Posts filed under ‘General’
If you are a board member helping select candidates to be your next CEO or you’re an Executive filling a slot on your management team, are you more likely to hire George Bailey or Mr. Potter? Be totally honest. George Bailey is a much nicer guy, but who’s more likely to be running a growing credit union ten years down the line? For that matter, should character even matter when making hiring decisions?
These questions came to mind recently after reading an intriguing bit of research in the most recent Harvard Business Review. According to at least one recent survey, the higher character ratings a CEO is given by his staff the better a company tends to perform.
According to the research, CEOs whose employees gave them high marks for character had an average return on assets of 9.35% over a two-year period. That’s was almost five times higher than the return generated by Executives given the lowest ratings. The cynics might be wrong after all.
The findings are based on research performed by a leadership consultancy. They identified what they considered to be the most universally identified moral principles – integrity, responsibility, forgiveness and compassion. They then sent anonymous surveys to employees at 84 companies and not-for-profits and followed up by interviewing many of the Executives. The highest performing Executives, both based on their character and financial performance, were given high ratings on all four principles. For example, they were described as standing up for what’s right, expressing concern for the common good, letting go of mistakes and showing empathy.
On the flip side, the ten worst performing management teams – euphemistically described as self-focused – were described as warping the truth for personal gain and caring mostly about themselves “no matter what the cost to others.”
Ultimately, it may be impossible to objectively quantify character. After all, we would all have a intriguing enough to ponder next time you start looking for a top executive.
NYS Budget Plan Set
Late last enough, the smoke rose from the State Capitol. It’s been reported that a budget plan has been agreed to for the 2015-2016 State Fiscal Year. It doesn’t look like this will have much of a direct impact on your credit union. More generally, budget negotiations in NYS begin and end with an annual struggle over state aid to education. The “framework agreement” reportedly includes a school aid increase of $1.6 billion and ethics reforms.
On that note, enjoy your Monday. They say Spring will arrive any day now. I am not holding my breath.
Its great having the Clinton’s back in the spotlight.
Their penchant for going right up to the line of propriety and wallowing in the gray area of the law (e.g. how do you define “is” anyway?) provides so many entertaining blog worthy teaching moments that I’m sure Hillary’s relentless drive for the Presidency will be of great benefit to blogger and reader alike.
In case you missed it, earlier this week the former First Lady held a press conference to dispel any notions that she was knowingly doing something inappropriate when she had a personal server installed at her private residence so she could store her State Department email on her personal account. (Can you imagine Putin responding to an email from Secretaryofstatechick at yahoo.com?)
Anyway, shame on those of you who thought that she was trying to pull a fast one. The prestigious law school graduate, and former high-powered lawyer with the most experience in and around government of any presidential candidate since John Quincy Adams didn’t realize that it might be wrong to put government email on her personal server and decide for herself what emails should be saved, destroyed and parceled out.
In fairness to the Lady Who Would be Queen, the question of how much email to retain and for how long is one that vexes businesses of all shapes and sizes including credit unions every day. Compliance people hate it because there are few bright line rules about how long email should be retained. Instead one of the best guides to use in crafting your credit union’s email retention procedures are the factors considered by the courts overseeing lawsuits. Why? Because unless you plan on never getting sued by a former employee or ending up in a contract dispute with a vendor the courts are going to expect you to be able to provide basic information that the party suing you needs to prove its case. The more reasonably you maintain your email today the more slack a court may be willing to cut you tomorrow when determining whether you or the disgruntled plaintiff should bear the cost of discovery. There are also specific recordkeeping requirements for specific regulations but basing your record retention exclusively on these requirements doesn’t do enough to provide your credit union with an appropriate record retention framework.
As a general rule a party being sued bares the cost of complying with discovery requests-as those of you who have ever tried to get an attorney to reimburse your credit union for the cost of complying with an information subpoena are well aware. However with the explosion of electronic storage courts have become sensitive to the fact that, depending on a corporation’s size, electronic record retention and retrieval of email and other documents can become prohibitive. Furthermore, it isn’t reasonable to impose the same retention requirements on a $50 million credit union and Bank of America. As a result in weighing discovery requests and apportioning retrieval costs federal courts and, increasingly, New York’s state’s courts have examined the following criteria:
“1. [t]he extent to which the request is specifically tailored to discover relevant information;
“2. [t]he availability of such information from other sources;
“3. [t]he total cost of production, compared to the amount in controversy;
“4. [t]he total cost of production, compared to the resources available to each party;
“5. [t]he relative ability of each party to control costs and its incentive to do so;
“6. [t]he importance of the issues at stake in the litigation; and
“7. [t]he relative benefits to the parties of obtaining the information”
U.S. Bank Nat. Ass’n v. GreenPoint Mortgage Funding, Inc., 94 A.D.3d 58, 63-64, 939 N.Y.S.2d 395 (2012)
I underlined 4 5 and 6 because, as you update your email retention or broader record retention policy a key point to keep in mind is that the courts expect you to have a reasonable policy reflecting the characteristics of your credit union. In this day and age you won’t avoid the cost of retrieving email because your policy is to save money by not archiving email on any of your servers for more than one day. Conversely it’s perfectly acceptable to delete email where the cost of storing it becomes prohibitive and the likelihood that the information will ever need to be retrieved is slight.
One more thing to really make things more entertaining. Hillary’s mistake also underscores the reality that, in the age of the smartphone, drawing a neat line between an employee’s “work” and “personal email” is all but impossible. It is likely to be the source of many a contentious legal battle. Your policy should put employees on notice that “their” email may not be “theirs” if they are using a company smartphone or using their smartphone to conduct personal business
I wanted to scare you a little with this blog. Your record retention policy is one of the most important policies your credit union can have and deciding how to manage all that email is a crucial component of that policy. This is not an area where you should cut and paste another credit union’s policy and go onto more important work. Instead you should involve your IT staff, your HR person your compliance officer and yes even a lawyer in devising a record retention policy that reflect your credit union’s unique attributes.
This weekend the nation marked the 50th anniversary of the march on Selma. The “bloody Sunday” riots jolted the nation into passing the Civil Rights Act in 1965 by making it impossible for the entire nation to ignore the fact that racial inequality and injustice were ultimately incompatible with American ideals. It also got me thinking about the role that financial institutions play in bringing about equality.
Regardless of your political persuasion, I would hope that all of us could agree that a secure place in which to place one’s money and get a loan at a fair price is fundamental to achieving equality. Last week marked the 150th anniversary of the chartering by Congress of the Freedman’s Savings and Trust Company. Within weeks of Congress’ passage of the 13th Amendment abolishing slavery, abolitionists realized that freed slaves needed a place to save and grow their money.
Unfortunately, the creation of the bank also symbolizes just what a complicated and winding road the march toward racial equality can be. Despite its noble ideals, the bank was closed down in 1874. The meager savings of tens of thousands of African-American depositers were lost – remember this was in the age before Share Insurance. According to Comptroller Thomas J. Curry, the bank failed as a result of expanded investment authority it was given in 1870 which allowed it to invest half of its deposits in riskier assets.
In some ways, credit unions are the descendants of this noble but failed effort. I like to point out to people that when Congress authorized federal credit unions during the depths of the Depression, or when states like New York authorized credit unions decades earlier, these institutions weren’t being created because policy makers assumed that people were being treated fairly irrespective of their race, color or creed. On the contrary, credit unions are an implicit recognition that there are distinct groups of individuals who are systematically being denied access to mainstream finances. By allowing these groups to legally pool their assets and not be taxed for doing so, the hope was, and in some respects still is, that individuals can gain the economic strength that helps bring about the political equality that the marchers in Selma were seeking 50 years ago.
How are credit unions doing in aiding minority groups? It depends what statistics you check. For example, according to a 2014 NCUA report, 11% of all federally insured credit unions were classified as minority depository institutions. Half of these were run by African-Americans and have about 871,000 members. Interestingly, Texas (96), California (68) and New York (56) had the highest concentration of aggregate minority depository institutions.
Look a little further though, and the numbers are not quite as encouraging. For example, 94 of these depository institutions have CAMEL ratings of 4 or 5. In addition, 239 of these institutions are, in the words of the NCUA report, “experiencing challenges in meeting operating costs.” A large part of the reason some of these institutions are struggling no doubt reflects the trends buffeting the industry as a whole. If you are not large, or growing quickly, chances are you are struggling. But I would suggest another reason these institutions face obstacles is because helping people of modest means is more expensive than cherry picking the middle class consumer, which brings me to the punch-line of today’s blog. Credit unions do have a unique statutory obligation to people of modest means. This is an obligation that credit unions shouldn’t and can’t run away from. This is why I cringe every time I hear credit unions point out that helping persons of modest means isn’t their only obligation or that it is simply too expensive to cost-effectively provide banking services to this population. Let’s make sure we have the statutory and regulatory flexibility we need to provide financial services and then make sure that every credit union strives to meet this obligation, otherwise, we are doing nothing but hiding behind our ideals.
Say what you want about your most successful despots and dictators they are almost all keen observers of the human condition. Take for instance Lenin who once explained that, “Give me four years to teach the children and the seed I have sown will never be uprooted.”
He is onto something that should serve as a reminder\wake-up-call to your credit union about the importance of engaging kids in the financial system. It’s good for the kids and good for business. It’s good for the kids because the sooner people start learning that money doesn’t magically grow in Daddy’s wallet but almost as magically via compound interest the better off they will be. It’s good for business because brand loyalty starts to develop early. Today’s seven year old with his two dollar deposit may very well be the erstwhile member, who turns to the credit union for her first mortgage twenty years from now.
So I was happy to see that the NCUA joined with other financial regulators in issuing a joint guidance on school branching. I’ve always been a little surprised by how little legal guidance is actually available on the topic so anything is a step in the right direction The Guidance does a good job of explaining how federal laws can be complied with in a school setting. That being said NCUA could have done a much better job in the Guidance of answering some of the basic questions as well as highlighting its own resources
For instance where exactly do federal credit unions get the right to conduct banking activities on school grounds anyway? According to the Guidance the development of financial literacy programs is consistent with the mission of credit unions to promote thrift. It explains that “Applicable state law and the appropriate state supervisory authority determine branch application requirements, if any, for state-chartered credit unions.” It is odd to me that NCUA didn’t also reference that federal credit unions have the right, but not the obligation, to accept minors as members.
For state chartered credit unions interested in providing branching services you have to start with your state law. For instance in NYS a state chartered credit union may open up a student branch with the approval of a school’s governing body. N.Y. Banking Law § 450-b (McKinney). Membership is available to all the kids.
Does this mean that credit unions can offer normal branches on school grounds? This part of the blog is just my opinion but the answer is no. NCUA authorizes federal credit unions to offer student branches in order to promote thrift. NYS law specifically defines a student branch offered by state charters as “pertaining to the in-school services and financial education offered to students.” There has to be an educational component to your student branching activities. After all, how is an FCU promoting thrift by students or a NY CU helping to educate students if they just happen to go to a school with a branch?
I think credit unions would be well advised to follow one of the criterion used by banking regulators when approving banking activities on school grounds. Specifically branch applications on school grounds are not required for banks when:
“The principal purpose of the financial literacy program is educational. For example, a program is educational if it is designed to teach students the principles of personal economics or the benefits of saving for the future and is not designed for the purpose of profit-making.”
What form would that education take? That might include getting students to help run the branch or having employees come in to talk about how the credit union works but it does mean that these are not normal branches
Another Guidance oversight is that it didn’t reference an informative 1999 NCUA opinion letter on student branching in which it answers these practical but important questions:
How do we show the accounts on the FCU books?
Should the accounts be in the student’s name with parent co-signing?
Should the accounts be in parent’s name as [or in] trust for the student?
Should the accounts be reflected as custodial accounts?
On that curmudgeonly note I wish you all a fine weekend.
Here is the Guidance:
By many measures these are both the best of times and worst of times for credit union membership. On the one hand credit union accounts exceeded the 100 million mark and there has been a sharp increase in members identifying credit unions as their primary financial institution in the aftermath of the Mortgage Meltdown; on the other hand membership declined in 2014 at credit unions with $500 million or less in assets and an estimated 85% of credit union members also have accounts with banks.
Two things are going on here: First, as I argued yesterday, the industry as a whole has not done a good enough job of distinguishing its brand from banks or of demonstrating the value of its brand.
A second reason is that it’s harder to switch financial institutions than it should be. More should be done to let consumers seamlessly dump their bank for better service. Our relatives in England are providing an example of how this might work and credit unions should push for adoption of a similar model in the U.S.
In 2011 a UK Government commission on banking reform proposed making it easier for consumers to switch banks. After an infrastructure investment of more than a billion dollars and some arm twisting a system started in 2013 under which It takes no more than seven business days to switch accounts to a new bank. Members choose when they want the transfer to take place and the switch is handled between the two banks.
As someone who believes that a truly free market is often the best way to cure bad business practices the results have been moderately encouraging, According to Reuters”the number of Britons switching bank accounts grew by 12 percent to 1.16 million in 2014, marking progress in the government’s push to boost competition,” The ultimate goal of some in Britain is to make switching banks as easy as switching cell phone providers.
The key point is that there are things that can be done to make walking away completely from a bank and into the waiting arms of a friendly neighborhood credit union easier if regulators are willing to provide a nudge. I refuse to believe that 85% of people would still bother with bank accounts if they didn’t think that switching everything to their credit union would be a hassle.
A second idea that I am stealing from our British forefathers is something the CFPB can and probably will help with.
Tesco is Great Britain’s Wal-Mart. It has used great service and low prices to dominate the super market industry in England; nevertheless it has so far proven unsuccessful in its efforts to establish itself in retail banking. One of its top executives has a simple formula for the company’s supermarket success and why it has struggled to translate this approach to banking:
“If you look at supermarkets in the UK, it’s a perfectly good example of a market where there are a relatively small number of large players, and yet it’s highly competitive,” Higgins says. “There are very high levels of switching, because the market’s very transparent, and there are no obstacles to moving”. In contrast in banking customers often don’t realize how “raw a deal they are getting”
The answer is more transparency. Which brings us back to the CFPB, It appeared that one of the first initiatives the CFPB was going to undertake was to simplify account opening disclosures. In 2011 Raj Date issued the following statement:
“The CFPB has the ability to simplify checking account disclosures – an idea that some consumer groups and some banks have already been developing. Making the costs transparent is good for consumers and good for competition. It allows consumers to compare the checking account options from large banks, community banks, and credit unions and pick the one that works best for them. “ (Here is the complete article http://www.telegraph.co.uk/finance/newsbysector/epic/tsco/11412311/Tesco-Bank-chief-The-main-difference-between-supermarkets-and-banking-is-the-lack-of-transparency.html )).
My guess is that this initiative was pushed to the back burner because of the need to implement Dodd Frank’s mandates. Now that the frenzy has subsided the CFPB should put forward proposals that couple traditional account agreements-which are and should remain extensive legal contracts-with basic fact sheets that let members make comparisons between accounts.
Do credit unions have it all wrong when it comes to attracting new members? Are there things that can be done in both a marketing and regulatory framework to make consumers more likely to use credit unions?
The answer to both these questions is, at least on the industry level, a resounding yes. In today’s blog I comment on the importance of getting out the message and in tomorrow’s I will comment on some proposals for unleashing more consumer choice in the selection of financial institutions.
Today it’s time to call out the marketers.
It’s hard to get people to join a credit union if they don’t know what a credit union is. That is exactly the dilemma the industry faces. According to a survey reviewed by the Financial Brand the top three reasons why consumers switch financial institutions have nothing at all to do with great service great, great products, or even a desire to “stick it to the man” in the aftermath of the Mortgage Meltdown. Instead The three main reasons consumers site for switching are: They moved (41%) their marital status changed (14%) or their job status changed (6%).
Now here is the real bad news. If consumers were going to switch they would most likely switch to a “Regional Bank”(29.6%), a “local” bank, or a “Super-regional bank” before they would switch to either a credit union(15.6% )or a national bank (16.5%). In other words, even though we comfort ourselves with the knowledge that consumers love credit unions and hate banks when it comes to deciding where to place their money they still equate credit unions with the very institutions with which they most contrast.
The survey results are consistent with hurdles confronting credit unions. Most importantly, even as credit union membership grows the industry continues to struggle attracting members who consider credit unions their primary institution. Members will gladly take out a cheaper car loan but they aren’t so concerned with great service that they will go through the hassle of changing accounts. Furthermore people may like credit unions but they really don’t understand that they are different from banks
Credit unions have positioned themselves as the best consumer choice for more than 100 years and the consumer still doesn’t get it. We have a failure to communicate.
The first component of a multi-faceted solution is to engage in a national marketing campaign. All credit union associations should chip in for a professional national and yes expensive campaign dedicated to making sure that people know that credit unions (1) Are the true community banks (2)They are the alternative to, not synonymous, with national banks, and (3)they represent an exclusive club that almost anyone can join.
I know that national campaigns have been tried before but they have been watered down consensus driven underfunded public relations campaigns designed to make members feel good at conventions as opposed to explaining to a nation of cash strapped consumers why credit unions are good for them.
I’ve said it before and I will say it again the industry should do for individual credit unions what the beef industry has done for ranchers and the dairy industry has done for farmers
Would this make a difference to the individual credit union? You bet. No credit union that belongs to NAFCU, CUNA or a state level association should have to explain to a potential member what a credit union is. Potential members should already know this as they are surfing the web.
Your credit union can spend its time advertising its products.
Here is a link to the blog.
Speaking of checking accounts on Friday Attorney General Eric T. Schneiderman announced that Santander Bank, N.A. has agreed to adopt new policies governing its use of Chex Systems, a consumer-reporting agency that screens people seeking to open checking or savings accounts. CapitalOne and Citibank have previously agreed to overhaul their use of the account screening system which critics contend rightly or wrongly-allow financial institutions to arbitrarily deny access to people who would otherwise qualify for accounts. Here is a previous blog I did on the topic and a friendly reminder that the system has already drawn the attention of the NCUA(Below is a link to a 1993 Opinion letter). Use these systems with care and in conjunction with a well drafted procedure detailing reasonable account criteria.
Here is a copy of an NCUA Opinion Of Counsel on Chex Systems, a recent blog on the topic and the AG’s press release