credit unions in Alexandria.
Credit Unions of all types and sizes are affected by laws and regulations of almost every level of government. When you vote,whether it is a general election or primary, consider each candidate’s attitude towards credit unions and credit union members. Locally in Northern Virginia, on June 12, 2012, registered voters can vote in the Republican primary to select the Republican candidate in the November general election for the United States Senate. In the 8th Congressional District, registered voters could also choose to vote in the Democratic Primary to select the Democratic candidate in the November general election for the U.S. House of Representatives. Where there are both Republican and Democratic primaries in Virginia on the same day, voters may vote in either primary, but not both.
A few years ago, there were many credit unions (presumably associated with Catholic organizations named Our Lady Queen of Peace,or something similar). There was one in Ohio and one in Washington DC at Our Lady Queen of Peace in Washington DC. Now,we (Queen of Peace Arlington Federal Credit Union at Our Lady Queen of Peace Catholic Church in Arlington, Virginia) are the only Queen of Peace credit union left.
One side effect of the avalanche of regulatory and compliance changes all credit unions face in the last few years is member perception and reaction to such required actions by the credit union. Since we are small (fewer than 500 members and about $2 million assets) and have limited services (no member checking, for example), we can not reach “statistically significant” conclusions, but we certainly must deal with member reaction to required actions we must take.
Even though we are federally chartered, we are subject to state (Virginia) laws and regulations on “abandoned” property. Generally speaking, a savings account with no activity for over 5 years must be turned over to the state. At our recend federal examination, our examiner noted (from the data download) that a number of accounts had no activity for over five years and hot us with required action to turn these over to Virginia. How stupid and a member has to “do something” to keep Virginia from taking their money!! Since I do not want to turn over the funds, I sent letters and notices to all members with inactive accounts over 3 years to “encourage” them to “do something”. Most members are very understanding of the requirement to comply with state law. One member, however, seemed upset with me that I would even consider sending her money to the state.
The new risk based pricing notices (full page) are now required for every loan (however good the rate) that does not get the “best” rate. Another misleading and useless piece of paper for us to produce, give the member, etc.
On January 1, we were required to have new (full 8/1/2 x 11″ two sided sheet) “Privacy Notices” sent every year to every member. The old 1/4 sheets were not in compliance. Nobody reads them, but it added 17 cents (next year will be 20 cents) to many statements sent to members that had multi-page quarterly statements. In our case, the member can not “opt out” of any information sharing — but we have to send these notices.
I suspect it will get worse. Elizabeth Warren and the new CFPB will have more ideas about changing many of the regulations we must deal with.
As I recently wrote to our two U.S. Senators, the burden on small credit unions of complying with laws, rules and regulations is sometimes overwhelming. In many (perhaps most) cases, this regulatory burden provides no benefits to our members.
On January 1, 2011 we had to comply with two new regulatory requirements. The first change was for our annual “Privacy Notices” where we provide members with information about information sharing. A “Privacy Notice” has been required for several years and must be given on request, when an account is opened and sent annually to all members. We send the notice with the December31 statements. In the past, this notice was on a 1/4 sheet insert. In our case, we are not sharing information such that the member has any “right” to opt out of such sharing. With the new requirements to have bigger print and lots of “white space”, our notices are two sides of a full 8 1/2 x 11″ sheet. This is more paper, more ink to print and more postage for a few members with several pages on the statement. More work, more cost — and no benefit!
The second change that went into effect January 1 was the “Risk based Pricing Notice”. Since we have different loan interest rates based on the member’s credit score, we are required to give this full page (big print, lots of “white space”) notice to eeryine who does not get the lowest rate. Another piece of paper, ink, and work/cost! This information is already available to borrowers. Our pricing is fully disclosed on our web site and is available to members upon request.
Multiply these two requirements many, many times over and you get an idea of the regulatory burden on small credit unions.
As Treasurer/CEO of a credit union whose Field of Membership is still with a single “sponsor”, that is a church and that our office is in a parish Ministry Center (open on weekends convenient to those attending church), I am often asked. “Why does a church have a credit union?” I also hear, “I never heard of a church with a credit union.”
There are still many hundreds of faith based credit unions in the U.S. Perhaps, a few years ago, there may have been thousands. The first credit union in North America was founded in Quebec, Canada about 1900, based on Catholic Social teaching. The first U.S. credit union was started about ten years later at St.Mary’s Catholic Church in Manchester, NH. The parishioners of St. Mary’s were predominantly French-speaking immigrants from Canada.
Our credit union’s web site has more information about church or faith based credit unions http://qpafcu.com/7439.html
These are, indeed, perilous times for small (and very small) credit unions. In almost all cases, small credit unions get no “break” on the ever-changing regulatory compliance hurdles.
Yet, in my opinion, these are the very times when the personalized “know your member” service that small credit unions can deliver is most needed. Many “mainstream” credit unions, for example, run most of their loan applications through a very mechanical process that ends up with many denials, even though the member would be very likely to repay the loan.
Individuals and organizations with checking, savings share certificate or CD accounts should make sure that their “safe” money is held in account(s) backed by the full faith and credit of the United States Government. They should not just rely on a sticker on the door of the bank or credit union that the funds are federally insured. They should independently verify that the institution is federally insured and that their funds are safe.
How can they do that?
All federally chartered U.S. credit unions and almost all state chartered credit unions are federally insured by NCUA to at least $250,000 per account. The Queen of Peace Arlington FCU, for example, is federally chartered and insured. To independently verify such coverage for a credit union, go to http://www.ncua.gov/, the web site of the National Credit Union Administration (NCUA), which provides federal insurance for credit unions. Under “Find a Credit Union”, you can locate any federally insured credit union and verify such insurance. The main page of the NCUA web site has links to detailed information about federal insurance for credit unions and a calculator that can help you verify that your savings are safe in an NCUA insured credit union.
For banks and thrifts, you can verify insurance through the FDIC (Federal Deposit Insurance Corporation) at http://www.fdic.gov/. Click on the links there to verify that a bank is FDIC insured. There are links on the main page to callculators to verify that your savings are safe in an FDIC insured bank or thrift.
NCUA and FDIC (both agencies of the US Government) provide identical (or nearly identical) coverage and both are equally and fully backed by the full faith and credit of the United States Government.
Welcome to this BLOG, posted by Dan Morrisey, Treasurer/CEO of the Queen of Peace Arlington Federal Credit Union in Arlington, Virginia. http://www.qpafcu.com/
Please send any comments, questions, etc. to me at the credit union email, email@example.com