March–April 2023 ALSO INSIDE Inflation & Interest Rates Affect Lending Trends New Look for the 118th Congress
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3 THE NAFCU JOURNAL March–April 2023 18 12 FEATURES 12 Meaningful Advocacy Requires Member Input NAFCU members have a variety of ways to get involved 18 Inflation & Interest Rates Affect Lending Trends Opportunities include focus on advising members, offering new products 22 New Look for the 118th Congress Chairman McHenry shakes up House Financial Services Committee COLUMNS 5 Conferences 6 From the Chair 8 Washington and Industry Briefs 10 The Bottom Line 26 Management Insight 28 Executive Spotlight 30 Leadership Download 32 Compliance Central 34 From the President’s Desk 22 March–April 2023 • Volume 48, Number 2 The NAFCU Journal (ISSN 1043-7789) is published bimonthly every other month. Mar–Apr 2023, Volume 48, Number 2. Published by the National Association of Federally-Insured Credit Unions, 3138 10th Street N., Arlington, VA 22201-2149. Periodicals Postage Paid at Arlington, VA, and at additional mailing offices. POSTMASTER: Send address changes to The NAFCU Journal, NAFCU, 3138 10th Street N., Arlington, VA 22201-2149. The opinions and ideas appearing in this magazine are not necessarily representative of policies of NAFCU. Manuscripts and advertisements are welcome, although NAFCU reserves the right to edit manuscripts and refuse advertisements. Contact publisher for advertising information and rates. Appearance of an advertisement does not imply endorsement or guarantee of the advertiser’s claims. For subscription or advertising information, call 800-336-4644 or 703-522-4770. Email: nafcu@nafcu.org; website: www.nafcu.org. ©2023 National Association of Federally-Insured Credit Unions, all rights reserved.
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5 THE NAFCU JOURNAL March–April 2023 CONFERENCES 2023 Calendar of Events Spring Regulatory Compliance School Mar. 13–17, in-person in Arlington, VA Strategic Growth Conference Mar. 21–23, in-person in Nashville, TN Board of Directors and Supervisory Committee Conference Apr. 17–20, in-person in Savannah, GA CEO & Senior Executives Conference May 17–19, in-person in Charleston, SC Summer Engage 2023: NAFCU’s Annual Conference June 27–30, in-person in Long Beach, CA BSA School Aug. 15–17, in-person in Louisville, KY Risk Management Seminar Aug. 15–17, in-person in Louisville, KY Congressional Caucus Sept. 10–13, in-person in Washington, DC Fall CFO Summit Sept. 19–21, in-person in Las Vegas, NV Regulatory Compliance & BSA Seminar Sept. 26–28, in-person in Savannah, GA or Virtual Management and Leadership Institute Oct. 23–27, in-person in Annapolis, MD Lending Conference Nov. 7–9, in-person in New Orleans, LA For more information about NAFCU’s conferences, go to www.nafcu.org/conferences. Looking for more educational opportunities? NAFCU’s Online Training Center has been redesigned to give credit union professionals easier access to the association’s training programs and library of webinars. For information and the current schedule of upcoming webinars, visit www.nafcu.org/ onlinetraining. Topics and dates subject to change. DIRECTORS Gary A. Grinnell, Chair Corning FCU (NY) Brian T. Schools, Vice Chair Chartway FCU (VA) Karen Harbin, Treasurer Commonwealth CU (KY) Lonnie Nicholson, Secretary EECU (TX) Melanie Kennedy Southwest Financial FCU (TX) James A. Kenyon Whitefish CU (MT) Frank Mancini Connex CU (CT) Keith Sultemeier Kinecta FCU (CA) Karen Rosales Arlington Community FCU (VA) Stephanie Sherrodd Sandia Laboratory FCU (NM) Eli Vazquez Bank-Fund Staff FCU (DC) EXECUTIVE STAFF B. Dan Berger President/CEO Anthony Demangone Executive Vice President/COO Meghan Small Vice President of Communications and Media Relations Greg Mesack Senior Vice President of Government Affairs Randy Salser President of NAFCU Services Corporation MAGAZINE STAFF Haley Schmitz Editor LLM Publications Editorial Services and Design ADVERTISING sales@nafcu.org www.nafcu.org/advertise
6 THE NAFCU JOURNAL March–April 2023 NAFCU is also pursuing policies that allow credit unions to partner with vendors and fintechs to provide frictionless financial management to their members. But, in that same vein, we need to ensure a level playing field and proper oversight over nontraditional banks to keep credit unions competitive. Our industry thrives because we understand that we are part of a community greater than ourselves and our bottom lines. We support our members every way that we can and in turn they trust us to achieve their financial dreams. As you look ahead, remember your roots and grow from there. Gary Grinnell is president and CEO at Corning Credit Union in Corning, NY. FROM THE CHAIR ENGAGING YOUR COMMUNITY ROOTS By Gary Grinnell, NAFCU Board Chair We all know there are many ways to describe and define the credit union mission, but the one I’m focusing on today—the true foundation and root of our industry—is community. Our credit unions are built on the idea of community as our member make-up is determined by a common bond—also known as our field of membership. In another way, community involvement is one of the biggest differences between big banks and credit unions. It’s what makes our institutions so strong: credit unions care about their communities because they are a direct reflection of them. Credit unions aren’t just part of a community; the community is what makes the organization thrive. There are countless ways a credit union knits itself into the fabric of the community it serves. For example, some may offer programs for elementary, middle or high school students to teach financial literacy and promote smart money management from a young age. Some may sponsor scholarships to colleges, donate to local charities and food banks or have a volunteer program that allows employees and members to participate in giving back to the community. The examples mentioned don’t even scratch the surface of the lengths credit unions will go to for their community during both good and hard times. Whether it’s the aftermath of a natural disaster or even a worldwide pandemic causing members to struggle to make ends meet, credit unions never hesitate to offer things like payment deferral programs or emergency loan programs for their members. Credit unions always answer the call and step up to provide resources and programs for those in need. And when that same pandemic threatened the business operations of thousands of Main Street small businesses, credit unions without small business lending in their portfolios applied to take part in the Small Business Administration’s paycheck protection program. In communities where credit unions are present, you can be sure that you will find people helping people. The best part is many of us want to do more. NAFCU’s award-winning advocacy team has continuously advocated for credit unions to be able to expand their fields of memberships. Our industry stands ready to provide services to underserved and disadvantaged communities to help combat branch closures and banking deserts. As is often said, credit unions are more than willing to help bridge the gap in areas where there is a need affordable financial services. It’s no doubt the needs of our members are evolving every day. It’s critical we hone into our community roots to better understand what products and services will best serve our members and seek the best methods to provide them. When you consider the financial products and services consumers need and want these days, many are fintech related.
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8 THE NAFCU JOURNAL March–April 2023 WASHINGTON AND INDUSTRY BRIEFS Working with a New Congress This year brought a new Congress and a change in leadership in the U.S. House of Representatives. At NAFCU, our award-winning advocacy team is working closely with new leadership in Congress on both sides of the aisle and we’re continuing to build strong relationships with new and returning lawmakers to tout the credit union difference on Capitol Hill. Senate NAFCU lobbyists have fostered well-established relationships with Sen. Sherrod Brown, D-Ohio, who currently serves as Chairman of the Senate Banking, Housing, and Urban Affairs Committee, as well as new Ranking Member of the committee, Sen. Tim Scott, R-S.C., who also serves on the Senate Finance Committee and Small Business and Entrepreneurship Committee. House The team remains in close contact with Rep. Patrick McHenry, R-N.C., who is the new Chairman of the House Financial Services Committee, and former chairwoman of the committee, Rep. Maxine Waters, D-Calif., who is set to serve as Ranking Member. NAFCU ON THE HILL IN 2023 By Greg Mesack, NAFCU Senior Vice President of Government Affairs In addition to working directly with lawmakers to ensure credit union voices are heard, the NAFCU Legislative Affairs Team monitors legislation that will impact the industry. In 2023, NAFCU is focusing its time and attention on policies that have the ability to impact credit union growth, so our members can serve more Main Street small businesses and American families. We are also focusing on policies surrounding technology and innovation, regulatory relief, a fair market and level-playing field and data protection. While this may seem like NAFCU is casting a broad net, the association has built a reputation for being one of the most influential financial services trade groups because we advocate fiercely for bills that are beneficial to the industry— and fight back against those that aren’t. Legislation Update Set to Advance NAFCU has been vocal in its support of the bipartisan Credit Union Board Modernization Act (CUBMA). This bill, which passed the House swiftly at the end of January - a testament to its broad support - after being reintroduced by Reps. Juan Vargas, D-Calif., and Bill Huizenga, R-Mich., would modify existing language in the Federal Credit Union Act related to the requirement that credit union boards meet once a month. NAFCU will continue to tout how CUBMA would benefit the credit union industry and work with senators to build additional support to get it enacted. Failure to Launch In 2022, NAFCU remained a leading voice in the fight against the Credit Card Competition Act (CCCA)—introduced by Sens. Dick Durbin, D-Ill., and Roger Marshall, R-Kansas, in July— which attempted to extend debit interchange routing requirements to credit cards. NAFCU consistently raised concerns about this legislation placing additional regulatory and operational burdens on credit unions and harming consumers. NAFCU President and CEO Dan Berger was especially vocal on the topic, outlining the negative impacts of imposing any new caps or restrictions on interchange fees in letters to Congress and op-eds published in Real Clear Markets and CUInsight. Berger highlighted that rather than promoting competition as the bill’s misleading name would suggest, the legislation instead promoted increasing the profits of big box retailers at the expense of consumers.
9 THE NAFCU JOURNAL March–April 2023 NAFCU’s ardent advocacy against the CCCA successfully kept the legislation out of the 2023 National Defense Authorization Act and the $1.7 trillion omnibus spending package. The financial services industry was united against the unpopular bill and, as a result, it failed to gain traction in Congress. Should this legislation be introduced again in the 118th Congress, you’ ll once again see NAFCU fighting on the front lines. The association will continue to educate lawmakers on the consequences of interchange caps on consumers and fight against any future efforts to advance similar bills. Subscribe to the association’s daily e-newsletter, NAFCU Today, and follow NAFCU on Twitter, LinkedIn, Facebook and Instagram for the latest out of Washington. NAFCU’s Grassroots Action Center allows credit unions to easily find their polling location, search for local candidates and more. Take advantage of this resource ahead of the upcoming election by visiting www.nafcu.org/grassroots. “This year brought a new Congress and a change in leadership in the U.S. House of Representatives. At NAFCU, our award-winning advocacy team is working closely with new leadership in Congress on both sides of the aisle and we’re continuing to build strong relationships with new and returning lawmakers to tout the credit union difference on Capitol Hill.”
10 THE NAFCU JOURNAL March–April 2023 LABOR FORCE PARTICIPATION: WHERE HAVE ALL THE WORKERS GONE? By Curt Long, NAFCU Chief Economist and Vice President of Research THE BOTTOM LINE If you talk to any CEO about their organization’s biggest challenges, it will not take long before hiring and retention come up. A recent survey of small businesses found that labor quality and availability was their single biggest problem, outpacing sales and taxes.1 In a November 2022 speech, Federal Reserve Chair Jerome Powell observed that the outage in the labor force versus the pre-COVID forecast stood at 3.5 million.2 This note considers the reasons behind that outage as well as the outlook for future labor force growth. The lion’s share of the blame for the drop in the labor force falls on the surge in retirements. Figure 1 illustrates both the secular upward trend in the retiree share of the adult population as a result of societal aging, as well as the historic leap in retirements beginning in 2020. Even as COVID fears have abated somewhat, excess retirements have not meaningfully declined. A recent study from Federal Reserve researchers attributes essentially all of the one-percentage point decline in the labor force participation rate between 2019 and 2022 to retirees.3 On a more somber note, it may be that COVID-related deaths are reducing the labor force. To date, COVID-related deaths have been predominantly among older populations who generally have lower rates of labor force participation. However, Chair Powell’s November speech cited research estimating that 400,000 workers have died from COVID. It appears that a couple of developments that suppressed labor supply during the early parts of the pandemic are now in retreat. From 2015–19, the number of foreign-born individuals in the labor force increased by an average of 530,000 annually. COVID restrictions both domestically and abroad resulted in a drop of nearly 1.1 million in 2020. However, 2022 was a banner year for legal immigration as the number of foreign-born workers grew by 1.8 million. Similarly, many workers who were separated from their jobs in 2020 started their own businesses. Relative to pre-pandemic levels, the increase in the number of self-employed individuals Figure 1: Share of 16+ Pop. Not in Labor Force, Retired Pre-COVID Trend 20% 19% 18% 17% 16% 15% 2010 2012 2014 2016 2018 2020 2022 Source: NAFCU Research analysis of Current Population Survey (CPS) monthly files (IPUMS). Series is seasonally adjusted for population controls related to the 2020 Census in the CPS. Citation: Sarah Flood, Miriam King, Renae Rodgers, Steven Ruggles and J. Robert Warren. Integrated Public Use Microdata Series, Current Population Survey: Version 7.0 [dataset]. Minneapolis, MN: IPUMS, 2020. https://doi.org/10.18128/D030.V7.0
11 THE NAFCU JOURNAL March–April 2023 References 1. National Federation of Independent Businesses, “Economic Trends” (Dec. 2022). Note that the survey has been kept since 1986. Labor quality has been the top-rated problem since 2018, when it assumed the position for the first time in the survey’s history. 2. Chair Jerome Powell, “Inflation and the Labor Market” (Nov. 30, 2022), speech delivered at Hutchins Center on Fiscal and Monetary Policy, Brookings Institution, Washington, D.C. 3. Montes, Joshua, Christopher Smith, and Juliana Dajon. 2022. “The Great Retirement Boom: The Pandemic-Era Surge in Retirements and Implications for Future Labor Force Participation.” DOI: https://doi.org/10.17016/FEDS.2022.081. in nonagricultural businesses peaked in mid-2021 at roughly 800,000. However, that figure has since declined to roughly 200,000. Each year, the Bureau of Labor Statistics (BLS) issues estimates for labor force growth over the next decade. The most recent forecast indicates that the BLS expects the immigration-induced labor force surge of 2022 to be an outlier. In each year from 2023 through the end of the forecast, annual growth in the labor force is expected to fall short of the annual average from the prior decade, and well short of the average from the aughts. If this forecast bears out, the struggle to fill job vacancies is likely to continue. A key competency for businesses in the 2020s will be attracting and retaining talent, but also increasing productivity so that they get the most out of their employees. Figure 2: Annual Growth in Civilian Labor Force, 2022–2031 (Forecasted) 2001–11 Annual Avg. 2011–21 Annual Avg. 1.0% 0.9% 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Source: Bureau of Labor Statistics Employment Projections.
12 THE NAFCU JOURNAL March–April 2023 MEANINGFUL ADVOCACY By Sheryl S. Jackson REQUIRES MEMBER INPUT NAFCU members have a variety of ways to get involved
13 THE NAFCU JOURNAL March–April 2023 Advocacy for the credit union industry is a critical service NAFCU provides to its members, but effective advocacy requires the involvement of members as well as NAFCU’s award-winning staff. In fact, NAFCU members provide the insight into how specific issues affect their credit union operations and members—knowledge that enhances the association’s overall legislative and regulatory advocacy efforts. “Our members provide a unique, front-line perspective that enhances our ability to make sure legislators and regulators understand how proposed rules or laws impact local credit unions and their members,” said Brad Thaler, vice president of legislative affairs at NAFCU. “As professional staff, we understand policy and how Washington, D.C. works, but we are not running a credit union on a day-to-day basis; so we, along with legislative and regulatory staffs on the Hill, may not know what issues will arise when a new law is put into practice.” Direct input from credit unions—through member involvement in calls, committees, surveys and meetings with legislators and their staff members, as well as regulators—is critical because each credit union and their member composition is unique—no one “profile” works for all. “Credit union business models and fields of membership vary widely, so it is important that we are always hearing from and working with members to give staff on the Hill a thorough overview of how new laws and rules impact credit unions,” said Thaler. “We offer NAFCU members a variety of ways to get involved with our legislative affairs and regulatory affairs efforts.”
14 THE NAFCU JOURNAL March–April 2023 Grassroots Efforts Strengthen Overall Advocacy “I think the most important component of legislative advocacy is connecting lawmakers to their constituencies and communities,” said Allyson Gale, director of political affairs at NAFCU. “Legislators and their staff receive hundreds of letters on different issues and policies, but the most effective communications—written or in-person—are the messages that let them know what is going on two blocks from their district office.” Explaining how proposed laws will affect the constituents who elected them resonates in a stronger way, said Gale. “The message is more impactful.” Getting involved in grassroots advocacy—communicating directly with lawmakers—is not an easy task, admitted Gale. “We understand that members are taking personal time away from their businesses and families to get involved, so we support them with talking points, formatted emails, contact information for their legislators and advice.” The Grassroots Action Center on the NAFCU website includes alerts requesting members to contact their legislators about specific issues, a bill tracker and information about candidates and elected representatives. In recent years, members were very involved because there were so many issues surrounding COVID-era programs, such as the Small Business Administration’s paycheck protection program among others. These programs were implemented so quickly that issues arose just before or as the programs were implemented, said Gale. “Members are still involved, but we’d like to see even more involvement in 2023 so we can provide better information early in the process.” Face-to-face meetings in person or via Zoom are scheduled by NAFCU staff to give legislators or their staffs a chance to hear directly from their credit union members. “We’ ll make the connection between members and staff because it’s a great starting point,” explained Gale. It’s important to remember that legislative staff are an important part of the conversation because they inform and educate representatives and senators, and are also tasked with representing the district, she said. Professional lobbyists believe that creating strong relationships with staff is a critical part of the job—you can often gain access to staff more easily, have longer conversations and position yourself and your association as a trusted source of educational information, she added. Although NAFCU calls on general membership as well as those who are a part of its legislative committee to participate in email campaigns or meetings to address issues with legislators, there are times that individual credit unions request meetings with lawmakers to express concerns. In these cases, the NAFCU legislative team works to put the right “pieces of the puzzle” together for a productive conversation. “Last year, a credit union in Kentucky was concerned about proposed changes to the Community Development Financial Institutions Fund that specifically affected their community and members, so we coordinated a meeting of legislative staff and credit union representatives to discuss the issues,” said Gale. “You never see immediate results in legislative advocacy, “ Credit union business models and fields of membership vary widely, so it is important that we are always hearing from and working with members to give staff on the Hill a thorough overview of how new laws and rules impact credit unions. We offer NAFCU members a variety of ways to get invoved with our legislative affairs and regulatory affairs efforts. ” BRAD THALER, VICE PRESIDENT OF LEGISLATIVE AFFAIRS, NAFCU
15 THE NAFCU JOURNAL March–April 2023 but by connecting the right people, we were able to start a conversation, and the credit union knows their concerns have been heard.” Educating Regulators Requires Front-Line Perspective Advocacy is also important in regulatory affairs, even though the staff and agency directors are not elected. “Although there is not the same community connection that you find in legislative affairs, regulatory staff are open to learning how specific rules will affect credit unions and their members,” said Ann Petros, NAFCU’s vice president of regulatory affairs. “We welcome members who bring issues to us because it gives us a chance to be proactive and talk to staff, write a letter or set up a meeting.” One of the best ways NAFCU members can get involved is through the association’s regulatory committee, which meets once a month to talk about proposed rules and open comments. The feedback from the approximately 40 members who represent credit unions of all sizes, various areas of the country and different types of services provide Petros and other NAFCU staff a greater breadth of understanding of the issue so they can enhance their communications. “We also use the committee as a vetting process for ideas,” said Petros. “We had some NAFCU members who asked us to consider advocating for an expansion of CUSO investment authorities. The committee had a good discussion of the pros and cons of advocating for it, but in the end, decided that based on other agency priorities, it would not be beneficial for credit unions at the time.” The ability to look at an issue in the context of all new and proposed rules in process—as well as political considerations—is a
16 THE NAFCU JOURNAL March–April 2023 valuable role of the regulatory committee, she said. “Even if a member contacts us, and the decision is made not to move forward at the time, the conversation itself is productive because it may spark another idea.” In addition to participation on the regulatory committee, some members regularly respond to regulatory alerts issued by NAFCU, and other members send their own emails or call, said Petros. “Some topics prompt more active support than others. For example, when the Consumer Financial Protection Bureau (CFPB) was reviewing credit card late fees, we had several calls with credit unions and their credit cards teams and subject matter experts to gather details of what changes by the CFPB would mean to the day-to-day operation of the credit union—these are details I don’t have unless our members share them.” Although credit unions vary widely in terms of resources they can devote to advocacy, Petros and Gale stressed that there are many different ways to get involved at any level. Involvement can include serving on NAFCU’s legislative and regulatory “ I think the most important component of legislative advocacy is connecting lawmakers to their constituencies and communities. Legislators and their staff receive hundreds of letters on different issues and policies, but the most effective communications—written or in-person—are the messages that let them know what is going on two blocks from their district office. ” ALLYSON GALE, DIRECTOR OF POLITICAL AFFAIRS, NAFCU committees, responding to alerts from the regulatory and legislative affairs teams, providing information on the impact of proposed rules and letting the NAFCU team know that the credit union’s subject matter experts are available for calls or meetings with legislators and regulators and their staff. “We also have a monthly NAFCU Economic and CU Monitor survey through our research department that asks about economic trends or special topics of concern,” said Thaler. “Participation in this survey is very important because it helps us develop our plans, and results can identify trends or issues that we need to know.” Most importantly, any NAFCU member can pick up the phone and call NAFCU staff—including direct calls to our CEO Dan Berger, said Thaler. “We are very accessible, and we want to hear from members who have questions or concerns, or who want to get involved,” he said. “Advocacy is an important service we provide our members, and we want their input and feedback to help us form our strategies for the year.” “ Some topics prompt more active support than others. For example, when the Consumer Financial Protection Bureau was reviewing credit card late fees, we had several calls with credit unions and their credit cards teams and subject matter experts to gather details of what changes by the CFPB would mean to the day-to-day operation of the credit union—these are details I don’t have unless our members share them. ” ANN PETROS, VICE PRESIDENT OF REGULATORY AFFAIRS, NAFCU
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18 THE NAFCU JOURNAL March–April 2023 Opportunities include focus on advising members, offering new products By Sheryl S. Jackson INFLATION& INTEREST RATES AFFECT LENDING TRENDS
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20 THE NAFCU JOURNAL March–April 2023 Rising costs of homes, goods and everyday items such as groceries, and increasing interest rates are all affecting credit union lending and compliance departments. While the borrowing behavior of members varies depending on the products provided or the membership served by the credit union, the effects of inflation and higher interest rates have led to new or renewed focus on strategies for some credit unions. “Interest rates are definitely affecting our members,” said Nathan Anderson, executive vice president and chief operating officer for Mountain America Credit Union. “People who have 2% fixed-rate, collateralized loans, such as auto loans, from last year are very happy when they see current auto loans with interest rates of 6.5% or more, but there are other people who have variable-rate credit cards who are hurting.” In November 2022, Americans held $925 billion in credit card debt, which is a rise of $38 billion since Q2 2022. According to The Federal Reserve of New York, this represents a 15% year-over-year rise—the biggest jump seen in more than 20 years.1 The combination of high account balances and rising interest rates increases the importance of education and advice for credit union members, said Anderson. “We had one member with a 2% auto loan, who also had credit card balances of $16,000 at 22% and $17,000 at 20%,” he said. “This member was struggling but when our team member suggested refinancing the auto loan to provide cash to pay off credit card debt, the member did not want to give up the 2% loan.” After showing the member how a 6.5% refinanced auto loan could reduce credit card debt— and its high interest—the Mountain America team member was able to convince him to refinance. “Now, our member is paying 6.5% interest rather than 22% and 20% and saving $1,600 per month.” Changing interest rates, especially for credit cards, are a common reason for calls to NAFCU’s regulatory compliance team, said Nick St. John, director of regulatory compliance. “Most of the calls relate to if notices are needed and how and when to provide them,” he said. “There are limits on when you can raise rates on credit cards and home equity lines of credit, so members want to make sure they comply with the regulations.” HELOCs vs. Mortgages “We are seeing a decline in mortgage loan applications due to increasing interest rates as well as relatively high home prices, but we are also seeing an increase in HELOCs,” said Katherine Lopez, director of compliance and risk management at IDB Global Federal Credit Union. “Members are deciding to invest in their current home with renovations and repairs.” At Mountain America, mortgage loan refinancing has slowed compared to past years, and traditional mortgage loans are stagnant, but there is a steady growth in certain types of mortgages, said Anderson. “Loans for first-time homebuyers, investment properties or second homes are increasing,” he said. “2022 was also the best year we’ve ever had for HELOC loan origination.” The slowdown in mortgage loan applications does have a bit of a silver lining, says Lopez. “When the volume of loan applications was higher, it was difficult and stressful for staff to manage the quality control process and ensure compliance with all regulations,” she said. “Now, we have more time for staff to not only ensure compliance with all regulations, “ We are seeing a decline in mortgage loan applications due to increasing interest rates as well as relatively high home prices, but we are also seeing an increase in HELOCs. Members are deciding to invest in their current home with renovations and repairs. ” KATHERINE LOPEZ, DIRECTOR OF COMPLIANCE & RISK MANAGEMENT, IDB GLOBAL FEDERAL CREDIT UNION
21 THE NAFCU JOURNAL March–April 2023 but also reflect and consider process improvements for the next interest rate cycle.” At the same time, IDB Global is focused on the strategic side of lending to identify how the credit union can generate more loans, said Lopez. “Our campaigns emphasize our lower rates compared to other lenders, and we remind members that they may refinance when interest rates drop in the next interest rate cycle.” Because mortgage loans make up the majority of their loan portfolio, the goal is to organically generate more mortgage loans with adjustable-rate products, she added. Considering the Full Picture Finding new sources of lending revenue is not just limited to expanding existing programs. “There are a number of credit unions that are interested in starting a new or expanding a current business loan program,” said St. John. “We are receiving calls from members who want guidance on how it works and what they need to do to ensure compliance.” “Auto loan volume is steady for us, but we are seeing an increase in the loan amounts,” said Anderson. “A combination of lack of supply and inflation has increased auto loans 20% over 2019 and recreational vehicle loans 30% over 2019.” There is concern about increasing credit card debt, but Anderson pointed out that the first quarter usually reflects higher-than-normal holiday spending, with balance pay downs occurring when tax refunds are issued. “The increased debt is across all demographics, with people dipping into credit cards to pay for routine, recurring expenses, such as groceries, that have risen with inflation,” he said. “We’ ll see if people are able to reduce their balances with tax refunds.” While interest rates and credit card debt are causing credit union members to struggle, Anderson said that credit unions should be proactive in their education of members. “We start with educating our staff with financial literacy courses that help them make good decisions for themselves and prepare them to advise our members,” he said. Using a “Triple A” philosophy, Mountain America staff assess the members’ needs rather than simply answer the question asked, advise the members of different options to meet their needs and assist the member in obtaining the service or product. “We believe in face-to-face interactions with members and have 100 branches, but we also respond to members calling in to our credit union, and we reach out to members,” said Anderson. “Interest rates are rising but that doesn’t mean that credit unions don’t have greater opportunities to better serve members.” Reference: 1. “Average Credit Card Debt In The U.S. Is Rising — How Does Yours Compare?” Forbes. November 29. 2022. www.forbes.com/sites/qai/2022/11/29/average-creditcard-debt-in-the-us-is-rising---how-does-yourscompare/?sh=2f35175c6489. “ We believe in face-to-face interactions with members and have 100 branches, but we also respond to members calling in to our credit union, and we reach out to members. Interest rates are rising but that doesn’t mean that credit unions don’t have greater opportunities to better serve members. ” NATHAN ANDERSON, EXECUTIVE VICE PRESIDENT & CHIEF OPERATING OFFICER, MOUNTAIN AMERICA CREDIT UNION
22 Chairman McHenry shakes up House Financial Services Committee By NAFCU’s Legislative Affairs Team FOR THE 118TH CONGRESS NewLook N THE NAFCU JOURNAL March–April 2023
23 THE NAFCU JOURNAL March–April 2023 With Republican control of the U.S. House of Representatives in the 118th Congress, changes are in store for the House Financial Services Committee (HFSC). North Carolina Republican Rep. Patrick McHenry took the helm from California Democrat Maxine Waters, who chaired the committee since 2019 and will continue as the ranking member, a role she held prior to becoming chair. McHenry, who was once one of the youngest Members of Congress when he was elected at age 29 in 2004, is now in his 10th term and has four years of experience working with Waters at the top of the dais. As a close ally of House Speaker Kevin McCarthy, R-Calif., McHenry was a top negotiator for McCarthy during the protracted Speaker election. The new chairman has built a strong reputation in his 18 years on the committee and has been a close friend of NAFCU and credit unions throughout his Congressional tenure. Last September, McHenry sat down with NAFCU President and CEO Dan Berger during our 2022 Congressional Caucus to discuss what his outlook for the Committee would be if he were to become chairman. At that time, he listed some of his top priorities as data privacy, capital formation and giving clarity to digital assets. During that conversation, when discussing fintech, McHenry emphasized the importance of the partnership model to spur innovation while protecting institutions’—like credit unions— ability to offer consumers more choices. “Without consumer choice, we’re worse off. We do not want to look like Europe, with fewer options and larger institutions, which leads to a less dynamic economy,” explained McHenry. “I think it’s important that we embrace innovation and drive for innovation,” stated the congressman, who noted that any other management of the partnership model for fintech innovation is wrong-headed, inappropriate and “must be checked.” In one of his first moves as chairman this year, McHenry announced the creation of a new Subcommittee on Digital Assets, Financial Technology and Inclusion. NAFCU President and CEO Dan Berger with HFSC Chairman Patrick McHenry.
24 THE NAFCU JOURNAL March–April 2023 McHenry has been a long-time champion for regulatory relief for credit unions and told Berger at the 2022 Congressional Caucus he wants to see increased opportunity for credit unions. In the same conversation, he also noted his strong opposition to legislation seeking to change credit card interchange rules, such as the Credit Card Competition Act, which NAFCU’s advocacy team successfully blocked from passage last year. McHenry also announced some structural changes to the committee as the new chairman, including his selection for top lieutenants in committee leadership—the subcommittee chairs. McHenry decided not to carry over the standalone Diversity and Inclusion Subcommittee from the previous Congress and instead has tasked all subcommittees with strengthening diversity and inclusion in financial services. New Subcommittee on Digital Assets, Financial Technology and Inclusion The newly chartered Subcommittee on Digital Assets, Financial Technology and Inclusion will be chaired by Rep. French Hill, R-Ark., and its jurisdiction will cover cryptocurrency, stablecoins and financial technology. This subcommittee will provide rules of the road for federal regulators involved in the digital assets space, developing policies to help reach underserved communities with financial technology and promoting diversity and inclusion in the digital assets ecosystem. At subcommittee hearings, we expect to hear from prudential financial regulators, blockchain and digital assets trade associations and academics with expertise in fintech and digital assets. Legislation providing a framework for regulations in this space without stifling innovation has been a key priority of McHenry, so we can expect this subcommittee to be busy with the potential for a lot of bipartisan work. Hill has represented the 2nd District of Arkansas since 2015, sitting on the Financial Services Committee his entire tenure. Prior to his time in Congress, Hill worked in community and investment banking and served in the George H.W. Bush Administration in various roles in the Treasury and White House. Credit unions stand to be able to utilize stablecoins and can already provide custodial services for digital assets. NAFCU will remain engaged to ensure that credit unions’ activities in the digital assets space are regulated by the National Credit Union Administration (NCUA), and credit unions do not fall under the regulatory authority of multiple agencies. Subcommittee on Capital Markets Under the leadership of Chairman Ann Wagner, R-Mo., who previously chaired the committee’s Oversight and Investigations Subcommittee and served as ranking member of the Diversity and Inclusion Subcommittee, the Capital Markets panel will focus on access to capital for small businesses and entrepreneurs and oversee public markets. Additionally, this subcommittee will have jurisdiction over policy development at the Financial Accounting Standards Board (FASB), along with other standard-setting organizations and the Securities and Exchange Commission’s (SEC) regulatory activity, including the agency’s climate-disclosure efforts that have been heavily criticized by Republicans in Congress. Subcommittee on Financial Institutions and Monetary Policy Rep. Andy Barr, R-Ky., will chair this subcommittee, after serving as the ranking member of the HFSC National Security, International Development and Monetary Policy Subcommittee during the previous Congress. This subcommittee has jurisdiction over the prudential regulators, including the NCUA, the Consumer Financial Protection Bureau (CFPB) and the Federal Reserve. Barr will focus on protecting safety and soundness, while promoting financial accessibility, growth and competition within the financial services industry. When announcing Barr’s chairmanship of the subcommittee, McHenry noted the Congressman’s particular understanding of issues facing rural communities and his past work to increase chartering of new financial institutions. Subcommittee on National Security, Illicit Finance and International Financial Institutions The former ranking member of the Small Business Committee and top Republican on the Financial Institutions Subcommittee, Rep. Blaine Luetkemeyer, R-Mo., will chair the National Security Subcommittee this Congress. Luetkemeyer has extensive experience in financial services policymaking, and McHenry highlighted Luetkemeyer’s expertise on issues Rep. Andy Barr NAFCU Senior Vice President of Government Affairs Greg Mesack with Rep. French Hill.
25 THE NAFCU JOURNAL March–April 2023 related to the Financial Crimes Enforcement Network (FinCEN). In addition to FinCEN oversight, this subcommittee will devote significant attention to the United States’ economic and financial competition with China and continuing efforts to stop the financing of terrorism. Luetkemeyer participated in a fireside chat during our 2022 Congressional Caucus, where he spoke to NAFCU members about the importance of Congressional oversight of regulatory agencies, among other topics. Subcommittee on Oversight and Investigations Rep. Bill Huizenga, R-Mich., who was previously ranking member of the committee’s Capital Markets Subcommittee, has been named chair of the Subcommittee on Oversight and Investigations. This subcommittee has oversight authority for all agencies within the committee’s jurisdiction, including the NCUA and CFPB, and Huizenga has said his primary focus will be on holding regulators accountable for creating burdensome and arbitrary regulatory structures without actually providing meaningful consumer protections. When announcing this leadership position, McHenry said Huizenga’s broad experience with financial services issues makes him well-suited for this subcommittee’s expansive jurisdiction. NAFCU has worked with Huizenga on several pro-credit union policies and looks forward to working with him in this new capacity to ensure credit unions are protected from regulatory overreach. Subcommittee on Housing and Insurance Rep. Warren Davidson, R-Ohio, formerly the ranking member of the committee’s Task Force on Financial Technology, will chair the Housing and Insurance Subcommittee this Congress. The subcommittee’s jurisdiction over housing policy includes oversight of the Department of Housing and Urban Development (HUD) and the Federal Housing Finance Agency (FHFA). Davidson’s panel will also focus heavily on the insurance industry, which has a major economic presence in his home state. Of note for NAFCU members, this subcommittee’s jurisdiction includes the National Flood Insurance Program (NFIP); Congress will need to act on the NFIP before its authorization expires at the end of September. Relationships are the foundation of any successful advocacy operation. As the NAFCU Legislative Affairs team, we are consistently cultivating and maintaining relationships with members of Congress and their staff 365 days a year. These relationships ensure the voice of credit unions across the country is heard and understood. NAFCU works diligently with the House Financial Services Committee and their staff, which regularly results in the sponsorship of pro-credit union bills, support for NAFCU’s position on issues and attendance at NAFCU’s annual Congressional Caucus. While our team continues to successfully amplify the voice of credit unions before the committee and all of Congress, we can’t do it alone. The continued engagement of NAFCU members in the legislative arena is essential for bolstering and defending the credit union industry. All NAFCU members are encouraged to participate in grassroots campaigns, the association’s legislative and regulatory committees, and joining the association on Capitol Hill for meetings. NAFCU is honored to be entrusted by our members to advocate for the credit union industry. Rep. Bill Huizenga NAFCU Senior Director of Legislative Affairs Chad Adams with Rep. Blaine Luetkemeyer. “ Without consumer choice, we’re worse off. I think it’s important that we embrace innovation and drive for innovation. ” REP. PATRICK MCHENRY, CHAIRMAN, HOUSE FINANCIAL SERVICES COMMITTEE
26 THE NAFCU JOURNAL March–April 2023 THREE WAYS MEMBER RETURNS CAN HELP CREDIT UNION LEADERS GROW THEIR BUSINESS By Matt Jernigan, Executive Vice President, Ascend Federal Credit Union MANAGEMENT INSIGHT Leveraging annual bonus dividends or patronage dividends can prove to be an effective strategy to attract new members and business clients while demonstrating the credit union difference. The member return is a much-debated topic in our industry. Some executives prefer to distribute surplus cash from operations in the form of grants or donations to philanthropies or economic development organizations. Others contend there is no ideal way to allocate dividends equitably (because the differences between products used by members, such as debit cards or mortgages, for example, yield different “profits”). The member return naysayers so far have carried the day and only a small percentage of credit unions return funds to customers. Ascend Federal Credit Union, according to research from a financial trade association, is among only 1% of American credit unions that annually share financial success with members via a member return—one of just 51 out of nearly 5,000 institutions. We believe, however, that credit unions can have the best of both worlds and distribute returns that treat members fairly and support organizations that are doing great work in the community. Last year, Ascend returned $5 million to members in the form of bonus dividend payments, loan interest refunds and reward payments for loyal debit card use. Here are three reasons why the member return is an integral part of our corporate strategy: 1. The member return reflects our members-first commitment One important way we fulfill our nonprofit mission is by returning to our members a generous portion of the surplus proceeds earned by running our credit union efficiently and effectively. The distribution is our way of proving our loyalty to members who have trusted us with their hard-earned money, and who use the variety of products and services we offer. Our members get to share in our success, unlike other financial institutions where only shareholders receive a dividend. 2. Member returns help stimulate local economies and support philanthropic organizations Successfully positioning a credit union as a preferred choice involves more than providing superior customer service and innovative products. We believe it is our responsibility to support communities where we are located. Ascend has disbursed more than $104 million since 2005 when we initiated our member return program. A substantial portion of the money goes to local members and businesses—and those funds help stimulate economic activity and support philanthropic organizations that are making a difference in people’s lives. “Ascend Federal Credit Union is among only 1% of American credit unions that annually share financial success with members via a member return—one of just 51 out of nearly 5,000 institutions.”
27 THE NAFCU JOURNAL March–April 2023 “One important way we fulfill our non-profit mission is by returning to our members a generous portion of the surplus proceeds earned by running our credit union efficiently and effectively. The distribution is our way of proving our loyalty to members who have trusted us with their hard-earned money, and who use the variety of products and services we offer.” 3. Distributions instill better fiscal discipline Rewarding members with an annual return requires fiscal discipline. Our management team painstakingly determines how much capital is required—and the necessary return on investment—to fund key strategic growth initiatives, such as branch expansions, digital experience improvements and offering competitive rates on all products. When we hit our goals, it becomes a win-win for our members: they have access to superior products and services and receive a year-end member return bonus. The member return has become an important differentiator for our credit union. It is a vital tool to help ensure that our company is aligned with the needs of our members. Our return is never guaranteed, but thanks to increased use of our credit union’s products and services and prudent management, our members have received a return every year for the last 18 years—and our membership has grown from 117,000 to more than 254,000. Now that is what I call a win-win. Matt Jernigan serves as executive vice president of Ascend Federal Credit Union where he oversees the lending, operations and information technology departments.
28 THE NAFCU JOURNAL March–April 2023 EXECUTIVE SPOTLIGHT Q: What led you to the credit union sector, and to Credit Union West? A: I started in the credit union industry at age 16 through a high school business program. It gave me the opportunity to learn about credit unions and what they represent at an early age. I have been passionate about the credit union movement ever since. I had the opportunity to join Credit Union West shortly after completing my bachelor’s degree. Since then, I have been in love with what our credit union represents to our local community, the impact we make to our members and my ability to be part of its ongoing success. Q: Describe your leadership style. How do you lead an engaged team? A: Servient, collaborative and empathetic would be the top words that come to mind. As a leader, you must ensure that you respect your team, listen and provide consistent and dependable support. It’s important for me to understand others’ viewpoints and feelings, so that I can make the best decision for the organization. Once there is trust, honesty and commitment, engagement naturally follows and then it’s time to get out of their way and let them shine! KAREN ROCH President and CEO of Credit Union West Q: How do you attract and retain dedicated employees? A: Being a top company to work for in Arizona the last 10 years is no easy task. We focus on providing a culture that is highly centered around our employees. Their voices are important, and we encourage all feedback. We do this through all-team monthly connection meetings, annual townhalls, employee rallies and practicing open-door environments at all levels. Diversity, inclusion and belonging are paramount to ensuring that we attract and retain the best talent to help serve our membership. At the end of the day, happy employees make happy members. Q: What is your advice for other credit union leaders striving to provide their members with the best service possible? A: Every decision made should be about how it ultimately impacts your members. Your employees are at the forefront everyday listening to your members and their needs. Listen to them and set business strategies on how to help your members. The only reason we are here is for the members. While innovation and technology continue to rapidly change, we need to consider what parts of those changes are in the best interest of the members and will ultimately impact their financial wellness. Q: Why is community service and philanthropy important to you and Credit Union West? A: Credit unions are part of the local community, and we are here to serve our members. Philanthropy is at the heart of what credit unions are about, “People Helping People”; it’s the reason we exist. Being able to help the communities we serve be more prosperous, connected and improve our local well-being is personally important to me as well. “As a leader, you must ensure that you respect your team, listen and provide consistent and dependable support. It’s important for me to understand others’ viewpoints and feelings, so that I can make the best decision for the organization.”
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