NAFCU Raises The Stakes
While attendees may have been rolling the dice at the Mandalay Bay casino in between sessions at NAFCU's annual meeting, there were some things credit unions weren't so willing to bet on: payday lending, military base closures and conversions of CUs to bank charters.
"I think it is entirely appropriate that NCUA is diligent in making sure that these votes (of CU membership to convert to a bank charter) are all conducted with integrity, and the credit union boards and management should be willing to bend over backwards to comply with every requirement, given what's at stake," former NCUA Chair Dennis Dollar told The Credit Union Journal. "But at the same time, I think NCUA should be focusing more on how to make the regulatory environment such that credit unions want to remain in the system, rather than on how to stop credit unions from converting."
A number of credit union observers have suggested that NCUA's decision to demand Community CU, Plano, Texas and OmniAmerican CU, Fort Worth, begin their disclosure and balloting processes over again due to a mishap in the folding of the disclosures (see related story, page 1), will only rob both the agency and the industry it oversees of credibility on Capitol Hill. Recalling the days in the late 1990s when a federal judge was referring to NCUA as a "rogue federal agency," one industry source said, "I really thought we had gotten past that. Credit unions and the NCUA are pushing for a number of things right now: CURIA (Credit Union Regulatory Improvement Act), vendor powers it makes it look like we are overreaching. We cannot afford that perception on Capitol Hill."
"Well, here we are in Vegas, home of the gambler, and NCUA is really taking a gamble on this one," another observer suggested.
But it's a sure bet that credit unions are looking for ways to counteract payday lenders, particularly those credit unions that serve the military: ostensibly a favorite target of payday lenders.
The Defense Credit Union Council Summit, held in conjunction with NAFCU's annual meeting, hosted a panel on payday lending and its effects on military personnel.
Panel moderator Hank Klein, the recently retired CEO of Arkansas FCU, noted that a number of credit unions that had begun to offer a lower-cost CU alternative to traditional payday loans have since gotten out of payday lending due to reputation concerns on military bases, where recognition of the problem has become of increasing interest. Those credit unions, Klein said, fear being painted with the same brush as their higher-cost counterparts in the payday loan industry.
But there are a number of things credit unions can do right now to put a dent in the ever-burgeoning payday loan industry, some of which can be implemented almost immediately.
"If your minimum loan is more than $100, like $500 to $1,000, I suggest you lower your minimum to $100," Klein told attendees of the Defense Credit Union Council summit held here in conjunction with NAFCU's annual meeting. "Too many of us are relying on our credit cards to handle our small loans."
Another way credit unions can take a bite out of payday lenders: make it impossible for them to keep presenting the same checks over and over again. "Some of them will just keep presenting the check hoping that maybe this time it will be good," Klein noted. "And every time they present that check and there aren't enough funds in the account, we're charging those members NSF fees, whittling down their ability to pay even more." That's why AFCU has taken to using a hole puncher to obliterate the MICR line once a check has come through twice. "That prevents them from presenting the same check through the Fed over and over again, which forces them to pay a fee to keep presenting that check. It's a deterrent for them, and it helps our members avoid unnecessary fees."
Among other gambles discussed at NAFCU's annual meeting:
* Providers of indirect lending are bracing for change in the face of NCUA's recent risk alert regarding third-party, subprime indirect lending and mandates coming down from auto manufacturers to the captive finance companies, according to some indirect lending vendors. "With the risk alert, some are nervous about this because credit unions may decide they need to bring their indirect lending in house," Dan Chaney of Teres Solutions told The Credit Union Journal at NAFCU's annual meeting here.
In its alert, NCUA said it had seen a sharp increase in problems with indirect lending at credit unions, primarily subprime indirect loans being handled by a third party. Another indirect lending provider noted that while some CUs may respond by bringing otherwise successful third programs in house, it could dissuade other credit unions from getting into the market in the future. "It could have a chilling effect, where credit unions who maybe were thinking of getting into indirect lending decide not to because now they think it's too risky" he said. In the meantime, Chaney added, relative new-comers to the indirect lending platform are starting to gain traction in the competition with veteran providers as a result of a policy change for some of the captive finance companies. "Some of the automakers are mandating that the captives must use a particular platform if they want to receive the incentives the manufacturers are offering," he said. "It's an interesting trend to watch."
* Although communities continue to fight to save the military bases slated for the scrap heap by the most recent Base Realignment and Closure Act (BRAC) list, they're unwilling to gamble that they will be successful in their fights. Instead, they are hedging their bets by developing a "Plan B" in the advent that the bases end up closing as currently planned. Military credit unions should partner with their communities now to be part of that process, according to Gary Kuwabara, project manager at the Office of Economic Adjustment, which helps communities adjust to life after BRAC.