ALSO INSIDE Protecting Older Members FinCEN BOI Implementation Updates May–June 2023 HOW CDFI CHANGES COULD AFFECT PARTICIPATION
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3 THE NAFCU JOURNAL May–June 2023 20 12 FEATURES 12 How CDFI Changes Could Affect Participation NAFCU raises member concerns about proposals 20 Protecting Older Members Education and awareness are key to preventing financial exploitation 27 Centralized BOI Database May Streamline Account Openings Additional rules expected to clarify access, use and compliance with CDD rule COLUMNS 5 Conferences 6 From the Chair 8 Washington and Industry Briefs 10 The Bottom Line 30 Management Insight 32 Executive Spotlight 34 Leadership Download 36 Compliance Central 38 From the President’s Desk 27 May–June 2023 • Volume 48, Number 3 The NAFCU Journal (ISSN 1043-7789) is published bimonthly every other month. May–June 2023, Volume 48, Number 3. 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 May–June 2023 CONFERENCES 2023 Calendar of Events Spring 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 May–June 2023 guide your direction easily. Your values are what you care about and often what we care about is what we give our time and effort to. Only once these items are clearly defined can you properly strategize. The questions about “Why are we doing what we do?” become “What are the things we value most?” and finally turn into “How can we achieve our goals?” Gary Grinnell is president and CEO of Corning Credit Union in Corning, NY. FROM THE CHAIR MOMENTUM MATTERS WHEN IT COMES TO PURPOSE By Gary Grinnell, NAFCU Board Chair How do you properly articulate your credit union’s purpose to your employees and volunteers? It is a beautiful thing to watch your team firing on all cylinders and working toward a common goal— but that requires constant reiteration of your credit union’s mission and vision to keep that momentum alive. Many members of your team already understand that the driving force of our industry is to help people. It’s possible that’s what drew them to your organization in the first place—and it’s definitely what drove me to make the jump from working at a bank to a credit union many years ago! Even with that passion for serving others, many employees will often wonder “why?” at different points in their career. As the leader of your team, you must clearly outline your institution’s purpose, and explain the “why” in why we do what we do. Providing a distinct and authentic answer to what your credit union is working toward is crucial to motivation. Giving meaningful direction helps employees feel inspired to achieve the organization’s goals. Showing the direct impact of your team’s efforts and how you’re improving people’s lives also goes a long way to motivating people, too. Reinforce this messaging constantly. Talking about your purpose is one thing, but as the leader of your organization you must also ensure that you—and others on your management team—are demonstrating that purpose through your actions. Do the decisions you make daily reflect your purpose? Are they helping achieve your vision? Studies have shown people’s own work reflects that of those around them. This can be a positive form of “peer pressure” and contribute to your employees’ feeling ownership in your credit union’s accomplishments. Your credit union’s purpose should also drive your culture. As a leader, you are the one steering the ship and motivating your team. Sure, people are motivated by different things, but in the workforce, it typically comes down to feeling appreciated and connected to what you are doing, day in and day out. Building this culture takes intentional effort and requires significant attention from leadership on a daily basis. Your employees must trust where and how you are guiding them, and you must give them space to take initiative to act upon your shared purpose. You can’t have a strategy unless you know where you want to go, and your organization’s purpose is at the core of the destination. Once you’ve hammered down your credit union’s why, the values and principles that are built off of it will
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8 THE NAFCU JOURNAL May–June 2023 WASHINGTON AND INDUSTRY BRIEFS Lately, the Consumer Financial Protection Bureau (CFPB) has been active in its rulemaking and supervisory authority. Among other happenings, it issued a proposed rule to limit credit card late fees as part of the bureau’s misguided war on “junk fees,” permanently banned a lender from the mortgage industry, and the U.S. Supreme Court (SCOTUS) agreed to take up the constitutionality of the CFPB’s funding structure. What we’re currently fighting against: The CFPB’s proposed rule on credit card late fees would amend Regulation Z to reduce the safe harbor for late fees from $30 for the first violation and $41 for subsequent violations to a flat $8 fee for all violations. Additionally, the proposal eliminates the annual inflation adjustment for the late fee safe harbor amount. Under the proposal, late fees are also not permitted to exceed 25% of the required minimum payment, whereas late fees are currently permitted to be 100% of the required minimum payment. Finally, the CFPB’s proposal explains that only pre-charge off collection costs may be considered when calculating the late fee amount if not using the safe harbor. CFPB REVS UP IN 2023: WILL SCOTUS CUT ITS ENGINE? By Aminah Moore, NAFCU Senior Regulatory Affairs Counsel The CFPB has continued to bring attention to fees, specifically those it has labeled as “surprise” or “junk” fees, but NAFCU continues to explain that there is no such thing as surprise or junk fees in the highly-regulated financial services industry. This proposal will negatively affect credit unions and their members— most notably by forcing institutions to raise the prices of other products and services, ultimately harming not only those underserved or higher-risk consumers that need access to credit most, but also those who always pay their accounts on time. NAFCU has urged the CFPB to extend the comment period, release more data from its rule analysis, and convene a small business review panel to examine the economic impact of this proposal on smaller financial institutions and ensure continued access to safe, affordable credit options. The CFPB also continues to focus on other “surprise fees” like certain overdraft and non-sufficient funds fees. What’s notable: On the supervisory side, the CFPB permanently banned RMK Financial Corporation from the mortgage lending industry. This action follows a 2015 action by the CFPB against RMK Financial in which the CFPB found the firm tricked military families about its relationship with the federal government by sending advertisements that misrepresented that it was affiliated with the Department of Veteran’s Affairs (VA) or Federal Housing Administration (FHA)— leading people to believe that the VA or FHA sent the notices, or that the advertised loans were provided by the VA or FHA. RMK Financial deceived consumers about interest rates and key terms, including by showing the interest rate more conspicuously than the APR. Lastly, the CFPB found that RMK Financial misrepresented that certain benefits were time-limited, misrepresented that military families could obtain VA cash-out “SCOTUS agreed to hear a case that has the potential to dismantle the CFPB and create confusion for financial institutions and other regulators not subject to congressional appropriations.”
9 THE NAFCU JOURNAL May–June 2023 refinancing without an appraisal and regardless of income/credit score, and misrepresented the amount of monthly payments or annual savings. RMK Financial is a repeat offender, which the CFPB has been targeting, as evidenced by its creation of a repeat offender unit and a proposal to create a repeat offender registry. This also highlights the CFPB’s focus on mortgage lenders and protecting servicemembers. What we’re watching for: SCOTUS agreed to hear a case that has the potential to dismantle the CFPB and create confusion for financial institutions “NAFCU supports the continued operation of the CFPB to ensure consistency in the financial market, but has long held that the CFPB should be led by a bipartisan commission and credit unions should be exempt from CFPB jurisdiction and solely regulated by the NCUA.” and other regulators not subject to congressional appropriations. The case dates to 2017, when the payday lending industry’s lobbying group—the Community Financial Services Association of America—brought a suit against the CFPB alleging that its 2017 payday lending rule was issued unlawfully, arguing among other things that the CFPB’s funding structure is unconstitutional. The Fifth Circuit Court of Appeals agreed, vacated the Payday Lending Rule, and ruled that the CFPB’s funding structure is uniquely unconstitutional because it receives funding through the Federal Reserve rather than through congressional appropriations. However, further complicating the issue, the Second Circuit Court of Appeals in March gave a contradictory ruling as it argued the bureau’s funding structure is constitutional as Congress authorized its funding through the Consumer Financial Protection Act. NAFCU supports the continued operation of the CFPB to ensure consistency in the financial market, but has long held that the CFPB should be led by a bipartisan commission and credit unions should be exempt from CFPB jurisdiction and solely regulated by the NCUA. SCOTUS will hear arguments on the case during its October 2023 term.
10 THE NAFCU JOURNAL May–June 2023 THE CFPB’S CREDIT CARD LATE FEE PROPOSAL IS A BAD FIT FOR CREDIT UNIONS By Curt Long, NAFCU Chief Economist and Vice President of Research THE BOTTOM LINE In January 2022, the Consumer Financial Protection Bureau (CFPB or bureau) launched a campaign against what it described as “junk fees”—those that it considered to be frivolous or excessive. As part of that campaign, the CFPB took aim at credit card late fees. Just over a year later, the bureau issued a proposed rule that would slash the safe harbor threshold for late fees from $41 to $8.1 The proposal argues that an $8 charge is sufficient to allow issuers to recover their costs. As support, the CFPB offers analysis of card data reported by bank holding companies with over $50 billion in assets as part of their Federal Reserve stress testing requirements. However, the bureau’s analysis offers little if any insight into the operations of smaller issuers, such as credit unions. NAFCU conducted a survey of its membership, which demonstrates significant differences between credit union credit card programs and those of larger issuers. The CFPB defends an $8 maximum late fee by observing that, for large banks, late fee income is five times greater than collection costs. However, the margin for NAFCU members was much narrower. Average annual late fee revenue per credit card account was $7 for NAFCU members versus $13.80 for large banks. Furthermore, NAFCU members’ average cost per account was over 40% higher. As a result, the average breakeven late fee among NAFCU members was $20, more than double the CFPB’s proposed safe harbor threshold. A distinctive challenge for federal credit unions as well as many state charters is that they face an 18% interest rate ceiling. Based on data from the Federal Reserve, the average rate on bank-offered credit card loans was 19.1% in the final quarter of 2022.2 The interaction between an increasingly-binding interest rate ceiling and a drastic reduction in fee revenue would uniquely hamper credit unions. While roughly 20% of NAFCU members said that the rate ceiling would be “moderately” or “severely constraining” with a $20 late fee cap, that figure balloons to 54% with a $15 late fee cap. Finally, even ignoring the unique economics at play with credit unions’ credit card programs, the fact that they are notfor-profit cooperatives means that they will be distinctively impacted. Where the CFPB may view the curtailment of late fee revenue from large banks as facilitating a redistribution of profits from shareholders to card members, a credit union’s surplus goes directly to its members. The drastic reduction in fee income has the potential to radically reshape the manner in which credit unions administer their credit card programs, along with other products and services. When asked what changes would be necessary if the CFPB’s proposal is finalized, 61% of respondents said they would limit extension of credit to at-risk borrowers and 59% said they would readjust underwriting standards. In addition, 53% of respondents said that late fee revenue supported no fee checking and savings products. NAFCU will continue to lead efforts to oppose the bureau’s mischaracterization of credit union late fees as excessive, while educating the bureau on the unique aspects of credit unions that make this such an ill-fitting proposal. References 1. For the first violation in a six-month period, the safe harbor is $30. 2. Board of Governors of the Federal Reserve, G.19—Consumer Credit.
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12 THE NAFCU JOURNAL May–June 2023 HOW CDFI CHANGES COULD AFFECT PARTICIPATION NAFCU raises member concerns about proposals By Sheryl S. Jackson
Proposed changes to the Community Development Financial Institutions Fund’s (CDFI) requirements for new certification as a CDFI institution as well as annual renewal of certification for existing organizations are presenting some significant concerns for credit unions. “Our first concern is the short effective date of implementation—one year after the effective date of the final rule,” said NAFCU Senior Regulatory Affairs Counsel Aminah Moore. Moore explained that this presents a challenge because some of the proposed changes create new data collection and reporting requirements and affect issues such as board member qualifications. Creation of new processes and allocation of staff to handle additional data collection and analysis place an undue burden on credit unions, she said. “Also, credit union board members serve multi-year terms and cannot be switched out easily because they are democratically elected by membership per statute,” she said. “We have recommended a three-year implementation to allow time for compliance.” Another significant change for credit unions with the National Credit Union Administration’s (NCUA) designation as a low-income credit union is the removal of automatic acceptance of the low-income designation (LID) as proof of a primary mission of promoting community development. Currently, institutions that have met NCUA’s rigorous criteria to obtain the LID designation may face decertification if they do not meet the proposed certification standards. “The elimination of the LID designation will be especially burdensome for those credit unions that are already LID CDFIs because they only have one year to come into compliance with this new requirement,” said Moore. “Most credit unions hire a consultant to obtain the expertise needed to produce documentation to meet the CDFI requirement regarding primary mission, but LID credit unions are typically smaller with fewer resources and cannot hire outside assistance.” 13 THE NAFCU JOURNAL May–June 2023 “ A lot of the borrowers who benefit from a CDFI’s help are unable to go anywhere else for loans due to their financial circumstance; they are often the only type of loan the member qualifies for. ” AMINAH MOORE, SENIOR REGULATORY AFFAIRS COUNSEL, NAFCU
14 THE NAFCU JOURNAL May–June 2023 Some of the CDFI’s proposed changes also evaluate products, services and fees of the credit union, which duplicates the regulatory oversight of other agencies, said Moore. “Our position is that the CDFI Fund is not tasked with regulating credit union products, services and fees and should not base certification on something that is already regulated by another agency.” “A lot of the borrowers who benefit from a CDFI’s help are unable to go anywhere else for loans due to their financial circumstance; they are often the only type of loan the member qualifies for,” said Moore. Under the proposed certification standards, an applicant that does not consider a borrower’s ability to repay a loan may be determined ineligible for CDFI certification if an acceptable justification is not offered. “This is contrary to Regulation Z, which explicitly excludes CDFIs from the ATR requirements.” Business loans are the main staple of Park Community’s use of CDFI and LID funds, said Spradlin. “We have a micro-loan program for small or new businesses that provides up to $10,000, giving them access to loans they could not obtain elsewhere,” Park Community Credit Union in Kentucky received its CDFI certification five years ago and its LID in 2011. Founded in 1965, the credit union is grateful to have resources to handle data collection and the analysis required to document appropriate use of funds from the CDFI Fund and NCUA. “We know it’s a luxury to have a three-person analytics department that supports all areas of the organization,” said Jim Spradlin, CCUE, president and CEO of the credit union. “Our state has a lot of need, so access to grants that can be used to support members who might not qualify for traditional loans is important to our communities.” While Spradlin is taking a “wait-and-see” position on the proposed changes, he does point out that some changes related to loan volume and deposits in the target market might be a concern. “In most of our areas, our loan volume is high, but deposit levels are lower,” he said. “This is typical of CDFI areas where members need the most help because they don’t have significant savings.” His organization’s 5-year experience as a CDFI-certified credit union does provide confidence that they can adjust to maintain the certification, he added. “ Our state has a lot of need, so access to grants that can be used to support members who might not qualify for traditional loans is important to our communities. ” JIM SPRADLIN, CCUE, PRESIDENT AND CEO, PARK COMMUNITY CREDIT UNION
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he said. If paid back in a timely manner in three years, interest on the loan is refunded, he added. “We also use grant funds to partner with local groups such as the Rotary Club of Louisville to provide mortgages to purchase homes in specific areas of the city,” he said. “This type of program helps families purchase a home, which is a critical step to breaking out of poverty and creating a legacy of wealth for the family.” Connex Credit Union started the CDFI certification application process in May 2021 and was certified in February 2022 after several months of delay. “We immediately applied for grants because of the grant application timing and because we had already created loan programs to support some of our communities,” said Frank Mancini, CEO of the Connecticut-based credit union. While waiting to receive a decision on the grant application, his credit union’s board is supporting the funding of these loan programs that were created with the intention of relying on the CDFI support. “We made about $1 million in loans in 2022 and have $2 million in the pipeline for 2023,” he said. The CDFI Fund postponed the new CDFI Certification Application in late 2022 to revise the application based on feedback received, pausing the processing of new applications, said Moore. “We don’t know when the new application will be available, but if some of the proposed changes are made, there will be credit unions that qualified under the previous rules that won’t qualify, and some existing CDFIs will face decertification,” she said. “It is too early to know what the final rule will look like, but CDFI- certified credit unions can take a look at the proposed standards and see if they will require the credit union to change processes, collect additional data or increase documentation so they can think about how those changes could be made if needed.” Although his organization was certified recently, Mancini does not know how a revised application will affect Connex when it files for recertification. “We won’t just look at the final rule, because I always worry about the interpretative guidelines,” he said. “It is frustrating to see how the CDFI Fund, through some of its proposed rules, is trying to duplicate regulatory oversight that credit unions already have from state regulators, federal regulators and auditors.” Mancini added, “Credit unions have a history of doing the right thing for our members and communities. Any changes should help us continue—not limit—that effort.” 16 THE NAFCU JOURNAL May–June 2023 “ Credit unions have a history of doing the right thing for our members and communities. Any changes should help us continue—not limit—that effort. ” FRANK MANCINI, CEO, CONNEX CREDIT UNION
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20 THE NAFCU JOURNAL May–June 2023 Education and awareness are key to preventing financial exploitation By Sheryl S. Jackson OLDER MEMBERS
21 Credit union membership differs widely across the country, with some serving a mix of ages, some with a younger membership focused on college campuses and others with a membership comprised largely of older people. While people of all ages can become victims of financial fraud, studies estimate total financial losses from elder financial exploitation to be in the billions of dollars each year. Despite variations in individual estimates, most studies indicate that a large number of older adults lose money due to financial exploitation, with many sustaining significant losses. “I would like to address the common misconception that older adults are more susceptible to financial fraud and scams,” said Deborah Royster, assistant director for the Consumer Financial Protection Bureau’s (CFPB) Office for Older Americans. “In fact, older adults are actually less likely to report losing money to fraud than younger people, according to Consumer Sentinel data.” Data shows that 41% of people in their 20s reported fraud loss while only 18% of people in their 70s reported losing money to scams. However, when older adults do lose money to scams, they experience higher median dollar losses, said Royster. “For example, the median reported loss for people in their 20s was $500 while for people in their 80s, it was $1,500.” Romance and imposter scams, in addition to other types of scams, are responsible for older persons’ loss of significant money, but some credit union staff have seen scenarios where family members take advantage of an elder family member’s diminished capacity, said James Akin, regulatory affairs counsel for NAFCU. “Credit unions are especially sensitive to protecting older adults and often ask us for advice on best practices on how to handle suspected financial abuse,” he said. “They want to know how to recognize potential abuse when interacting with a member in person, how to approach the member with their suspicions and what they are legally required and allowed to do to report suspicions to law enforcement or other agencies.” A common concern is protecting the privacy of the member and their information in reports to other agencies, said Akin. “The [National Credit Union Administration (NCUA)] has said that you can report suspected abuse to law enforcement, social services, and other local, state or federal agencies without violating the privacy provisions of the Gramm-Leach-Bliley Act.” Identifying Fraud Red Flags Activities that might be red flags indicating potential exploitation include unusually large withdrawals or wire or ACH transfers, especially for a member who is on a fixed income, said Akin. “In the branch, staff might notice that the member is visibly upset or scared, or the member might be accompanied by an individual who seems to be controlling the transaction,” he said. “Credit unions are excellent in relationship banking, so tellers get to know members and can recognize atypical behavior. While a member may be reluctant to report financial abuse to others, they may be more open to hearing concerns from someone they know and trust.”
22 THE NAFCU JOURNAL May–June 2023 Credit union staff’s ability to recognize a potential financial abuse situation in person is also bolstered by technology that identifies unusual activity in transactions, said Akin. “During the pandemic, more people of all ages began banking online because they could not come into branches,” he explained. In addition to monitoring transactions for the need to file a Suspicious Activity Report on transfers that exceed certain dollar amounts, technology can be used to identify transaction trends that are abnormal for the member. “Even if the member does not come into a branch, credit unions can contact the member with concerns.” “In addition to training employees and members to recognize and respond to financial exploitation, credit unions could “ In addition to training employees and members to recognize and respond to financial exploitation, credit unions could consider offering age-friendly services that can enhance protections against financial exploitation. ” DEBORAH ROYSTER, ASSISTANT DIRECTOR, CONSUMER FINANCIAL PROTECTION, OFFICE FOR OLDER AMERICANS
23 THE NAFCU JOURNAL May–June 2023 RESOURCES TO HELP PROTECT OLDER MEMBERS ■ The NAFCU website contains reports, blogs and other material, including the webinar “5 Ways You Can Help Older Members Avoid Fraud and Financial Exploitation.” ■ The CFPB offers guidance on identifying and reporting financial exploitation as well as educational tools and materials for use in staff and member education at www.consumerfinance.gov/ olderamericans. ■ The U.S. Department of Justice’s Elder Justice Initiative provides news, guides and tools at www.justice.gov/elderjustice. ■ The NCUA posts letters and guidance on issues related to elder financial exploitation and credit unions at www.ncua.gov. ELDER ABUSE AWARENESS MONTH June is recognized as Elder Abuse Awareness Month, in conjunction with World Elder Abuse Awareness Day, which was launched June 15, 2006, by the International Network for the Prevention of Elder Abuse and the World Health Organization at the United Nations. The purpose of the day—and the month—is to provide an opportunity for communities around the world to promote a better understanding of abuse and neglect of older persons by raising awareness of the cultural, social, economic and demographic considerations affecting elder abuse and neglect. consider offering age-friendly services that can enhance protections against financial exploitation,” said Royster. “For example, credit unions can encourage the use of trusted contacts—both by making sure they offer this option and by encouraging members to use it.” “The trusted contact initiative is supported by the Financial Crimes Enforcement Network and allows a member to identify another person who we can contact if we suspect that the member is a victim of fraud,” said Akin. A trusted contact is an emergency financial contact who can step in to help protect the account holder. This can be a helpful service for account holders and can also signal to consumers that the institution is taking steps to help protect their assets and prevent financial exploitation. “CFPB has an advisory for financial institutions that includes several voluntary recommendations about alerts to trusted contacts,” said Royster. “These recommendations may be helpful for credit unions that implement this practice. The advisory provides information about developing relevant policies and procedures, educating account holders, and training and supporting staff.” Another example of age-friendly practices include credit unions reporting suspected financial abuse to authorities such as local law enforcement and/or Adult Protective Services, as appropriate under relevant state laws, suggested Royster. “There are many promising practices that can help credit unions prevent elder financial abuse and intervene effectively when it occurs.” Staff and Member Education is Critical In 2016, CFPB released an advisory and a report to financial institutions on preventing and responding to elder financial exploitation. The report contains recommendations that financial institutions could voluntarily practice to help prevent elder financial abuse or to intervene when identified. “CFPB released an update to those recommendations in 2019, which is focused on how financial institutions can best report suspected elder financial abuse to appropriate authorities, such as Adult Protective Services and law enforcement,” said Royster. “The update also provides an overview of recent federal and state legislative changes, including an overview of the Senior Safe Act and charts of state statutes related to mandated reporting of suspected elder financial abuse, transaction holds or delays in disbursing funds when elder financial abuse is suspected, and sharing of financial records with law enforcement and Adult Protective Services. These recommendations can help credit unions assess their policies and procedures and decide whether additional measures might be helpful to better prevent elder fraud.” Educating staff, regulators and members is a critical component of fraud prevention, said Akin. “NAFCU has worked for many years to ensure that older credit union members are safe from fraud and that their financial well-being is protected. Webinars, blogs and other tools that can be used to continue training staff and educating others can be found on our website,” he said. “NAFCU members can also join the NAFCU Compliance, Risk & BSA Network to post best practices and share information with other NAFCU members.” Education, use of trusted contacts and awareness of what to do when fraud is suspected can help credit union staff know how to protect members. “These types of interventions can help prevent financial exploitation and decrease the fraud losses sustained by older adults,” said Royster. “We know credit unions work hard to recognize elder fraud and protect their members, but, unfortunately, the nature of elder financial exploitation and the never-ending creativity of scammers means there are always new opportunities for financial institutions to adapt and improve their response to this issue.”
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27 CENTRALIZED BOI DATABASE MAY STREAMLINE ACCOUNT OPENINGS Additional rules expected to clarify access, use and compliance with CDD rule By Sheryl S. Jackson THE NAFCU JOURNAL May–June 2023 The Beneficial Ownership Information (BOI) reporting requirements, finalized by the Financial Crimes Enforcement Network (FinCEN) in September 2022, requires new corporations and limited liability companies to report their BOI directly to FinCEN at the time of formation. This information will be used to create a centralized database that will make it easier for law enforcement to trace.
28 THE NAFCU JOURNAL May–June 2023 “ We should also be using our networks to discuss these issues, share insights with peers and address concerns. NAFCU is representing us on the Hill, but we can also talk with our legislators and regulators to make sure they understand that we don’t want rules that will add more complexity and costs. The goal should be to improve our members’ experience while meeting the needs of law enforcement. ” OMAR-JOHN C. CHAVEZ‚ ESQ‚ NCCO CAMS, BSA/AML MANAGER, AFFINITY FEDERAL CREDIT UNION This first rule enacted under the Corporate Transparency Act of 2020 does not directly affect credit unions because this provision of BOI is made directly from the legal entity to FinCEN. However, the next two rules needed to implement the CTA will affect credit unions, which are required to collect BOI when opening accounts. “A centralized, verified database is a good thing as long as it does not create new burdens or costs for credit unions,” said Affinity Federal Credit Union BSA/AML manager Omar-John C. Chavez, Esq., NCCO CAMS. “Currently, we incur significant costs at account openings because we are required to collect BOI along with Personal Identifiable Information for owners to comply with the Customer Due Diligence (CDD) rule.” The ability to access the information in a database will streamline the process and improve the experience for members, he added. “We collect BOI at our cost for law enforcement’s benefit,” said Chavez. “We may ask for proof of ownership, such as operating agreements, but at least 25% of small businesses may not have them,” he said. When documentation is not available, the member provides information and self-certifies that it is correct. “If FinCEN is collecting and verifying the accuracy of information, it will save my staff several steps.” “NAFCU supports FinCEN’s effort to create the database and allow access for financial institutions as a way to meet CDD requirements with fewer steps,” said NAFCU Senior Regulatory Affairs Counsel Aminah Moore. Specific recommendations from NAFCU on the future proposed rules include: ■ Independent verification of BOI provided by FinCEN. ■ Clearly defined categories of who can access database. ■ The ability for financial institutions to obtain consent from a member to collect the BOI from the database with a checkbox on the account application form versus a separate form. ■ FinCEN guidance on steps credit unions should take if the member declines consent. ■ A user-friendly and instantaneous search feature on the database. ■ Coordination between FinCEN, the NCUA and other financial regulators to ensure that there are consistent examination and supervisory expectations for the use of BOI from FinCEN and that there is a statement that FinCEN’s BOI satisfies CDD requirements. “We also are asking FinCEN to itemize what BOI can be used for beyond satisfying the CDD rule,” said Moore. “For example, as proposed, the information is not to be used to file Suspicious Activity Reports, but we want uses defined.” “One issue that is up in the air is if and how existing accounts will be affected,” said Chavez. “We do routinely contact account holders during due diligence reviews, but it is up to the member to advise us of ownership changes.” Although the rulemaking process is in the early stages, Chavez recommends that credit unions re-evaluate their current account opening process to: ■ Ensure compliance with CDD rules. ■ Identify ways to automate manual processes so they can be updated easily when new rules are implemented. “We should also be using our networks to discuss these issues, share insights with peers and address concerns,” said Chavez. “NAFCU is representing us on the Hill, but we can also talk with our legislators and regulators to make sure they understand that we don’t want rules that will add more complexity and costs. The goal should be to improve our members’ experience while meeting the needs of law enforcement.”
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30 THE NAFCU JOURNAL May–June 2023 YOU ARE ONLY AS GOOD AS YOUR EMPLOYEES By John Newett, President and CEO of Indiana Members Credit Union MANAGEMENT INSIGHT At Indiana Members Credit Union (IMCU), our employees are core to our operation and paramount to our success. We value their input, feedback and commitment to providing our members impeccable service. A culture of happy, engaged employees results in better service and a focus on guiding members through their financial journeys and achieving their financial goals. That doesn’t happen overnight or by accident! Our leadership is devoted to fostering an employee-centric culture dedicated to employee success, transparency and community involvement, all through investment in our team. While that investment begins with competitive compensation, it doesn’t stop there. Here are five key factors to consider: Benefits We invest in our employees’ benefits, ensuring they can achieve financial success and enjoy a good quality of life, translating into higher job satisfaction, performance and member service. Our benefits include a pension plan, subsidized health insurance, company-funded life and disability insurance, generous paid time off, profit sharing, bonus pay and tuition reimbursement assistance. In addition, we provide opportunities for growth and advancement through many other employee-focused initiatives. Mentorship and Development Through our evolving mentorship program, we encourage employees to share their personal goals, evaluate areas of opportunity and provide a path for development. Our mentorship program is designed to facilitate opportunities that can assist employees in advancing their careers and reinforcing our corporate culture. The program is designed to support both a personal and professional development strategy. We aim to invest in and develop our future leaders internally and consider it vital to our succession planning. Work Culture IMCU nurtures a culture of collaboration and respect where employees are valued and supported. We have completed over 30 mergers in our history and acquired a bank in 2020. We have always worked hard to integrate those employees into our larger team, making them a part of our IMCU family. A family-like atmosphere for our employees and members is a big part of our philosophy. We consistently look for ways to have “fun” in our daily work life. Some of our efforts include food truck Fridays, cupcake truck visits, holiday ham giveaways and more. We recently rolled out a “fun fund,” providing funds for branches and departments to experience team building and bonding as a smaller group. We find that work relationships are often fostered better outside of the normal work routine. Personal Connection Our executive leadership strives to maintain a personal connection with the entire team: hosting an annual employee gathering, regularly recognizing aboveand-beyond service through “Shout Outs” with prizes of recognition, and a “A culture of happy, engaged employees results in better service and a focus on guiding members through their financial journeys and achieving their financial goals. That doesn’t happen by accident.”
31 THE NAFCU JOURNAL May–June 2023 continual effort to visit branches and departments (with breakfast, lunch or snacks) to connect with all levels of the team. We recently started a “lunch and listen” program, taking small groups of employees out to lunch to hear their issues, obtain feedback and get to know each other a little better. Community Give-Back IMCU promotes and offers employees opportunities to give back. Employees are encouraged to volunteer and support the communities in which we serve. We often host “jean days” to celebrate or donate to a designated cause and offer volunteer experiences coordinated through our foundation. Recent volunteer experiences include coat drives, food drives, backpack stuffing, Habitat for Humanity builds and toy collections. Our employees are valued, respected and vital to IMCU’s past, present and future success. We recognize that our team is only as good as our employees! “Our leadership is devoted to fostering an employee-centric culture dedicated to employee success, transparency and community involvement, all through investment begins with competitive compensation, it doesn’t stop there ... Our employees are valued, respected and vital to IMCU’s past, present and future success. We recognize that our team is only as good as our employees!”
32 THE NAFCU JOURNAL May–June 2023 EXECUTIVE SPOTLIGHT Q: What led you to the credit union sector, and to Great Lakes Credit Union (GLCU)? A: I was first drawn to a credit union as they were looking for a leader who understood the financial industry, but someone not in the industry currently with experience in marketing, branding, sales and distribution. I liked the “People Helping People” Philosophy and their commitment to enhance engagement in their communities. Without the CEO of that credit union developing and giving me the opportunity to expand my career to eventually become EVP, I would not be where I am today. GLCU was looking for a leader to enhance their strategies to make them an even more formidable competitor. They desired a leader who was committed to change and would form strong community partnerships. This role was the next logical step for me. Q: What’s your leadership style? How do you lead an engaged team? A: I lead by being emotionally stable, calm, expressive, confident, assertive, ambitious, a calculated risk taker, hard-working and detailed, while being a motivator and mentor, and assessing what I could have done better. I place value in always learning, relationship building, being curious, challenging the status quo, and being imaginative, along with always looking to be receptive to STEVE BUGG Great Lakes Credit Union President and CEO innovation while maintaining a friendly, cooperative and empathetic spirit. I expect professionalism, accountability, teamwork, respect, integrity, honesty and open communication along with having high positive energy. Our senior leadership team has utilized the Entrepreneurial Operating System (EOS)/Traction. This dramatic organizational shift has aided me in leading a strong and highly engaged team. Q: Great Lakes Credit Union has been recognized for its community involvement. What are some of the ways Great Lakes Credit Union gives back to the communities and members it serves? A: At GLCU, 70% of employees have volunteered 1,400 hours at 70 events. We supported youth literacy through our Mad City Money program and reading events and conducted our “Fill the Boat” drive to benefit local schools, collecting more than 14,000 items. We are one of only six credit unions in the U.S. to offer HUD-Approved Housing and Financial Counseling services. Through the Illinois Rental Payment Protection, Asylum Seeker Housing and the Court-Based Rental programs, we assisted 82 housing providers and 1,843 tenants. Through the Illinois Homeowner Assistance Fund program, we assisted 656 applicants and held 618 foreclosure intervention counseling sessions. Q: What advice do you have for other executives also trying to lead their teams through an uncertain economic environment? A: It is fine to have discomfort in not knowing. Be open and transparent. Understand the need for empathy during uncertainty. Remain calm, cool and collected. Don’t jump to quick conclusions and utilize long-term strategies as a “guiding star.” With any strategy you need scenario planning, or “what if” scenarios. Leaders must not jump quickly and/ or bury their head in the sand. You are not in this alone. Use your resources and engage your strong network to connect on your concerns. You can’t control everything, so focus on what you can control! Q: How do you attract and retain dedicated employees? A: It starts with identifying the right candidates. We look for more than just experience. We focus on the candidate’s core competencies and ensure they align with ours. We recruit diverse candidates that have an entrepreneurial spirit and thrive in an environment where they can run their business. We focus on offering a competitive compensation and benefits package with a concentrated effort centered around improving our employees’ wellness. Structured learning and development are part of our commitment. I’m proud to say GLCU’s internal promotion rate was 63.8% last year.
34 THE NAFCU JOURNAL May–June 2023 Highly engaged employees are the primary driver of customer satisfaction and loyalty, which leads to organizational profitability and long-term success. This fact has been proven by hundreds of studies across thousands of companies and millions of employees. Fostering a positive organizational culture can drive financial benefits ranging from 104 to 320% higher profits. Taking good care of your employees is not just the right thing to do; it’s a brilliant business decision. That’s why this message has long been one of my favorite phrases: “The customer’s experience will never exceed the employee’s experience.” So, what exactly creates highly engaged employees? It all comes down to culture. Corporate culture encompasses the written and unwritten rules of behavior, teamwork, values, ethics and priorities ingrained in an organization. Culture cannot be mandated or controlled but can be nurtured, supported, encouraged and guided. It’s evident when you walk into an organization with a great culture: there’s a positive energy flow, excitement at every level and people are happy. There’s a strong sense of camaraderie, esprit de corps and evident pride in the products and services they deliver. LEADERSHIP DOWNLOAD CULTURE IS CRUCIAL TO YOUR SUCCESS By John Spence In organizations with negative cultures, you will see turf-guarding, finger-pointing, politicking and rumormongering. Dysfunctional cultures make it difficult to retain the best and brightest employees and that makes sense—who would want to work in an environment like that? Based on my extensive research and experience working with leading organizations, here are the key things you must focus on to build a culture that attracts and motivates top talent: ■ Meaning: Talented people want to feel that their work makes a positive difference in the world. Being “number one,” opening five new branches, or doubling profitability are not key motivators for them. They want to be in an organization where they can be proud of the challenging and essential work they produce. Fortunately, credit unions play a pivotal role in securing the financial security of their members. Every employee of a credit union contributes to a noble purpose. ■ Respect: Respect is a minimum, non-negotiable standard. They want to be respected for their work and treated fairly. A large part of showing respect is creating a high level of psychological safety within the credit union. People need to know they can voice their opinions, throw out ideas and politely disagree without fear of retribution or humiliation. ■ Empowerment: An outstanding culture gives clear direction through a vivid, compelling vision and focused strategies. The senior leaders set high standards for performance and support people with the training, mentoring, coaching, resources and authority needed to succeed. Micromanaging is a big no-no. Decisions are delegated quickly to increase the speed and efficiency of the organization. “Fostering a positive organizational culture can drive financial benefits ranging from 104 to 320% higher profits. Taking good care of your employees is not just the right thing to do; it’s a brilliant business decision.”
35 THE NAFCU JOURNAL May–June 2023 ■ Transparency: Some people seem to think that hoarding information gives them power. It is precisely the opposite. High open, honest, robust communication levels are the hallmark of any great corporate culture. It’s pretty simple: people without access to information do not have to take accountability for their actions. A team member must have all the information and data necessary to do their work effectively to succeed. ■ Fun: In a great corporate culture, people enjoy their work and those they work with. They share a genuine connection and care for each other and consider many of the people they work with their friends, possibly even their best friends. It is this sort of family atmosphere that binds people together and creates a special place to work. ■ Praise: One of the strongest human motivators is feeling appreciated. People need to know that they are doing a good job. They want to feel like they are part of the team, and that people are glad they are in the organization. The best leaders in the world create a culture of catching people doing things right. They establish an environment where teammates recognize each other’s good work and give one another genuine praise for a job well done. This sort of atmosphere is a complete game changer for any organization. A winning culture is critical for the success of your credit union. It doesn’t happen by chance, fate or good luck. A solid organizational culture must be designed, managed and intentionally “lived” by all senior leaders in the credit union. In the credit union industry, employees are inspired by their ability to make a difference in members’ lives. In this way, culture plays a vital role in attracting, retaining and growing top talent for your organization. Which, I said at the beginning of the article, is the single most potent driver of happy, loyal and engaged members. John Spence is widely recognized as one of the top business and leadership experts in the world. He has been working in the credit union industry for more than 20 years and serves as one of the lead instructors for NAFCU’s Management and Leadership Institute. To find out more about John, go to www.johnspence.com.
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