Posts filed under ‘General’

What despots can teach us about student branching

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:




February 27, 2015 at 9:42 am 2 comments

More Transparency=More Credit Union Accounts

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 )).

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.

February 24, 2015 at 8:45 am Leave a comment

Do Consumers Know There is a Credit Union Difference?


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.

Chex Please!

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

February 23, 2015 at 10:05 am Leave a comment

Now What?

As expected, at yesterday’s board meeting the NCUA proposed raising the cap below which a credit union is considered a small credit union for regulatory relief purposes from $50 to $100 million. According to NCUA, the increase means that an additional 745 credit unions will be eligible for potential relief from future regulations for a total of approximately 4,869.

Great job by the agency in coming forward with the proposal; but we won’t really know how much this helps the industry for some time to come. First, the agency has already exempted credit unions below the threshold from onerous mandates including those dealing with enhanced protections against interest rate risk and the proposed enhanced Risk-Based Capital framework. Second, many of the biggest mandates are out of NCUA’s hands. For example,the CFPB has been willing to extend mandate relief to institutions with as much as $2 billion dollars in assets, but these exemptions come with strings attached – such as a requirement that exempted institutions hold most of their mortgages. Thirdly, the fact that NCUA justifiably feels the need to dramatically raise the small credit union designation after having raised it from $10 million approximately two years ago shows you how quickly the industry is changing and not for the better. NCUA examined rates of deposit growth, rates of membership growth, rates of loan origination growth, and the ratio of operating costs to assets and determined that credit unions below $100 million are at a “competitive disadvantage” to their peers.

The branch is dead! Long live the branch!

I actually found myself muttering in disagreement as I read a report issued by the FDIC yesterday. It concluded, based on an analysis of bank branching patterns from as far back as 1935, that:

“New tech­nologies have certainly created convenient new ways for bank customers to conduct business, yet there is little evidence that these new channels have done much to replace traditional brick-and-mortar offices where banking relationships are built. Convenient, online services are here to stay, but as long as personal service and relationships remain important, bankers and their customers will likely continue to do business face-to-face. “

Maybe the researchers who came to this conclusion can use their Blackberries to see if RadioShack could use their help. More on this in a future blog, but for those of you who still believe the branch model is alive and well, read away.

What would Karl Malden say?

Yesterday, the Justice Department scored a major antitrust victory when a federal judge in New York found American Express guilty of anti-trust violations. I haven’t read the 100+ page decision yet, but if I was Amex I would have gone to trial too.

One of the touchstones of antitrust law is market dominance. Amex isn’t exactly a card that your typical merchant has to accept these days if he wants to stay in business. It has been a long time since Karl Malden convinced consumers that they shouldn’t leave home without their American Express Card.    The win underscores just how dominant a hand merchants have when it comes to demanding changes to the plastics industry.

By the way, if you are wondering what to do this weekend as you try to stay warm, On the Waterfront, starring Karl Malden and Marlon Brando, would be an excellent movie pick.  It’s one of those cultural reference movies and includes the classic line “I could have been a contender.”

February 20, 2015 at 8:47 am Leave a comment

Can we have too little inflation?

Yes we can and it’s the most important metric that the Fed will look at as it moves closer to a likely decision  to start raising short-term interest rates by the middle of the year. That is my main takeaway from the recently released minutes of the Fed’s Open Market Committee, the group that decides what short-term interest rates should be.

Falling energy prices are pushing inflation further below its 2% objective. Falling pump prices keep more money in people’s wallets but they also make a wide range of products cheaper to make and sell.  Normally this is good news but a downward spiral of prices-of the type Europe is seeking to avoid-can have just as pernicious an impact on economic growth as inflation can. Margins get so squeezed that companies can’t cost effectively grow. So you can bet that the Fed won’t raise rates until it knows that inflation is on the way. As the minutes explained:

“A number of participants emphasized that they would need to see either an increase in market-based measures of inflation compensation or evidence that continued low readings on these measures did not constitute grounds for concern”.

Here is a link to the minutes for those of you having trouble sleeping,

Compensation for mortgage “victims?”

Does this bother you as much as it bothers me? Or am I just still in a bad mood because the good people of Albany this morning drove as if they lived in Miami and have never seen snow falling?

When it comes to assigning blame in the mortgage meltdown I’ve never been  a big fan of the “Consumer as victim” line of argument. I’ve always considered the American home buyer more of a willing co-conspirator than a victim of the of the mortgage mess.   Like Buffalo Springfield says “Nobody is right if every body’s wrong.”

The latest example of how the Government’s flailing inconsistent and at times incoherent response to the Mortgage Meltdown missed the mark comes from the OCC.  In a   January 2013 settlement  between federal bank regulatory agencies and 13 mortgage servicers servicers  provided $3.6 billion in cash payments to borrowers whose homes were in any stage of the foreclosure process in 2009 or 2010.  The payments ranged from several hundred dollars to $125,000 plus lost equity. The shoddy practices of these servicers such as robo-signings- allegedly exacerbated the huge nationwide increase in foreclosures.

Did servicers act sloppily? Absolutely. Were there large numbers of homeowners who wouldn’t have faced foreclosure but for these practices? Absolutely not.  People lost their homes because they couldn’t afford them.

So I’m not all that surprised by this News Release issued yesterday afternoon by the OCC. It appears that Nearly 600,000 checks mailed to borrowers of these 13 servicers remain outstanding, and have now expired.  The checks have been reissued.   “As part of the agencies’ ongoing efforts to reach these borrowers, the paying agent was directed to conduct additional searches of updated addresses.  The current mailing represents the third attempt directed by the agencies to provide checks to in-scope borrowers.”




February 19, 2015 at 9:56 am Leave a comment

From Russia with Love

News over the weekend that an international gang of Russian speaking cyber criminals pulled off what the NY Times described as one of the biggest bank heists of all time (approximately $1 billion) has once again exposed the fact that the financial system and its consumers are under attack and the bad guys are winning.

Although it appears that the breath of the attack may have been overestimated by initial reports, the Krebs on Security blog is reporting that, according to the Russia security firm that uncovered the heist, the cyber gang hit up to 100 banks worldwide in approximately 30 different countries involving 300 IP addresses.

If news reports are accurate this group patiently broke into computer systems using phishing techniques and once inside thoroughly learned how to mimic employee and system behavior.  They may have even videotaped keyboards.   By the time they struck they were able to make ATMs spit out money on command, inflate the size of accounts, and, of course, transfer money out of the institutions. As Krebs explains    “ Most cyber crime targets consumers and businesses, stealing account information such as passwords and other data that lets thieves cash out hijacked bank accounts, as well as credit and debit cards,…but this gang specializes in hacking into banks directly, and then working out ingenious ways to funnel cash directly from the financial institution itself.”

Far from throwing up our hands in frustration there is much that can and should be done by individual institutions as well as governments and consumers.

  1. Assume that your computer system has been breached and ask yourself how you can minimize the damage? You won’t find this advice in a compliance manual but experts have been stressing for years now that your IT system is as vulnerable as your most careless employee. The more you limit access to key systems to those employees who need direct access the better off you will be. Another step you could take is mandating that only certain computers be used for certain functions. Finally change passwords frequently.
  2. A hallmark of cyber attacks these days is that criminals are patiently “casing” cyber infrastructures sometimes for several months before attacking. As a technological Luddite I want to know how these people know they can poke around the security systems of some of the world’s most sophisticated banks and not get exposed? It seems to me that we can’t prevent break-ins but we can shorten the amount of time that criminals have to carry out their crimes.
  3. Is it time for a cyber-security tax? I’m open to alternatives on this one but, just as what I pay for a plane ticket partially reflects the cost of security, it’s time that financial transactions have a similar tax to pay for cyber-security. Without a robust public security infrastructure cyber-security will become yet another cost that only larger institutions can absorb. This isn’t fair to the small guys,
  4. President Obama has recently taken some long overdue steps to nationalize the issue of cyber-Security. Now it’s time to make it an international issue. This is a crucial piece of cybersecurity. No one can be facilitating international cyber thefts of the size and sophistication we are now seeing without governments looking the other way. After all someone has to collect the money.     We need an international treaty-modeled after the nuclear Non-Proliferation Treaty-in which countries would agree to adopt domestic cybersecurity protocols and consent to international inspection of their compliance efforts. Those countries that don’t comply would be subject to sanctions and those countries that choose not to participate in the agreement will give us a pretty good list of where most of the cyber crime is being facilitated. Remember that a vibrant safe electronic infrastructure is in the best interest of almost all businesses and all countries,


Here are some interesting stories on the heist.



February 17, 2015 at 8:50 am Leave a comment

Have you hugged a millennial today?

Not too long ago I was at a party chatting with people in their 40’s and 50’s when someone mentioned that, outside of work, they had no friends in their twenty’s.  My first alcohol lubricated thought was to suggest that they had to be more outgoing. Then they challenged me to name a friend in his or her twenties…Oh well they don’t know what they are missing. Now pass the scotch.

The conversation has stuck with me for several  months now because I consistently argue that  credit unions are playing chicken with a demographic time bomb when it comes to wooing the next generation of members.

But just how different are these millennials-those born between 1980 and 1994-when it comes to banking? Oh their different alright.  In fact, if your credit union isn’t adjusting to the fact that these emerging consumers are fundamentally changing the way the consumer banking game is played it is destined for obsolescence.

Does this mean that all you have to do is update your apps and people in their twenty’s and thirty’s will flock to become members? If only was that easy.  A second report   released by the New York Fed provides further evidence that younger people are finding it harder than ever to get started on an independent financial life.

First the FICO survey: 54% of the surveyed millennials say are either using or likely to use non-traditional banking platforms such as PayPal in the next 12 months. In addition, an amazing 23%  of millennials plan to use peer-to peer lending over the next 12 months compared to only 2% of those 50 and over According to FICO    “For all age groups, customer satisfaction with a primary bank has no significant impact on consideration, with an equal number of satisfied and dissatisfied consumers now using non-traditional payment companies.”

And how are banks doing communicating with their members? Not very well for any age group according to the survey, 46% of consumers across all age groups said their bank does not send marketing material relevant to their future marketing plans and   nearly 75% of consumers said they don’t receive too many offers from their bank. Finally apps are helpful but these smartphone savvy users still expect a good website, the web is your new Conner branch.

My main takeaway: Marketing may help with your older members but it won’t keep you from losing out on the next generation of members unless you are wired up and quick to react to emerging payment trends like Apple Pay.

Here is another one: The growth of peer-to-peer lending poses unique challenges for credit unions.   If these statistics are accurate  the 30-year-old looking to start a small business is as likely to turn to a peer-to-peer lending sight as he is to the credit union for a loan.  My advice? If you can’t beat them join them. We may have to work with regulators,  but credit unions should develop CUSO driven  websites with the look and feel of peer-to-peer lending sights and that use analytics to expand the number of unsecured loans credit unions are willing to make.

These statistics also underscore for me that people  don’t dislike email, its irrelevant email that drives them nuts. (A dangerous admission for a guy who emails a blog every morning)  People expect you to be able to anticipate what it is they want and deliver solutions right to their smartphones. Everyone is going to have to use analytics.

Now for the caveat to my otherwise enthusiastic embrace of millennials.  In a recent report the New York Fed pointed out that “Young Americans’ living arrangements have changed strikingly over the past fifteen years.”  They aren’t entering the housing market at anywhere near the rates of their predecessors and are “lingering longer in their parents’ households.” It concludes that we are seeing more at work here than the impact of an economic downturn. Instead, “while local economic growth, reflected in rising youth employment and escalating house prices, has mixed consequences for youth independence, the increasing magnitude of student debt among college graduates appears to be driving young people home and keeping them there.”

It may take your credit union longer than you expect for it to see the full return on its millennial investment.

Here are links to the information used in today’s blog.   See you on Tuesday.



February 13, 2015 at 9:23 am 2 comments

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Authored By:

Henry Meier, Esq., Associate General Counsel, New York Credit Union Association

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