Concentrations, CECL and cannabis banking top regulatory priorities
April 17, 2019 10:59 AM
First day of NCUCA conference
The National Credit Union Collections Alliance on Tuesday kicked off its annual conference in Las Vegas with a look at what credit unions can expect from the new National Credit Union Administration board, a lawyer’s view of the federal regulator’s priorities in 2019, some good news on the U.S. economy, and, naturally, some best practices on collections.
Here are some highlights of the first full day of the NCUCA conference.
Here are some highlights of the first full day of the NCUCA conference.
Diana Dykstra, CEO of the California and Nevada Credit Union Leagues
Taxation threats on the state level and the potential for a jump in mortgage rates if the secondary mortgage market is privatized have Diana Dykstra worried, but she also is keeping an eye on the new members on the NCUA board .
Dykstra, who serves as president and CEO of the California and Nevada Credit Union Leagues, was the lead keynote Tuesday morning at the NCUCA conference at the Bellagio Hotel in Las Vegas. She told attendees she was “stunned” when President Donald Trump named newNCUA board member Rodney Hood as chairman in place of Mark McWatters, whose term expires in August.
After years of bipartisan cooperation between McWatters and now former board member Rick Metsger, Dykstra predicted a different atmosphere going forward.
“Todd Harper is a Democrat, while Rodney Hood is a Republican, so you have two polar opposites on the board,” she said. “I fear it will take time while the two new members find some commonality.”
Credit unions should be aware that NCUA’s top exam priorities in the year ahead will be credit concentration and demonstrating a preparedness for the current expected credit losses standard, or CECL. Dykstra warned CUs that they must have calculated an estimated reserve requirement under CECL compared to present rules.
“When CECL comes into play all credit unions will take a huge hit to their capital,” she said, adding that the implementation of CECL in 2022 “seems like a long way away, but it will come quickly.”
CUs that offer mortgages would be wise to watch Washington, D.C., where there is adebate about the future of government sponsored enterprises Fannie Mae and Freddie Mac. Dykstra said there is a significant segment of Congress that wants nothing to do with government-backed mortgages.
“There is a possibility the secondary mortgage market will be privatized,” Dykstra said. “For credit unions, this could mean an inability to offer mortgages to your members. It will increase mortgage rates significantly.”
Dykstra said she is “most concerned” about taxation threats. She noted CUs inseveral states are fighting tax battles , including Utah, Minnesota and Nebraska.
“The bankers have figured out they are never going to win in Washington, D.C., so they are going after credit unions on the state level. This is a really scary situation,” she said. “Some are saying it is okay to tax the 350 largest credit unions as long as they leave the rest of us alone, but we are a cooperative movement. If those 350 credit unions go away, so do all credit unions.”
Dykstra, who serves as president and CEO of the California and Nevada Credit Union Leagues, was the lead keynote Tuesday morning at the NCUCA conference at the Bellagio Hotel in Las Vegas. She told attendees she was “stunned” when President Donald Trump named new
After years of bipartisan cooperation between McWatters and now former board member Rick Metsger, Dykstra predicted a different atmosphere going forward.
“Todd Harper is a Democrat, while Rodney Hood is a Republican, so you have two polar opposites on the board,” she said. “I fear it will take time while the two new members find some commonality.”
Credit unions should be aware that NCUA’s top exam priorities in the year ahead will be credit concentration and demonstrating a preparedness for the current expected credit losses standard, or CECL. Dykstra warned CUs that they must have calculated an estimated reserve requirement under CECL compared to present rules.
“When CECL comes into play all credit unions will take a huge hit to their capital,” she said, adding that the implementation of CECL in 2022 “seems like a long way away, but it will come quickly.”
CUs that offer mortgages would be wise to watch Washington, D.C., where there is a
“There is a possibility the secondary mortgage market will be privatized,” Dykstra said. “For credit unions, this could mean an inability to offer mortgages to your members. It will increase mortgage rates significantly.”
Dykstra said she is “most concerned” about taxation threats. She noted CUs in
“The bankers have figured out they are never going to win in Washington, D.C., so they are going after credit unions on the state level. This is a really scary situation,” she said. “Some are saying it is okay to tax the 350 largest credit unions as long as they leave the rest of us alone, but we are a cooperative movement. If those 350 credit unions go away, so do all credit unions.”
Bruce Pearson, senior partner at Styskal, Wiese & Melchione
The NCUA always makes credit unions aware of its regulatory priorities, but Bruce Pearson says CUs need to read between the lines to determine what the federal regulator is “really” looking for.
Pearson, a senior partner with the Glendale, Calif.-based law firm of Styskal, Wiese & Melchione, spoke at the NCUCA conference on NCUA’s regulatory priorities, starting with the Bank Secrecy Act. He said a credit union receiving a document of resolution, which identifies issues found at the institution and outlines a corrective plan, is “not a big deal, but getting a repeat finding is.”
“BSA has been an NCUA focus for several years now,” he said. “As you are talking to examiners about last year’s DOR, you want to get those issues cleared.”
Besides wanting to ensure the safety and soundness of the credit union system, Pearson said NCUA is motivated partly by fear. With the closing of the regulator of thrifts, NCUA is the last “independent” regulator. He said it wants to avoid any possibility of money laundering on its watch, which could lead to Congressional oversight.
Similarly, NCUA has concernsregarding cannabis banking , Pearson said. To avoid potential issues, CUs need to know their customers and comply with anti-money laundering rules.
Since adult recreational use was legalized in California, cannabis was the No. 1 cash crop in the state. Pearson said the cash is flowing through financial institutions via legitimate companies such as car washes, dry cleaners, laundromats and other cash-heavy businesses.
“Whether we acknowledge it or not, we are all handling cannabis cash,” he said. “In some cases we are pretending we don’t know, but we are not looking very hard. You are going to have to sort through how you service cannabis-related businesses, one way or another.”
The second NCUA priority for 2019 is lending concentration risks. Pearson said the next recession is near, and NCUA wants to be out front this time after learning a painful lesson.
Credit unions need to be looking at indirect loans, especially non-prime auto loans, along with taxi medallions and mortgages. In some cases credit unions have bought participations in taxi medallion loans, Pearson noted.
The third focus for NCUA in 2019 is consumer compliance. Between the collection and reporting of HMDA data, the Military Lending Act, the Equal Credit Opportunity Act and overdrafts, there is significant class action exposure. Pearson said CUs should examine their courtesy pay disclosures and program practices.
“If your disclosures are vague and those disclosures are posted on your website in an attempt to be transparent, know that plaintiffs’ law firms are shopping by reading your disclosures,” he warned. “I know this will not be popular with marketing, but get those disclosures off your website, please. They are not legally required to be there.”
Pearson, a senior partner with the Glendale, Calif.-based law firm of Styskal, Wiese & Melchione, spoke at the NCUCA conference on NCUA’s regulatory priorities, starting with the Bank Secrecy Act. He said a credit union receiving a document of resolution, which identifies issues found at the institution and outlines a corrective plan, is “not a big deal, but getting a repeat finding is.”
“BSA has been an NCUA focus for several years now,” he said. “As you are talking to examiners about last year’s DOR, you want to get those issues cleared.”
Besides wanting to ensure the safety and soundness of the credit union system, Pearson said NCUA is motivated partly by fear. With the closing of the regulator of thrifts, NCUA is the last “independent” regulator. He said it wants to avoid any possibility of money laundering on its watch, which could lead to Congressional oversight.
Similarly, NCUA has concerns
Since adult recreational use was legalized in California, cannabis was the No. 1 cash crop in the state. Pearson said the cash is flowing through financial institutions via legitimate companies such as car washes, dry cleaners, laundromats and other cash-heavy businesses.
“Whether we acknowledge it or not, we are all handling cannabis cash,” he said. “In some cases we are pretending we don’t know, but we are not looking very hard. You are going to have to sort through how you service cannabis-related businesses, one way or another.”
The second NCUA priority for 2019 is lending concentration risks. Pearson said the next recession is near, and NCUA wants to be out front this time after learning a painful lesson.
Credit unions need to be looking at indirect loans, especially non-prime auto loans, along with taxi medallions and mortgages. In some cases credit unions have bought participations in taxi medallion loans, Pearson noted.
The third focus for NCUA in 2019 is consumer compliance. Between the collection and reporting of HMDA data, the Military Lending Act, the Equal Credit Opportunity Act and overdrafts, there is significant class action exposure. Pearson said CUs should examine their courtesy pay disclosures and program practices.
“If your disclosures are vague and those disclosures are posted on your website in an attempt to be transparent, know that plaintiffs’ law firms are shopping by reading your disclosures,” he warned. “I know this will not be popular with marketing, but get those disclosures off your website, please. They are not legally required to be there.”
Cristian deRitis, deputy chief economist for Moody’s Analytics
With all the doom-and-gloom predictions of a pending recession, Cristian deRitis offered a bit of good news.
The deputy chief economist for Moody’s Analytics said the current American economy was strong, and overall, households look “financially healthy.” Last year disposable income per capita grew 4.3% and household net worth surpassed $100 trillion. Household debt reached $15 trillion at the end of 2018, up 3.1% during the year.
“It is always good to be concerned about debt, especially since it is a record high, but growth of debt was not as fast as income, so households are in pretty good shape,” deRitis said.
As of December, there were 7.1 million job openings for 6.2 million unemployed people, he noted. An average of 150,000 jobs are added every month, while unemployment is down to 3.9%. The top four categories for available jobs are professional services, health care, leisure and hospitality and retail trade, demonstrating how the U.S. has become a service-oriented economy.
Half of near-retirees – people ages 60 to 64 – have less than $40,000 saved toward retirement. That means many in this group won’t be able to retire at 65, deRitis said.
Although household debt reached $15 trillion in 2018, a new record, deRitis said inflation-adjusted debt per household is lower than the peak reached in 2008.
“Debt-to-income ratio is much lower than it was in 2008 [to 2009],” he said. “The overall debt level is not as important as the ability to make the monthly payment. Overall household debt service levels are sustainable. However, debt service ratios vary across geographies.”
The growth of household debt is expected to slow in 2019, while payment performance is expected to stay strong in the year ahead, according to projections by Moody’s. There isweakness in auto loans in terms of number of delinquent accounts , but deRitis said the auto loan market is larger.
“The percentage of auto loans 30-plus days delinquent is falling,” he reported.
The deputy chief economist for Moody’s Analytics said the current American economy was strong, and overall, households look “financially healthy.” Last year disposable income per capita grew 4.3% and household net worth surpassed $100 trillion. Household debt reached $15 trillion at the end of 2018, up 3.1% during the year.
“It is always good to be concerned about debt, especially since it is a record high, but growth of debt was not as fast as income, so households are in pretty good shape,” deRitis said.
As of December, there were 7.1 million job openings for 6.2 million unemployed people, he noted. An average of 150,000 jobs are added every month, while unemployment is down to 3.9%. The top four categories for available jobs are professional services, health care, leisure and hospitality and retail trade, demonstrating how the U.S. has become a service-oriented economy.
Half of near-retirees – people ages 60 to 64 – have less than $40,000 saved toward retirement. That means many in this group won’t be able to retire at 65, deRitis said.
Although household debt reached $15 trillion in 2018, a new record, deRitis said inflation-adjusted debt per household is lower than the peak reached in 2008.
“Debt-to-income ratio is much lower than it was in 2008 [to 2009],” he said. “The overall debt level is not as important as the ability to make the monthly payment. Overall household debt service levels are sustainable. However, debt service ratios vary across geographies.”
The growth of household debt is expected to slow in 2019, while payment performance is expected to stay strong in the year ahead, according to projections by Moody’s. There is
“The percentage of auto loans 30-plus days delinquent is falling,” he reported.
Collections best practices panel
During a discussion on collections best practices, panelists urged attendees to think about hiring employees with a focus on member service and utilizing a team approach.
Jose Iregui, vice president of collections for Langley Federal Credit Union in Newport News, Va., led off the discussion with a focus on risk-based collections. He suggested credit unions measure portfolio performance by loan product using programs offered by vendors such as FICO or Experian.
“Identify which accounts are unlikely to pay, and which ones have an adequate collectability score,” Iregui said.
Jamie Adams, AVP of loan servicing and collections for Silver State Schools Credit Union in Las Vegas, stressed the importance of collecting only on those debts that can be validated. She said collections departments are about compliance, technology and the skillset of their collectors.
“For compliance, be sure to follow all steps, send all the necessary letters and build a workflow,” she said, adding if the CU uses a third party the credit union still is required to make certain the vendor is following all steps for compliance. “Don’t even try to collect on a debt if you didn’t follow the steps and document.”
The No. 1 trait for collectors is the ability to overcome objections, Adams said.
“Many collections departments are looking to hire people with a collections background, but the best candidate might be a person with a sales background,” Adams added. “Because the credit union space is all about member service, you do not want a collections agent who is forceful.”
Dewayne Couch, vice president of collections for Navy Army Community Credit Union in Corpus Christi, Texas, has built his collections department on a team approach. He said having team-oriented goals improves member service because everyone is working toward a common goal.
“You want to drive results and drive behaviors,” he said. “We have developed a scorecard that breaks out 30-day, 60-day and 90-day buckets.”
Pictured left to right: Jose Iregui, vice president of collections for Langley Federal Credit Union in Newport News, Va.; Jamie Adams, AVP of loan servicing and collections for Silver State Schools Credit Union in Las Vegas; and Dewayne Couch, vice president of collections for Navy Army Community Credit Union in Corpus Christi, Texas.
Jose Iregui, vice president of collections for Langley Federal Credit Union in Newport News, Va., led off the discussion with a focus on risk-based collections. He suggested credit unions measure portfolio performance by loan product using programs offered by vendors such as FICO or Experian.
“Identify which accounts are unlikely to pay, and which ones have an adequate collectability score,” Iregui said.
Jamie Adams, AVP of loan servicing and collections for Silver State Schools Credit Union in Las Vegas, stressed the importance of collecting only on those debts that can be validated. She said collections departments are about compliance, technology and the skillset of their collectors.
“For compliance, be sure to follow all steps, send all the necessary letters and build a workflow,” she said, adding if the CU uses a third party the credit union still is required to make certain the vendor is following all steps for compliance. “Don’t even try to collect on a debt if you didn’t follow the steps and document.”
The No. 1 trait for collectors is the ability to overcome objections, Adams said.
“Many collections departments are looking to hire people with a collections background, but the best candidate might be a person with a sales background,” Adams added. “Because the credit union space is all about member service, you do not want a collections agent who is forceful.”
Dewayne Couch, vice president of collections for Navy Army Community Credit Union in Corpus Christi, Texas, has built his collections department on a team approach. He said having team-oriented goals improves member service because everyone is working toward a common goal.
“You want to drive results and drive behaviors,” he said. “We have developed a scorecard that breaks out 30-day, 60-day and 90-day buckets.”
Pictured left to right: Jose Iregui, vice president of collections for Langley Federal Credit Union in Newport News, Va.; Jamie Adams, AVP of loan servicing and collections for Silver State Schools Credit Union in Las Vegas; and Dewayne Couch, vice president of collections for Navy Army Community Credit Union in Corpus Christi, Texas.
