Posts filed under ‘General’
In any business, there’s always going to be a tension between catering to the commercialism of the moment and remaining true to the core values that made your institution great in the first place. Some people react to this tension by pretending they are above commercialism, while others recognize that their products and offering have to change with the times. Why even Santa Clause is not immune. If you read “Twas the Night Before Christmas” by Clement Clark Moore, how exactly does the image of an elf in “a miniature sleigh and eight tiny rein-deer” square with the image of a modern day Santa — an avuncular fellow who looks like he’d be fun to throw back a few with. The answer actually has a lesson for credit unions — trust me. Believe it or not, we owe much of our image of the modern day Santa to Coca Cola.
Coke has been advertising using Santa’s image since the 1920s, but the real breakthrough came in 1931 when the Coca Cola Company commissioned Haddon Sundblom to spice up Santa’s image for advertisements to be placed in magazines including The New Yorker, Ladies Home Journal, the Saturday Evening Post and National Geographic. My guess is that there was a fair amount of elitism here. After all, the Depression had kicked by then and there was a good chance that if you had time to read these magazines, you had survived the worst of it. I am also guessing that there was some cold-blooded commercialism going on as well. Soda is easy to sell in the summer time, but how do you sell a cold drink in the dead of winter. Hitching a ride to Santa’s sleigh is pretty cynical and pretty smart. Anyway,Haddon used the image of Santa from the famous poem as his inspiration to capture the essence of Santa, but clearly took some liberty with the image. For example, Santa had a wedding ring. He wasn’t an elf but a full-fledged human modeled after a salesman and then Sundblom himself. Sundblom painted images of Santa until 1964 and the images have become so famous that they have been shown in museums around the world.
What does all this have to do with credit unions? Irrespective of the size of your credit union, the best assets that your credit union has are the values with which the public identifies the credit union movement. When people think of credit unions they think of good service, fair prices, and a financial institution that is not a bank. But good feelings don’t necessarily translate into more members. The traditional credit union model is an increasingly antiquated vestige of a different time and place. Those credit unions that will survive and prosper will be those that change with the times by, for example, offering cutting edge technology that deemphasizes traditional banking, but doing so in a way that remains true to the core values of the movement. Clement Moore might not even recognize today’s Santa, but he would recognize that he is a happy, decent guy out to give people a break. Hopefully, future generations of credit union members will think the same way about our institutions.
On that note, your blogger is going on hiatus until the new year. Thank you for reading, happy holidays, and have a very Merry Christmas.
Is the tide turning in data breach cases? Can Captain Ahab really retire? Inquiring minds want to know.
Earlier this week, a federal district court in Minnesota ruled that a group of financial institutions including at least one credit union could go forward with its claim that Target was negligent in letting hackers steal credit and debit card information from more than 110 million consumers last year. (In re Target Corp. Customer Data Sec. Breach Litig., No. MDL 14-2522 PAM/JJK, 2014 WL 6775314, at *4 (D. Minn. Dec. 2, 2014)). The case follows a decision by the Court of Appeals for the Fifth Circuit to allow financial institutions to go forward with a similar claim against Heartland Payment Systems, which they allege negligently stored plastic card information also stolen by third-party hackers. (Lone Star Nat. Bank, N.A. v. Heartland Payment Sys., Inc., 729 F.3d 421, 426 (5th Cir. 2013)).
Both of these cases are welcome developments for credit unions. The industry has correctly argued for years now that there is too little responsibility placed on merchants when it comes to protecting against data breaches. However, these developments also underscore just how important it is to couple legal action with a multi-pronged push to achieve data breach protections on both the state and federal level.
Most importantly, any litigation in this area will ultimately depend on the interpretation of individual state laws and legal standards. For instance, Target is incorporated in Minnesota, which I believe was the first state in the nation to pass legislation imposing liability on merchants that negligently store debit and credit card information. In refusing to dismiss the case against Target, the district court noted that the claim of the financial institutions was “bolstered” by the statute, which underscored the state’s policy of expecting merchants to protect against data breaches. In the Hartland case, the circuit courts decision to allow the financial institutions to go forward was based on its interpretation of New Jersey case law.
The importance of state law and regulation to the outcome of these cases demonstrates that in this area more than others a coordinated attempt to pass data breach legislation on both the state and federal level is paramount for the industry. Every time financial institutions bring one of these cases it puts more pressure on merchants to consider coming to the negotiating table and agree to uniform data storage requirements. In addition, it’s impossible to predict what Congress will do in this area, but both the Hartland and Target decisions demonstrate that much could be done on the state level regardless of what machinations take place in D.C. The cases also raise an important issue for the industry to consider as it continues to push for data breach requirements. My guess is that the merchants will ultimately agree to data protection requirements in return for preemption of state laws. If the lawsuits continue to trend in favor of financial institutions, we may reach a point where the value of federal data breach standards is outweighed by the value of state-imposed liability.
Keith Leggett to Retire
Dr. Keith Leggett, Senior Vice President at the American Bankers Association and self-problaimed Captain Ahab to the credit union industry’s white whale, announced that he will be retiring early next year. Keith is a professional gad-fly to the credit union industry best known to many of you for writing his Credit Union Watch blog. He reportedly will continue to write this blog even in retirement, so we aren’t quite done with his cogent barbs.
I have a soft spot for anyone who reads my blog and a special soft spot for anyone who takes the time to respond to one of my tirades, even if they disagree with everything I’ve said. I’ve gotten to know Keith a little as a result of comments to my blogs. He even has been nice enough to give me the heads up on a typo or two. So Keith, I hope you have a better retirement than Captain Ahab and thanks for the input.
Before the mortgage meltdown I was a proud free market extremist who would patiently explain to a misguided dinner guest how the Free-Market was a better regulator of businesses and the financial system than government ever could be. Then I watched as the Captains of Capitalism were bailed just out as the Free Market was about to punish them for their mistakes. When it comes to Wall Street’s behemoths we have a “Heads I win tails you lose” system in which the American taxpayer\consumer is the looser. Still there are those who continue to believe that if only Government didn’t regulate Wall Street so much all would be better in the world.
If anyone still questions the need for regulation they need look no further than our present day banking system. Credit unions and smaller banks struggle to comply with a host of regulations designed in reaction to the last financial crisis while the behemoths that got us into this mess brazenly flout regulations and distort legitimate banking activities in the name of “liquidity.”
The latest example that we increasingly have a financial system that Vladimir Putin would be proud of comes courtesy of a 396 page report released yesterday by the Senate’s Permanent Subcommittee On Investigations. It investigated the purchase of physical commodities by JP Morgan Chase, Goldman Sachs and Morgan Stanley. In a bipartisan report it concluded that Wall Street banks have become so heavily involved with the physical commodities market that their activities pose risks for the markets, consumers and the financial system.
Just how involved in the commodities market are the behemoths? According to the report
“Until recently, Morgan Stanley controlled over 55 million barrels of oil
storage capacity, 100 oil tankers, and 6,000 miles of pipeline. JP Morgan built a copper
inventory that peaked at $2.7 billion, and, at one point, included at least 213,000 metric tons of
copper, comprising nearly 60% of the available physical copper on the world’s premier copper
trading exchange, the London Metal Exchange (LME). In 2012, Goldman owned 1.5 million
metric tons of aluminum worth $3 billion, about 25% of the entire U.S. annual consumption.
Goldman also owned warehouses which, in 2014, controlled 85% of the LME aluminum storage
business in the United States. Those large holdings illustrate the significant increase in
participation and power of the financial holding companies active in physical commodity
That’s right, at the same time credit unions were trying to figure out how to provide Qualified Mortgages and were being badgered about building plans (apparently because examiners were certain credit unions had top-secret plans to become landlords), these institutions were buying huge amounts of commodities and regulators were too timid to act.
This country has to do something about our financial system and quick. Whether you are a Democrat or Republican, libertarian or communist a system in which banks are too big to fail, too big to prosecute, too big to regulate and apparently too big to keep from buying and selling goods that have nothing to do with traditional banking activities is bad for a country of laws ultimately governed by its citizens as opposed to financial oligarchs.
Here is a link to the report:
If your compliance person is still struggling with the Ability to Repay and Qualified Mortgage Rules the FDIC wants to help. Yesterday it released the first of what it promises will be three videos for persons charged with complying with the mortgage regulations. I will be watching the video as soon as I am done with this blog. I really am a wild and crazy guy. Here is the link.
In the immortal words of Elaine from Seinfeld is it time for you to attempt conversion?
Right now card issuers are liable for the costs of POS fraud involving both credit and debit cards. In October 2015 Visa and MasterCard shift this liability to merchants that can’t process chip based EMV transactions. This creates a huge incentive for merchants to invest in new terminals but the benefits aren’t quite as clear-cut for your credit union. After all if the vast majority of merchants can accept EMV by next October than you will be as liable as you are right now for card fraud.
To find out more about conversion issues yesterday I attended an excellent conference on EMV technology hosted by Covera. (Full disclosure: Covera is an affiliate of the Association). The most important lesson I learned is that, if you start planning today, credit unions have more flexibility than I thought they did in deciding when and how to make the migration to EMV. Deciding on how much of a push your credit union should make is ultimately an individual decision unique to each credit union’s circumstances. The more time you give yourself the better off you will be. Here are some of the key questions I would ask after attending the conference.
What is your timeframe for migrating to EMV? It’s going to take more than six months (optimistically) to roll out chip based cards. If you aren’t planning now than your plan is not to convert anytime soon.
How much card fraud do you have?
The switch to EMV is only helpful if data theft is an issue for your credit union. You are at no greater risk legally after October of next year if you choose not to go forward with an EMV conversion unless you think that the merchants your members shop with won’t be ready to accept EMV cards or you feel that the lack of EMV will make your CU more of a target.
Should you take a piece meal approach or integrate EMV all at once? One of the real interesting realizations for me was that credit unions have more flexibility in introducing EMV cards than the October 2015 date suggests. A credit union could start with a conversion to EMV credit cards, for example, see how the conversion goes, and then convert their debit cards.
How much money do you have to budget? These cards are estimated to be 2.5 times more expensive than traditional cards. That is a lot of money for technology that won’t prevent all fraud and that the bad guys will eventually make obsolete. In addition, there is a lot of staff training and member outreach that is involved in introducing EMV. All of this costs money.
Do you have a lot of international travelers in your field of membership? EMV technology is the industry standard in most other parts of the world.
Having read my list you may think that I am telling you not to go forward with EMV. Not at all. My Personal opinion is that consumers will eventually demand that financial institutions use the safest technology available. In addition legislators and regulators may eventually mandate that you adopt the technology whether you want to or not.
Hurricane Sandy slammed into New York’s coastline on October 29, 2012 and despite the billions of dollars being spent on reconstruction there are still homeowners, some of whom undoubtedly have credit union mortgages, struggling with insurance companies to get claims resolved.
Given the scope of the storm some delays and disputes are inevitable but a disturbing article in this morning’s New York Law Journal is making me sick to my stomach. It reports that at least one engineering company hired to assess insurance claims is accused of doctoring reports in an effort to avoid compensating homeowners on legitimate claims. According to the federal magistrate overseeing the dispute there has been “reprehensible gamesmanship by a professional engineering company that unjustly frustrated efforts by two homeowners to get fair consideration of their claims. Worse yet, evidence suggest that these unprincipled practices may be widespread.” In addition the judge concluded that an attorney for the insurance company, Wright National Flood Insurance Co, violated discovery rules by failing to disclose a draft report favorable to the homeowner’s claims.
The case which has stirred the magistrate’s ire is Deborah Raimey and Larry Raisfeld vs. National Flood Insurance Co., 14 CV 461. It involves owners of Long Beach rental property that was damaged in Hurricane Sandy. It has exposed the practice of “peer reviews.” You will see why I’m using quotes in a second.
Following the hurricane the plaintiff’s made an insurance claim with Wright National Flood Insurance Company. In a Draft report the engineer concluded:
1) The physical evidence observed at the property indicated that the subject building was structural [sic] damaged by hydrodynamic forces associated with the flood event of October 29, 2012. The hydrodynamic forces appear to have caused the foundation walls around the south-west corner of the building to collapse.
2) The extent of the overall damages of the building, its needed scope of repair combined with the age of the building and its simple structure, leads us to conclude that a repair of the building is not economically viable
However the homeowners/plaintiffs never received this report. Instead the report’s conclusions were changed after an engineer “peer reviewed the report.” Despite the fact that this second engineer never physically inspected the damaged property the final report made available to homeowners and their attorney concluded:
1) The physical evidence observed at the property indicated that the subject building was not structurally damaged by hydrodynamic forces, hydrostatic forces, scour or erosion of the supporting soils, or buoyancy forces of the floodwaters associated with the subject flood event.
2) The physical evidence observed at the subject property indicated that the uneven roof slopes, leaning exterior walls and the uneven floor surfaces within the interior of the building, were the result of long term differential movement of the building and foundation that was caused by long-term differential movement of the supporting soils at the site and long-term deflection of the building framing.
Based on these findings the insurance company decided not to pay the homeowners. Imagine if you held this mortgage?
Reasonable minds can differ. Maybe two honest engineers reached different conclusions. But the report was written by the same engineer who changed his conclusions following a phone conversation with another engineer for a company retained by the insurance company.
At the very least this case exposes conflicts of interest inherent in a system where third parties are retained by insurance companies to decide what claims should be honored. Homeowners shouldn’t have to sue to get both sides of the story. The case also underscores the difficult issues raised by discovery requests.
But what disturbs me most of all is that the case is yet another example of how this country is suffering from a crisis in ethics coming not just from Wall Street but Main Street. People are being forced to choose between doing the honest thing, such as reporting a car defect or disclosing BSA violations, and the financially expedient thing. Every day the newspaper’s report on how someone chooses the financially expedient option.
Abraham Lincoln once said “That every man has a price and you are getting dangerously close to mine.” I wonder if the economic downturn has made people a little more willing than they use to be to put their ethics aside to keep their paychecks secure.
I routinely wonder about what makes credit unions unique and how they can communicate these unique attributes to their members and policy makers. I’m no Pollyanna but I believe that most credit unions are dedicated to treating people not just legally but fairly. Ethics count. Let’s not be one of those industries that push them aside in pursuit of higher profits.
A link to the case is available at:
Any vendor that can make itself relevant to the financial services industry since 1859 is worth paying attention to because it clearly knows how to change with the times. That’s why this post from the Motley Fool about Diebold caught my attention. At a recent electronics conference in Sin City, Diebold unveiled its vision of the branch of the future.
Diebold envisions what it describes as a “responsive banking concept” in which tellers are eliminated and branches become smaller but much more high tech. You can go into the branch for simple ATM transactions, or if you want to make more sophisticated transactions using virtual tellers, you can do that, as well. Let’s say your member is interested getting a home or car loan. Another virtual touch board would allow the member to easily communicate with a live person via two-way video.
Similarly, IBM recently announced that it was partnering with the Bank of China to create a flagship technology branch. This branch will not be entirely virtual since members will have the ability to call over bank representatives when they need them, but the basic idea is the same: members will use cell phones or codes to execute transactions with minimal involvement from tellers.
What intrigues me so much about these prototype branches is what they portend about the future of banking. Even if you are an advocate of the brick-and-mortar branch, you have to recognize that the branch itself is going to become more virtual. Tomorrow’s member is going to expect a seamless transition between the banking she conducts on her cell phone and that she carries out in her branch.
In addition, the virtual branch will make Big Data analytics an essential tool for all financial institutions. For instance, the branch being constructed by IBM allows bank executives to get real time information about what consumers are interested in. Consumers can even be encouraged to go to less crowded branches that may be near by. In other words, going digital will provide your marketing department with more information about your members’ needs and desires than you could ever have anticipated. The institutions that are best equipped to analyze this information and translate it into financial products and services will be the ones most prepared to prosper going forward.
Comptroller Urges Retailers to Take Responsibility for Data Breaches
The need for retailers to take on more of the burden for preventing data breaches got a high level endorsement on Friday. Speaking before an audience of community bankers, Comptroller of the Currency Thomas J. Curry pointed out that data breaches impose a particularly heavy burden on smaller financial institutions, responsible for reissuing compromised debit and credit cards. Data breaches also “demonstrate why we need to level the playing field between financial institutions and merchants. The same expectations for security of customer information and customer notification when breaches occur should apply to all institutions. And when breaches occur in merchant systems, it seems only fair to me that they should be responsible for some of the expenses that result.”
Well said. On that note, have a great day.