51st Annual DCUC Conference Showcase - August 2014 (2) [Read … · • 2014 Regulatory Review...

National Association of Federal Credit Unions l www.nafcu.org

Presented By: B. Dan BergerPresident & Chief Executive Officer

National Association of Federal Credit Unions

51st Annual Defense Credit Union Council Conference & Showcase

August 2014


LEGISLATIVE AFFAIRS


Legislative Issues

• Regulatory Relief: NAFCU's Five-Point Plan

• Credit Union Tax Exemption

• Capital Reform

• Interchange Fees

• Annual Privacy Disclosure Notices

• Member Business Lending

• Defense Credit Union Issues

• Privately Insured CUs

• Housing Finance Reform

• Supplemental Capital

• ATM Disclosures

• Data Security

• Cybersecurity

• Flood Insurance

• CFPB Improvements

• IOLTA


Housing Finance Reform-“Fixing” Fannie Mae and Freddie Mac

• The Housing Finance Reform and Taxpayer Protection Act, S. 1217 (TheCorker-Warner bill), is the basis for a bipartisan agreement announced bySenate Banking Chairman Tim Johnson and Ranking Member Crapo onMarch 11, 2014. In May this bill was voted out of Committee by a 13-9 vote.

• Divided Committee vote makes any floor action unlikely this year; long-termoutlook may depend on results of 2014 elections

• In November 2013, NAFCU testified before the Banking Committee onhousing finance reform issues from a small lender perspective.

• In July 2013, NAFCU testified before the HFSC on the committee’s housingfinance reform bill - The PATH Act.

• Preserving a government guarantee, access to the secondary market andfair pricing based on loan quality are key principles for NAFCU.


Data Security - Making the Merchants do Their Part

• Key component of NAFCU’s five-point plan

• NAFCU was the first financial services trade association to weigh in on this issue on Capitol Hill in the wake of the Target breach

• NAFCU continues to weigh in with key members of Congress and respond to merchant attacks


Data Security

• Items NAFCU would like to see addressed in any comprehensive data security bill include:

⎯ Payment of Breach Costs by Breached Entities

⎯ National Standards for Safekeeping Information

⎯ Data Security Policy Disclosure

⎯ Disclosure of Breached Entity

⎯ Enforcement of Prohibition on Data Retention

⎯ Notification of the Account Servicer

⎯ Burden of Proof in Data Breach Cases


Credit Union Tax Exemption

• February 26, 2014 - House Ways and Means Chairman Dave Camp (R-MI)released a much anticipated tax reform discussion draft that would preservethe credit union federal tax exemption and federal credit unions’ treatmentas it relates to UBIT.

• New Chairman Ron Wyden (D-OR) of Senate Finance has indicated thattax extenders will be the focus, likely pushing any tax reform discussion to2015 or beyond.

• Chairman Wyden has also expressed his support for the credit union taxexemption.

• NAFCU released a new updated 2014 tax study in February.


Key Action

• Regulatory Relief

– Credit Union Interest on Lawyer’s Trust Accounts bill passes House; bill recently introduced in the Senate

– Bill to eliminate duplicative privacy disclosures passed House, under consideration in Senate; pending CFPB proposal on regulatory side

– Bill to provide relief on QM “points and fees” passes House

• MBL

– Introduction of H.R. 4226, the “Credit Union Residential Loan Parity Act”

– Introduction of H.R. 5061 to exclude extensions of credit made to veterans from the definition of a member business loan.

• Regulators hearing held on reducing regulatory burden

• Meeting with Lawmakers on NCUA’s Risk Based Capital proposal; NCUA likely to testify before Senate Banking on September 16, 2014.


REGULATORY AFFAIRS/ REGULATORY COMPLIANCE


March 3, 2014

• Credit Unions Authorized to Engage in Limited Derivative Transactions

March 15, 2014

• New Annual Reporting Requirement for Dividends Paid to Certain Non-Resident Aliens (if more than $10 paid in 2013)

March 31, 2014

• Liquidity and Contingency Funding Plans

May 30, 2014

• Annual Stress Testing for Federally-Insured Credit Unions with $10 Billion or More in Assets and Annual Submission of Capital Plans to NCUA

Compliance Deadlines


June 30, 2014

• CUSO Reporting

July 8, 2014

• Ability-to-Repay Rule in Situations Involving Successors-in-Interest

July 28, 2014

• Voluntary Liquidation

December 15, 2014

• For credit unions over $10 million in assets, ability to elect alternative accounting test for measuring goodwill; amortizes goodwill on a straight-line basis over the useful life (not to exceed 10 years).

August 1, 2015

• Implementation of the new TILA/RESPA, easier-to-use integrateddisclosures at application and at closing.

Compliance Deadlines


NCUA

• Risk Based Capital

− Proposed rule to revise calculation of net worth within currentstatutory capital and prompt corrective action (PCA) requirements.

− Would revise the risk-weights for many of NCUA’s current assetclassifications and require higher minimum levels of capital forfederally-insured natural person credit unions with concentrationsof assets in real estate loans, member business loans (MBLs) orhigher levels of delinquent loans.

− Would set forth a process where the NCUA Board could require anindividual federally-insured natural person credit union to holdhigher levels of risk-based capital based on supervisory concernsraised by agency examiners.

− Final Rule expected by year end.

Active Regulatory Issues


NCUA

• 2014 Regulatory Review

− NCUA conducts an annual review of one-third of its existing regulations. NAFCU is closely reviewing the list of regulations being reviewed.

− Of interesting note in this year’s list, § 748 Security Program, Report of Suspected Crimes, Suspicious Transactions, Catastrophic Acts and Bank Secrecy Act Compliance.

• Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) ‒ This is the second time NCUA chose to participate. EGRPRA

requires agencies to publish notice of all its Rules and Regulations by category and invite comment on which rules are outdated, unnecessary, or unduly burdensome.

‒ The last time NCUA did this review was in 2003 through 2006, when they did that they did a series of comment periods for categories of regulations.




NCUA

• Associational Common Bonds

− Proposed amendments to the associational common bond provisions ofits Chartering and Field of Membership manual.

− Amendment seeks to:

− Establish a threshold requirement that an association not be formed primarily for the purpose of expanding credit union membership.

− Expand the “totality of the circumstances” test by adding an eighth factor regarding corporate separateness.

− Grant automatic qualification to certain categories of groups.



NCUA

• Fixed Assets

− Proposal would relieve federal credit unions (FCUs) from the current requirement to obtain a waiver from NCUA to exceed the five percent aggregate limit on investments in fixed.

− FCUs wishing to exceed the five percent aggregate limit could do so, without prior agency approval, but must implement a Fixed Assets Management with program: (1) a written board policy; (2) board oversight; and (3) ongoing internal controls.

− Proposal would also make several changes to the rule’s occupancy requirements.


NCUA• Civil Money Penalties for Late Call Reports and Profile Submissions

- 62 credit unions subject to civil money penalties for the late filing of their first-quarter Call Reports.

- The late filers will pay a total of $57,750 in penalties. Individual penalties range from $150 to $20,000.

- The median fine was $243.

Additional Regulatory Issues


NCUA• Bylaws

− Last updated in 2007.

− NCUA is expected to issue an updated version in 2014.

− NAFCU has conducted a thorough review of the current Bylaws with our members and submitted specific recommendations to NCUA.

Provide greater flexibility for credit unions in their elections process.

Clarify how FCUs may limit services to members who are disruptive or use the FCU’s services in furtherance of illegal purposes.

Amend how NCUA interprets membership requirements in the trust context.

Reflect that credit unions are allowed approve loans through technology services.




NCUA• Member Business Lending

− NAFCU has strongly advocated to the NCUA Board to improve its MBL requirements, including creating an exception to the MBL cap for credit unions with a history of making MBLs, and easing the process for obtaining waivers.

• NAFCU’s “Dirty Dozen” List of Regulations to Eliminate or Amend

• Letters to NCUA’s Board

• NCUA Board Member Fryzel’s Editorial in Support of MBL Changes

• NAFCU’s Response – Berger Letter to the Editor


NCUA• Freedom of Information Act (FOIA) Requests:

− October 31, 2013 - request related to the settlement of lawsuits and its application to the NCUSIF and the Temporary Corporate Credit Union Stabilization Insurance Fund.

− January 24, 2014 - request related to the NCUSIF expenses.

− February 28, 2014 - request related to the Central Liquidity Fund and all Board-approved NCUA operating budgets expenses.



CFPB• Home Mortgage Disclosure Act (HMDA)

− Proposal would make several substantive changes to Regulation C,including:

• Change the coverage test• Cover more transactions• Require reporting additional data points• Mandate quarterly reporting for some institutions• Incorporate more official commentary for clarification

Under the proposed coverage test, credit unions that originated 25covered loans, excluding open-endlines of credit, or less in the priorcalendar year would be exempt from reporting requirements.

Would make HELOC reporting mandatory.

Making Dodd-Frank required changes but also proposing to addmore data points beyond those mandated by statute.

• Changes would not take effective until a final rule. Expected in 2015.




CFPB• Privacy

- Proposed amendments to Regulation P that would allow credit unions, under certain conditions, to post their annual privacy notices online rather than delivering them individually

- Credit unions that choose to rely on this new method of delivering privacy notices would be required to use the model disclosure form developed by federal regulatory agencies in 2009

- Credit unions that share information with non-affiliated third parties would still be required to deliver their notices individually.


CFPB• Enforcement Actions

− Federal Financial Consumer Laws

• Credit Scores on Credit Card Statements

− Certain credit card companies are disclosing credit scores onmonthly consumer statements (Ex. Discover). At a CFPBConsumer Advisory Board (CAB) meeting Director Cordrayannounced that while he encourages the practice, it is strictlyvoluntary.

• eClosings pilot program

- Aimed at helping consumers streamline the residential real estateclosing process by eliminating the need for many of the forms tobe completed by hand and allowing the process to be moreelectronic, thus giving consumers more time to review andunderstand the paperwork.




CFPB• Payday Lending

− Released white paper in 2013 and held field hearing and credit union roundtable in 2014.

− Rulemaking expected in 2014.

• Student Lending

− The CFPB has repeatedly linked student loan debt to smaller homeownership rates.

− The CFPB is starting to reach out to industry about possible rulemaking in this space in the coming months.


CFPB • CFPB Consumer Complaint Database Narratives

- The Consumer Financial Protection Bureau (CFPB) has issued a proposed policy statement regarding disclosure complaint narrative data.

- Under the proposal, the CFPB would expand their current complaint database to include unstructured consumer complaint narrative data (narratives).

- As with the database currently, the disclosures will only be made regarding issuers under the CFPB’s authority, i.e., those with more than $10 billion in assets.

- Only those narratives from consumers who opt-in and give their consent to use their narratives will be used.

- All narratives will be scrubbed of information that would make the consumer identifiable.

- Companies such as credit unions would be able to submit a narrative response for inclusion in the consumer complaint database.


CFPB Fun Facts

1,624 employees + No accountability + Unlimited Financial Resources + Focus on Enforcement = Potential problems for credit unions

Witch hunt to justify their existence.

And everything done under a veil of secrecy.

Annual Budget is approximately $570,000,000.


NAFCU RESEARCH


Number of Institutions

Source: NCUA, FDIC

6,000

7,000

8,000

9,000

10,000

11,000FICUs Banks


Mergers^

^ Assisted and unassisted* Annualized through MarchSource: NCUA Data Query 2 (Chartering Events)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

0

50

100

150

200

250

300

350

400

Mergers (left axis)Mergers, as % of total FICUs (right axis)Merged Assets, as % of total assets (right axis)


Source: NCUA 5300 Call Report

FICUs

FICU Mortgage Lending

0%

10%

20%

30%

40%

50%

60%

$0$20$40$60$80

$100$120$140$160

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Q1

Bill

ions

First Mortgage Originations ($)Total Originations ($)Percent of First Mortgages Sold in Secondary Market (%)


Failed Financial Institutions

* Annualized through MarchSource: NCUA Share Insurance Reports and Statements, FDIC Failed Bank List

As Percent of Total Institutions

0.22% 0.36% 0.37%0.22% 0.31% 0.25%

0.37%0.29%

1.69%

1.96%

1.20%

0.69%

0.34%0.47%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2008 2009 2010 2011 2012 2013 2014*

NCUA FDIC


Problem Institutions*

* Those with a CAMEL rating of 4 or 5Source: NCUA Share Insurance Reports and Statements, FDIC Quarterly Banking Profile

240 211271

351 365409

369307 306

50 76

252

702

884813

651

467411

0100200300400500600700800900

1,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1

NCUA FDIC


Credit Union Growth by Asset Size


$261

$51

$19

$142

$147

$69

$36

$64

$33

$130

$54

$83

$648

$153

$42

$297

$374

$195

$77

$166

$82

$299

$138

$206

0 200 400 600 800

AK

AL

AR

AZ

CA

CO

CT

DC

DE

FL

GA

GU

$56

$27

$42

$37

$56

$23

$34

$20

$71

$97

$45

$66

$65

$43

$127

$103

$159

$111

$122

$56

$88

$46

$159

$205

$101

$158

$140

$92

0 200 400 600 800

HI

IA

ID

IL

IN

KS

KY

LA

MA

MD

ME

MI

MN

MO

$19

$29

$117

$21

$29

$95

$34

$70

$121

$52

$29

$64

$92

$29

$55

$76

$470

$80

$54

$300

$64

$176

$159

$165

$79

$181

$245

$79

0 200 400 600 800

MS

MT

NC

ND

NE

NH

NJ

NM

NV

NY

OH

OK

OR

PA

$28

$92

$62

$22

$43

$65

$66

$156

$10

$37

$119

$41

$18

$30

$53

$237

$155

$64

$114

$159

$219

$594

$19

$139

$345

$149

$34

$80

0 200 400 600 800

PR

RI

SC

SD

TN

TX

UT

VA

VI

VT

WA

WI

WV

WY

Credit Unions by State

Source: NCUA 5300 data

Average Assets 2003 2013


Source: NCUA Financial Performance Report

FICU Delinquency and Net Charge-Off Ratios

FICU Performance Trends

1.74%1.60%

1.16%1.01%

0.81%

1.13%

0.91%

0.73%

0.57%0.50%

0.0%

0.5%

1.0%

1.5%

2.0%

2010 2011 2012 2013 2014 Q1

Delinquency Ratio Net Charge-Off Ratio


Delinquency Ratios as of March 31, 2014

Source: NCUA Call Report & FDIC Quarterly Banking Profile. Credit union delinquencies are reported as 2 months or more past due. FDIC delinquencies are reported 90 days or more past due.

FICU Performance Trends

0.90% 0.69% 0.91% 0.86% 0.53% 0.81%

4.16%

2.70%

6.85%

1.21%

0.25%

2.46%

0%

1%

2%

3%

4%

5%

6%

7%

8%

All Real EstateLoans

Home EquityLoans

FirstMortgages

Credit Cards Auto Loans Total Loans &Leases

Del

inqu

ent L

oans

/ To

tal L

oans

All FICUs FDIC-Insured


Credit Union Member Business Loan Growth vs. Bank Small Business Loan Growth*

Member Business Loans

16.2%

23.0%

15.4%

8.2%4.7% 5.2%

7.5% 8.6%

-10%

-5%

0%

5%

10%

15%

20%

25%

Credit Unions Banks

Credit union member business loans grew 92.5 percent since 2007, while bank lending to small businesses shrank 13.8 percent.

* As defined by FDIC “Consolidated Report of Condition and Income” (generally those under $1 million)

Note: The final figure is annualized growth from June 2013 through March 2014. All prior years show June-to-June growth.

Source: NCUA 5300 call report, FDIC “Statistics on Banking”


CONSUMER AND MOBILE BANKING


Federal Reserve March 2014

Usage of Mobile Banking and Mobile by Mobile Phone Types

51%

33%

24%

17%

6%

3%

Used mobile banking in the past 12 months: smartphone

Used mobile banking in the past 12 months

Used mobile payments in the past 12 months: smartphone

Used mobile payments in the past 12 months

Used mobile banking in the past 12 months: feature phones

Used mobile payments in the past 12 months: feature phones

Consumer and Mobile Financial Services


U.S. Smartphone and Tablet Penetration

comScore MobiLens and TabLens, Age 13+

0E+00

2E-01

4E-01

5E-01

7E-01

Jan2011

Apr2011

July2011

Oct2011

Jan2012

Apr2012

July2012

Oct2012

Apr2013

July2013

Oct2013

Oct2013

Dec2013

65%

34%

70%

50%

30%

10%

Smartphone

Tablet


33

48

64

80

96

2012 e2013 e2014 e2015 e2016

Source: Aite Group

Mobile Banking Users in the U.S.

2012 to e2016(in millions)


U.S. Mobile Banking Users

18% 19%

29%

33%

38%

42%

46%

51%

0%

15%

30%

45%

60%

2009 2010 2011 2012* 2013* 2014* 2015* 2016*

Sources: MCUL, ProfitStars@ Statista 2014

2009-2016 Estimate


March 2014

Percentage of FICUs Offering. . .

73%Home banking via internet website

Automatic Teller Machines (ATM)

Online loan payments

e‐Statements

Mobile banking

Remote deposit capture

Online bill payment

Mobile payments

Kiosks

72%

68%

63%

59%

39%

14%

7%

6%


Electronic Financial Services


March 2014

Number of FICUs Not Offering. . .

1,741Home banking via internet website

Automatic Teller Machines (ATM)

Online loan payments

e‐Statements

Mobile banking

Remote deposit capture

Online bill payment

Mobile payments

Kiosks

1,823

2,102

2,401

2,646

3,987

5,614

6,018

6,117




Federal Reserve March 2014

34%

28%

25%

19%

15%

Compare prices when shopping

Track your finances

Receive and manage discount offers and coupons

Organize, track and store gift cards, memberships, loyalty and reward points

Receive offers and promotions based on your location


Would You Use Your Mobile Phone for Any of the Following Purposes?


“The bottom line: credit unions are failing to engage millennials online. This is one of the main reasons why millennials are the least likely demographic to join credit unions, despite sharing common philosophical values.”

The Financial Brand

Engaging Millennials


Products and Services

* Short-term, small amountSource: NCUA 5300 Call Report

11.3%

10.6%

15.5%

17.5%

24.0%

28.4%

30.5%

65.6%

70.8%

0% 10% 20% 30% 40% 50% 60% 70% 80%

STS* Loans (FCU Only)Micro Business Loans

Micro Consumer LoansApproved Mortgage Seller

Participation LoansIndirect Lending

Member Business LoansRisk Based LoansReal Estate Loans

2013 Q1 2014 Q1

Loan ProductsPercent of FICUs offering…




16.1%22.9%

34.6%45.5%46.0%46.1%

51.0%55.0%55.3%

66.8%75.0%

0% 10% 20% 30% 40% 50% 60% 70% 80%

International RemittancesMortgage Processing

Share Secured Credit CardsOverdraft Lines of Credit

Overdraft Protection/Courtesy PayNo Surcharge ATMs

Money OrdersNo Cost Bill Payer

Check CashingLow-Cost Wire TransfersATM/Debit Card Program

2013 Q1 2014 Q1

Transaction ServicesPercent of FICUs offering…




5.7%

6.9%

11.3%

18.4%

19.5%

20.1%

26.9%

28.3%

31.4%

31.7%

0% 5% 10% 15% 20% 25% 30% 35%

In-School BranchesDebt Cancellation/Suspension

First Time Homebuyer ProgramFinancial Literacy Workshops

Bilingual ServicesCredit Builder

Student ScholarshipsInsurance/Investment Sales

Financial CounselingFinancial Education

2013 Q1 2014 Q1

Consumer Products & ServicesPercent of FICUs offering…


The Future

Technology, Technology, Technology…

Loan Growth

Share of Wallet Growth

Membership Growth


Presented By: B. Dan BergerPresident & Chief Executive Officer

National Association of Federal Credit Unions

51st Annual Defense Credit Union Council Conference & Showcase

August 2014

51st Annual DCUC Conference Showcase - August 2014 (2) [Read … · • 2014 Regulatory Review...

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Transcript of 51st Annual DCUC Conference Showcase - August 2014 (2) [Read … · • 2014 Regulatory Review...