Week ahead: Student lending, slowdowns, compensation and a big birthday

Credit unions across the country are likely to be in a celebratory mood over the course of the next few days – this week marks the 85^th anniversary of the signing of the Federal Credit Union Act.

In Washington, however, a variety of efforts are underway to ensure the movement is viable for the next eight decades.

While credit unions and industry groups continue to debate the impact of an additional two-year delay to the National Credit Union Administration’s risk-based capital rule, lawmakers this week will examine a host of issues related to credit unions. Among those, the Senate will continue its consideration of S. 1970, the National Defense Authorization Act of 2019. Chief among the issues there is a push to allow banks the same rent-free access to military installations that credit unions currently enjoy.

A bill passed the House earlier this month without language permitting banks’ to rent space on bases at no cost, but Eli Joseph, deputy chief advocacy officer at the Credit Union National Association, said the battle is not yet over, and the trade group continues to review language in the Senate version of the bill “to ensure credit unions are able to continue to effectively serve members of the military.”

The House Energy and Commerce Committee this week will also hold a mark-up on the Stopping Bad Robocalls Act. Credit unions continue to push Congress and other federal agencies to ensure their attempts to contact members are unhindered. Earlier this year the industry railed against an FCC proposal on the topic.

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The Consumer Financial Protection Bureau this week will also hold a pair of events aimed at providing clarity around unfair or deceptive acts and practices. The bureau on Tuesday will hold a pair of symposiums on UDAAP featuring academics and legal experts, respectively.

Credit union trade groups this week are also calling on NCUA to take a variety of factors into consideration as it crafts new rules regarding executive compensation. In a letter sent to regulators on Friday, the National Association of Federally-Insured Credit Unions called on the agency to include lending as a factor in how compensation is determined.

"NAFCU proposes several amendments to carry out the NCUA's intent while allowing credit unions the flexibility necessary to implement compensation plans that work best for their unique business models, including redefining 'overall financial performance' to include loan growth as part of the calculation," Mahlet Makonnen, NAFCU’s regulatory affairs counsel, wrote in a letter sent Friday. "Modernizing these regulations is critical for credit unions' governance because it will allow them to build well-balanced incentive plans that attract and retain talented employees and executives to help credit unions grow and better serve their communities."

Luke Martone, senior director of advocacy and counsel at CUNA, echoed those concerns regarding the phrase “overall financial performance,” pointing out during a press call Monday morning that modernizing compensation plans for CU executives is crucial to allowing the industry to remain competitive with banks, but that compensation plans must be commensurate with appropriate risk management. Nearly one quarter of all bank CEOs’ compensation is variable compared to just 8% at credit unions, added Martone, and most small credit unions don’t offer any sort of bonus.

CUNA is expected to send its own comment letter to NCUA this week.

Student loans and slowdowns

A presidential campaign proposal could also have a dramatic impact on the industry. Sen. Bernie Sanders is expected this week to call for the cancellation of approximately $1.6 trillion in federal student loan debt. Sanders’ proposal follows on the heels of a similar measure from Sen. Elizabeth Warren, another contender for the Democratic nomination. Both candidates’ plans could have a dramatic impact on how credit unions approach the private student loan market, and many in the industry have already spoken up against the candidates’ policies.

Lastly, CUNA economists are preparing their latest economic forecast. While not significantly different from Q1, the latest update includes a lowered forecast for inflation and yields on the 10-year Treasury note, along with predictions that the Federal Reserve will likely lower the fed funds rate target at some point this year. Mike Schenck, chief economist at CUNA, also pointed out that membership and lending are both poised to slow more than expected. While both remain well above long-term averages, it’s clear that the economy and credit union lending are “slowing and slowing significantly,” he said.

Curt Long, chief economist at NAFCU, backed that up, noting that home sales are likely to be flat in the months ahead, which will have a significant impact on the industry’s lending numbers.

"Home buying conditions are ripe for growth, but so far a breakthrough has failed to materialize," Long said in a recent NAFCU report. "Mortgage rates have steadily declined since last November, and households are benefiting from a strong jobs market. Nevertheless, buyers are reluctant to pull the trigger. Supply constraints persist, which have led to strong price growth. Homebuilder confidence ebbed in June due to concerns over trade and construction costs.”

While a rebound in the housing market could help juice the economy, Long said it’s unlikely one is coming, and mortgage growth will likely be flat through the end of 2019.