DES MOINES, Iowa — When it comes to compliance, fraud and risk, CUs this year should pay closer attention to their card rewards programs, how loans are being serviced and ramifications from data breaches.
Those findings bubbled up when CU Journal recently spoke with industry compliance and risk experts. Many cite the Consumer Financial Protection Bureau as the reason for growing CU attention in these areas.
1. All Eyes On CFPB
Andrea Stritzke, VP of regulatory compliance at PolicyWorks in Des Moines, Iowa, says as far as payments go, all eyes should be on the Consumer Financial Protection Bureau. "Credit unions should be paying attention to the potential impact of CFPB interest in credit card rewards, specifically in the area of disclosures."
In a report released last October, the CFPB identified credit card rewards disclosures as a main area of concern. The CFPB stated: "Many consumers are choosing their credit cards based on rewards programs. Rewards programs, however, can be highly complex, with detailed, confusing rules about how consumers can actually use their rewards. The bureau will review whether rewards disclosures are being made in a clear and transparent manner. The bureau will also assess whether additional action is warranted."
"The CFPB also indicated in the report that online disclosures are an area of concern, as well," said Stritzke.
2. Easy-To-Redeem Rewards
Brandon Kuehl, product manager at The Members Group, Des Moines, Iowa, emphasized that regulator interest in rewards underscores the need for clear, easy-to-redeem programs. "Not just because it's the right thing to do, but because it encourages use of rewards," he said. "Credit unions want a rewards program with heavy redemption because it means they are delivering a product their cardholders truly value. And redemption does not always have to equal added expense. In the case of merchant-funded rewards, for instance, redemption costs are covered by retailers."
Kuehl said the CFPB's specific attention to online disclosures is "interesting" because it indicates regulators are taking the full consumer experience into consideration as they work to protect them. "We are likely to see more of this type of holistic approach to how financial institutions must communicate to cardholders in a world that is increasingly omni-channel. As credit unions look to innovate — whether that's in the area of credit card rewards or other emerging payments products/services — they will have to build in a process for checking on compliance."
3. Clear Reward Offerings
Jennifer Kerry, VP of credit card services for CO-OP Financial Services, Rancho Cucamonga, Calif., also sees card reward programs as something to focus on. "Credit unions should watch to ensure they are very clear to members in what they are offering. The big issuers are starting to take hits from the CFPB," said Kerry. "Providers of these programs need to deliver solutions that keep them safe." Kerry said that means making sure programs are clear and not confusing to members. "For example, how members earn and redeem rewards, and what qualifications exist, need to be in large font in marketing materials."
4. Pay Attention To Loan Servicing
Vince Passione, CEO and founder of LendKey Technologies, New York City, sees the CFPB creating more compliance angst in the area of loan servicing.
"You can see foreshadowing of what the CFPB is doing, as well as Sen. Durbin with his leg around the student bill of rights. There will be a big focus on how loans are being serviced," said Passione. "There will be a very large focus on customer service, customer satisfaction, transparency and when there are issues having someone the customer can speak with. It will be about access to information about my loan and what are my options when I run into problems."
5. Breaches Bring Service, Loss Recovery Issues
Shirley Inscoe, senior analyst at Aite Group, Boston, sees the Target breach, and any others that follow, bringing possible problems with member service and loss recovery.
She said that many mid-size to smaller credit unions tend not to have the "benefit of a wealth of data like a very large bank would have to analyze and identify fraudulent activity on debit and credit cards in order to tie it back to a specific data breach. Similarly, they might not have the financial wherewithal to do a mass card reissue as large banks are doing to avoid fraud losses."
Inscoe said this could place CUs at a competitive disadvantage, "particularly since they also may not be able to seek reimbursement from Target without being able to aggregate this data and tie it to the breach. This is definitely something credit unions need to consider as they plan for the future."
