September–October 2023 ALSO INSIDE One-on-One with NCUA’s Rodney Hood 2023 NAFCU Annual Award Winners STRATEGIES TO MEET MEMBER NEEDS Digital Assets
12 18 FEATURES 12 One-On-One with NCUA’s Hood Board Member Rodney Hood shares his perspective on all things credit unions 18 Digital Assets: Strategies to Meet Member Needs Lack of Regulatory Guidance Limits Crypto Activity 24 2023 NAFCU Annual Awards Competition Winners COLUMNS 5 Conferences 6 From the Chair 8 Washington and Industry Briefs 10 The Bottom Line 32 Inside NAFCU Services 34 Management Insight 36 Executive Spotlight 38 Leadership Download 40 Compliance Central 42 From the President’s Desk 24 September–October 2023 • Volume 48, Number 5 The NAFCU Journal (ISSN 1043-7789) is published bimonthly every other month. Sept–Oct 2023, Volume 48, Number 5. 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: [email protected]; website: www.nafcu.org. ©2023 National Association of Federally-Insured Credit Unions, all rights reserved. 3 THE NAFCU JOURNAL September–October 2023
CONFERENCES 2023 Calendar of Events Summer Congressional Caucus Sept. 10–13, in-person in Washington, DC Large CU Summit Sept. 11–12, 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 Grinnell, Chair Corning FCU (NY) Brian Schools, Vice Chair Chartway FCU (VA) Karen Harbin, Treasurer Commonwealth CU (KY) Lonnie Nicholson, Secretary EECU (TX) Whitney Anderson Elements Financial (IN) Melanie Kennedy Southwest Financial FCU (TX) 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 [email protected] www.nafcu.org/advertise 5 THE NAFCU JOURNAL September–October 2023
actively participate in NAFCU’s advocacy efforts. We have a compelling story to tell—one that showcases how credit unions empower individuals, drive economic growth and help Main Streets thrive and promote financial inclusivity. Together, we can convey the massive impact credit unions have on the lives of our 137 million members. Gary Grinnell is president and CEO of Corning Credit Union in Corning, NY. FROM THE CHAIR YOU ARE THE INDUSTRY’S MOST POWERFUL VOICE IN WASHINGTON By Gary Grinnell, NAFCU Board Chair As leaders in the credit union industry, we are uniquely qualified to champion the interests of our members and shape the future of our industry. While each of our institutions serves different communities and memberships, we are all committed to the success of our industry and to providing our members with safe, secure, reliable and affordable financial products and services. Credit unions are known for their “people helping people” philosophy and for putting the needs of members over profits. Our dedication to upholding this philosophy in all that we do is why our industry has grown by more than five million members over the past year. However, our ability to continue serving our members—and expand into communities that have been left behind by banks—hinges on the laws and regulations we must operate under. What happens in Washington shapes the landscape of the financial services industry. I know many of you will be joining me in Washington D.C. for NAFCU’s Congressional Caucus, but there are many other opportunities to get involved with NAFCU’s advocacy efforts. Building relationships directly with lawmakers—at the local, state, and federal levels—is critical. As elected officials, they prioritize the needs of their constituents first, just as you prioritize the needs of your members. Visiting their local offices, or even their offices on Capitol Hill, is an extremely powerful way to put a face to the issues they’re working on. But NAFCU also has an online Grassroots Action Center that allows you to express your support or opposition on a variety of credit union related policies, in just a few clicks. You can also share your own personalized statement with NAFCU that can be amplified by the association in conversations with the press and through public outreach to raise awareness. Getting involved with advocacy efforts is key to helping the industry grow. We’ve entrusted NAFCU with our voice in Washington and they execute the job exceptionally well. However, there’s no denying that the association’s efforts are even more impactful when we remain a united voice behind them. We know the needs of our credit union and our members better than anyone. Our collective partnership in advocacy allows us to bring our knowledge, experience, and passion to the forefront, enabling us to shape policies that align with the unique needs of credit unions and the communities we serve. Grassroots advocacy is not a one-time endeavor, and there are a variety of important issues that require our input. I encourage you to get involved and 6 THE NAFCU JOURNAL September–October 2023
WASHINGTON AND INDUSTRY BRIEFS Everything old is new again.” This quote has been attributed to several different people, including Winston Churchill and Mark Twain, but no matter who first said it, the sentiment is real for credit unions during the 2023 legislative session. NAFCU has joined with several other financial services trade organizations to educate legislators once again about the flaws in the Credit Card Competition Act (CCCA) of 2023—or, more appropriately, the Big-Box Bailout—that was reintroduced in both the Senate and House in June. Lawmakers are seeking to extend the 2010 Durbin Amendment, which set new routing requirements on debit card transactions to lower interchange rates, to include credit card transactions. This is essentially the same legislation that NAFCU was able to successfully keep from moving forward last year. The combination of credit union, community bank and other financial services trade organizations working tirelessly to prevent this legislation from passing is a testament to the importance of the issue for those of us who advocate for the financial well-being of all Americans. The NAFCU Government Affairs team has been aggressively setting meetings FIGHTING INTERCHANGE LEGISLATION—AGAIN By Greg Mesack, NAFCU Senior Vice President of Government Affairs with members of the Senate and House to let them know why this legislation is bad for the everyday consumer. Credit unions are proud that they offer entrylevel access to members with free checking accounts, free credit cards that provide a 30-day unsecured loan for emergencies, and robust rewards programs. The CCCA is designed to lower rates for merchants and retailers with no regard to what happens to working class communities. The retail industry is suggesting an anti-trust consideration as support for the legislation, but this is a dubious argument at best. There is competition among payment networks for credit card transactions, allowing merchants to choose to accept or not accept different payment methods including Visa, Mastercard, Discover, American Express, Square and PayPal based on interchange rate fees. Consumers also have a variety of options to choose cards and networks based on their trust and relationship with the issuing organization, rewards and benefits offered, and knowledge that their data is secure and their privacy is protected. Allowing retailers to dictate a processing network based on lowest cost regardless of consumer preferences exposes credit union members to potentially less secure networks, and it also reduces a non-interest stream of revenue for credit unions. Not only do these funds allow credit unions to reinvest in systems to protect members, but they are also used to subsidize products such as free checking accounts, low fees and interest on loans, and financial wellness programs. These are all key offerings by credit “The combination of credit union, community bank and other financial services trade organizations working tirelessly to prevent this legislation from passing is a testament to the importance of the issue for those of us who advocate for the financial well-being of all Americans.” “ 8 THE NAFCU JOURNAL September–October 2023
unions to community members who benefit most from access to a financial institution. The bill limits these new requirements to only institutions over $100 billion in assets. Although the Durbin Amendment provided an exemption for institutions under $10 billion in assets, community banks and credit unions still suffered a 33% decrease in their interchange revenue. There is no way to limit one segment of the credit card ecosystem without affecting everyone else because the need to negotiate flows down to institutions of all sizes that must reduce interchange fees to avoid losing customers. While merchants and retail groups maintain this legislation will lower prices for consumers, the reality, as demonstrated by the results of the Durbin Amendment, is that this is simply not true. The Federal Reserve Bank of Richmond found that after the Durbin Amendment was implemented, 98.8% of merchants failed to pass savings realized from debit regulation on to consumers, and over 20% actually increased their prices. Bigbox retailers support this bill because it requires banks and credit unions to route credit card transactions to the cheapest network while lining their own pockets. Based on the opinions of individuals involved in the Senate Banking Committee and the House Financial Committee, I don’t believe the legislation will pass this year, but we cannot assume anything. The retail lobby is persistent and powerful, so we must continue to share our message. The NAFCU Government Affairs team will continue to meet with and educate legislators and their staff, but we need our members to bolster these efforts. Credit unions are the best messenger. Let your lawmakers know how the CCCA would affect your members—their constituents. Contact your lawmakers via the association’s Grassroots Action Center [www.nafcu.org/grassroots] and share a statement that can be used with media, members of Congress and others to oppose this bad policy.
CREDIT UNION SMALL BUSINESS LENDING SOARS By Noah Yosif, NAFCU Economist THE BOTTOM LINE The Bottom Line column featured in the July-August issue of The NAFCU Journal documented the remarkable growth in startup firms since COVID. During the first five months of 2023, annualized applications to form new businesses were up 49% over 2019. For credit unions, this is a good thing. A review of data from the Small Business Administration (SBA) illustrates the important and growing role credit unions play in providing loans during the recent entrepreneurial boom. These government-guaranteed loans provide small businesses easy access to capital under reduced risk premiums, and the member-focused mission of credit unions makes the industry a perfect partner for such enterprises. Over the past decade, credit unions saw a 69% increase in SBA-guaranteed small business lending, compared to 26% among commercial banks. The gap between credit union and bank SBA lending began to grow in 2020, but has persisted in subsequent years, tracking with the elevated levels of startup activity over that period. A recent report from the Federal Reserve1 finds that among small businesses with at least one paid employee, 8% use a credit union as their primary financial services provider. It is also worth noting that usage rates are higher for firms with fewer than 10 employees and for those that were formed within the past five years. This growth also reflects structural changes within the financial services ecosystem, which have left credit unions as the only viable partners for small businesses. One such change is the rise of banking deserts created by an increase in bank branch closures. Counties with over 50 bank branch closures saw credit unions underwrite nearly twice the amount of SBA loans than those counties with fewer than 50 branch closures. This dynamic has grown more important since the onset of COVID, as banks shuttered branches at a more rapid pace. One report finds that “the banking industry doubled the branch closure rate after the coronavirus pandemic” hit the U.S.2 Credit unions continue to face regulatory limitations on commercial lending activities, but at the same time, their budding share of SBA loans suggests that the industry remains more than capable of serving small businesses. By maintaining a strict member-oriented mission and diligently serving their local communities, credit unions are poised to remain a strong partner for entrepreneurs and small businesses, as well as the broader economy at-large. Figure 1: Index of Quarterly SBA Lending by Type of Lender (sources: SBA, Author’s Calculations) Quarterly SBA-Guaranteed Commercial Loan Growth Index (2012 = 100) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 300 250 200 150 100 50 0 Credit Unions Banks 10 THE NAFCU JOURNAL September–October 2023
References 1. Board of Governors of the Federal Reserve System (2022). Report to Congress on the Availability of Credit to Small Businesses. Washington: Board of Governors, https://www.federalreserve.gov/publications/files/sbfreport2022.pdf. 2. National Community Reinvestment Coalition (2022). How Banks Closed their Doors as the US Economy Reopened. https://ncrc.org/abandon-ship-how-banks-closed-their-doors-as-us-economy-reopened/. Figure 2: Median Amount of Total SBA-Guaranteed Commercial Loans per County originated between 2009 and 2023 (sources: SBA, FDIC, Author’s Calculations) “By maintaining a strict memberoriented mission and diligently serving their local communities, credit unions are poised to remain a strong partner for entrepreneurs and small businesses, as well as the broader economy at-large.” Median Amount of Total SBA-Guaranteed Commercial Loans ($ Millions) Number of Bank Branch Closures 0–10 $6.46 $51.19 $118.21 $234.73 $248.29 10–25 25–50 50–75 75+ $300 $250 $200 $150 $100 $50 $- 11 THE NAFCU JOURNAL September–October 2023
ONE-ON-ONE WITH NCUA’S HOOD Board Member Rodney Hood shares his perspective on all things credit unions NAFCU Senior Vice President of Government Affairs Greg Mesack sat down with NCUA Board Member Rodney Hood earlier this summer for a wide-ranging discussion on the state of the credit union industry, Hood’s outlook for the future and some of his notable accomplishments as his term is set to end this fall. Hood served two terms as an NCUA Board member, first nominated by President George W. Bush in 2005 and appointed to serve as vice chairman. Again in 2019, he was nominated by President Donald Trump and was confirmed to serve as chairman. Hood served as chairman until January 2021. During his years on the board, he has prioritized regulatory flexibility to support credit unions’ growth and is particularly interested in fintech, financial equity and inclusion efforts, capital issues and more. Here are some key excerpts from Mesack’s conversation with Hood. The entre conversation can be viewed on NAFCU’s YouTube channel. * Some questions and responses have been condensed and edited for publication and clarity. Mesack: It’s clear that the entire financial services industry is consolidating, and the economy is still recovering from the pandemic—things are still working out, we have inflation and a few other pressing issues. What is your advice to credit unions, big and small, as they navigate these uncertain economic times? Hood: Well, my main advice to credit unions is to do what they do best, and that is continuing to display the people helping people ethos. In spite of all of the pressures that we’re facing today, I’m very proud of the fact that America’s credit union system is positioned and poised for great and ongoing success as evidenced by our most recent Call Report data. Credit unions now serve [more than] 137 million members throughout the United States. Those 4,800 credit unions that we oversee and insure at NCUA now have assets of $2.2 trillion. And while I’m proud of the growth that we’ve seen in number of members and number of assets, I’m even prouder of the fact that credit unions today have over $1.7 trillion in loans outstanding. What does that mean? It means that our credit unions are doing what they do best and that is being there for their members when their members need them. In the midst of today’s inflationary pressures, credit unions are providing loans, as evidenced by high outstanding loan volume. This includes loans that the individuals need to purchase cars to go to and from work; loans for sustainable home ownership; and most importantly, business loans so that we can stimulate the American economy. Yes, there are a lot of what we would call “headwinds” out there, but credit unions have had no diminution in asset quality. Greg, credit unions have had very little charge offs and delinquencies. In fact, they’re historically very low. And one thing that’s historically high is our net worth. Credit unions now have a collective net worth of over 10.7%. That’s almost some 400 basis points beyond the statutory requirement of 7%. So, credit unions have solid capital adequacy, they have great risk management in place, and yes, it may look daunting. And yes, we see a lot of financial services providers out there that are experiencing a lot of hiccups, but I’m very proud that we as the regulator at NCUA have the tools, technology and experienced agency professionals that we need to keep credit unions viable. Mesack: There’s been a lot of focus on fraud in the payment system. One of the NCUA’s supervisory priorities establishes a questionnaire to help credit unions identify fraud red flags. Fraud is such a shifting target. There are always new red flags. What is your perception of credit union performance in identifying and mitigating these evolving fraud risks? Hood: That is an emerging issue … The best line of defense around fraud protection and prevention is having credit unions and their staff members fully engaged. Having them fully trained. 12 THE NAFCU JOURNAL September–October 2023
I think they need to make sure that they’re looking at how they are battening down their defense mechanisms. How are they also looking at their systems issues? What are their internal processes around fraud detection? Also, what are the board members doing? How active is your supervisory committee, how are you looking at your governance policies and procedures? Those are all the things that we are helping credit unions identify and address in today’s dynamic environment. I think another issue that’s worth noting is that we have a lot of smaller credit unions, as small as $300,000 to $400,000 [in assets]. So, when I talk about internal controls and fraud mitigants, many of them may not have the staffing in place to really embrace a lot of these types of activities. So, what we’ve done at NCUA is we have a fraud protection website that people can use. If you go to NCUA.gov, you can look at some of the tools and some of the things that you and your credit union can do to really have a strong and effective fraud protection and identification program mechanism. We believe that credit unions of all asset sizes should have the tools in place, commensurate with their asset size and complexity. But the main frontline of defense is a strong supervisory committee and an internal fraud control function. …We must continually educate our people and we must always strive to stay a few steps ahead of the bad actors. …But also, Greg, I think another piece that I know that you all at NAFCU have talked about a lot is the payments space. And again, with payments, we are continuing to monitor what’s happening with issues surrounding Regulation E. Reg E is certainly designed to help our credit unions if they’ve had members in other activities that have had fraudulent activity. But with some of the fintech issues and breeches that we’re seeing, we are going to pay close attention to what happens with CFPB and the courts as it relates to Zelle and some of the others engaged in this space. And as you and I know, fintech can really help us. I certainly am fully supportive of financial technology, but this is one area where we do need to be even more mindful around things such as the payment system piece and again, with things such as Zelle. Mesack: NCUA is always so innovative and adaptive, and they recently created the provisional charter. That provisional charter aims to make the formation of new credit unions easier, but ongoing industry consolidation remains a challenge and that will likely require additional strategies to address the consolidation. It’s driving the industry. How is the NCUA thinking about the field of membership in a broader sense? Is there any desire to revisit the concept of online facilities or other tools we can use to help credit unions grow and so that consolidation is less of a pressure? Hood: One of the things that I really was delighted to work with my board members on in 2021 when I was still chair, was around how do we expand the service facility, especially with our multiple common bond credit unions. As you know, one of the things we were able to do was to allow those credit unions the opportunity to adopt underserved areas without having to build a costly new branch facility. One of the things that I think really will continue to pay dividends from that policymaking decision from the board is that credit unions can now be a part of the shared branching network. And you no longer have to have an ownership stake in that shared branch. You can still have access to that and count that as one of your service facilities. I really did want [mobile phone] technology to be considered as a service facility. So, while we were not able to do that, I think again, the fact that we can have the automatic teller machines, the ATMs, the video teller machines those can all be considered as a part of the service facility. And one of the other things that we’ve recently done, Greg, is that we have tried to simplify the process for creating new credit unions. As you’ve mentioned, the provisional charter rule that we just discussed at the last board meeting is always trying to address the chicken or the egg issue. …We are trying our best to simplify the process for creating a new credit union. We’re trying to make it possible, again, to streamline the application process, trying to get a lot of that information on our website, such that when you are wanting to create a new institution, you can have a cafeteria style approach of charter types and Field of Membership options, through our Office of CURE, that stands for Credit Union Resources & Expansion, they are looking at these issues. They’re marshaling a lot of resources to the credit unions. I just hope that we have new credit unions coming into existence. And Greg, if I can, we’re talking about provisional charters and things of that nature, but you also asked me earlier about small credit unions. I want you to know that we have dedicated resources to our small credit unions. We are investing in them through grants. We typically have provided grants to our community development financial institutions and our low-income designated credit unions. But now we’re making those grant funds available to the [minority depository institutions (MDIs)] and those are funds that can be used for technical assistance, cybersecurity, fraud protection and identification, maybe they can invest in some software and tools along those lines. We also are going to be looking at a different examination style approach for our smaller credit unions. A tailored approach to looking at the risks by asset size of the credit unions so that you’re looking at them not as a one-size-fits-all “ My main advice to credit unions is to do what they do best, and that is continuing to display the people helping people ethos. ” 13 THE NAFCU JOURNAL September–October 2023
approach. Not that we’ve ever done that, but I sometimes think the smaller credit unions need to know that we are approaching them with a laser-light focus in how we examine them through a more tailored principles-based approach. We’re really excited that our examiners are going to be using that framework. So, we’re looking at again, how do we invest in these small credit unions? How do we keep them viable? Yes, there is a lot of consolidation in the industry, and I want to make sure that if the consolidation makes sense, then yes, if that’s a board decision. But I don’t want there to be consolidation because maybe we have burdensome rules and regulations with which they’re having to comply. I certainly hope it’s not because of our policies. Now, if it makes sense for them to merge because they’re looking for scale and things of that nature, well then we don’t want to stand in the way of that. But if we can reduce regulatory burden, if we can empower them such as through [credit union service organizations (CUSOs)] and broadening their abilities to work with CUSOs and through financial technology—I think one of the things that can really help small credit unions, in fact even larger ones, is how do we use technology as that force multiplier to help those 137 million members have access to 21st century financial products? Mesack: So, let’s take a little walk down memory lane. You’ve served two terms on the NCUA board. One could say, you know, you’re probably one of the more consequential figures in the NCUA governance in the recent years. And you’ve seen a lot. You were here during the financial crisis. You were here during COVID, you’ve been here during the Signature Bank and Silicon Valley Bank scares, you’ve seen and done a lot. And what do you feel are some of your biggest accomplishments in your time there? And what do you think some of the challenges are going forward for your successor? Hood: Oh my goodness, what a good question. I cannot take full credit for any of the things that I’ve accomplished. I’ve been blessed to lead a team of people who would work with me to bring a lot of my ideas to fruition. And with some of the people that have worked with me, I would say the things that through working in partnership that I really am proud of is, we’ve talked a little bit about this today, and that is the Office of Financial Technology and Access. To go from the ideation stage to bringing it to fruition. So now, like many of the other federal financial regulators in D.C., credit unions now have a prudential regulator with an Office of Technology. …I was able to work with my team and colleagues at the agency and we created the ACCESS initiative that stands for Advancing Communities through Credit Education, Stability, and Support. That is a group within NCUA that is working with our MDIs to empower them to succeed, working with different colleges and nonprofits around financial education and financial coaching and financial health. It’s helping us recruit. How do we build a mentality around bringing diversity into the agency? And I’m not just talking about racial and ethnic diversity, I’m talking about low- to moderate- income communities. I’m talking about rural, tribal, differently abled, second chance and justice involved. …I’m excited about the technology, the access piece, and Greg, it’s intentional that I put the Office of Financial Technology and Access together so those two are partnering together. If we are deploying financial technology strategically, it should bolster greater financial access. So again, that is the intentionality between those two departments working hand in hand. NCUA WEBSITE RESOURCES: Visit www.ncua.gov/supportservices to view recent updates on the agency’s ACCESS initiative, resources for credit unions and information about the Central Liquidity Facility. NAFCU TRAINING: The association offers an online training course for new credit union staff members as a complimentary perk for NAFCU member credit unions. Access all of NAFCU’s training opportunities for credit union professionals by visiting www.nafcu. org/education-certification. The other thing that I’ve been really proud of from being able to work with my board members and others is to really provide CUSOs with the support that they need. Just like I believe in technology, credit union service organizations are also integral to the ongoing success of credit unions. I was very delighted to champion the rule making where our CUSOs could originate loans that credit unions need so that they can then buy them and sell them and participate them out if they need to get additional yield. I think in a nutshell, I’m just proud of the things that I was able to do that would leave a legacy for the next generation of credit unions. We’re going to always pursue technological change. We’re going to always pursue serving vulnerable communities. And I think through the new offices that we’ve created, the CUSO piece that we have, I think those are the things that I’m most proud of. And I look forward to seeing the next generation of board members continue to perfect upon that. “ I’m just proud of the things that I was able to do that would leave a legacy for the next generation of credit unions. ” 14 THE NAFCU JOURNAL September–October 2023
STRATEGIES TO MEET MEMBER NEEDS Lack of Regulatory Guidance Limits Crypto Activity By Sheryl S. Jackson Digital Assets 18 THE NAFCU JOURNAL September–October 2023
One in five Americans have invested in cryptocurrency according to an NBC news poll, despite the digital asset’s wide price fluctuations and liquidity challenges.1 The rising interest in digital assets for both payment and investment purposes has credit unions looking to regulators to identify and standardize regulatory requirements that allow them to offer members access to digital products. This access is necessary to increase member engagement and enhance the value of the credit union-member relationship. The National Credit Union Administration (NCUA) gave federally-insured credit unions the green light to partner with third party digital asset providers to allow members to buy, sell and hold digital assets with the third-party outside the credit union. Several credit unions began exploring options to offer this option to members, including Visions Federal Credit Union, which launched its tool in June 2022 [see “Crypto Convenience: How Members Can Easily Invest,” The NAFCU Journal, September–October 2022]. “The term ‘digital assets’ refers to a range of assets that include cryptocurrency such as Bitcoin and stablecoins, both of which are tokenized assets that don’t rely on a central bank or thirdparty institution to validate their value,” said NAFCU’s Senior Counsel for Research and Policy Andrew Morris. “Regulators are grappling with the challenge of providing guidance to financial institutions and each regulatory body has a different perspective.” While there are options for credit unions to facilitate member engagement with digital assets, Morris does not foresee cryptocurrency attaining the same privileges or functionality as deposits in a federally-insured institution. “A scenario that involves credit unions holding digital assets as a recordable liability in a custodial capacity is unlikely to transpire until we have further statutory and regulatory guidance,” he said. “Credit unions, however, can act as a finder for members who are looking for a reputable third-party provider through which they can buy, sell and hold digital assets.” Although sending members—and their money—to a third-party provider does create a relationship between the member and another organization, the opportunity to brand tools and serve as the trusted source of information and referrals can increase engagement and position the credit union as an innovator. Many credit unions have sought to learn more about opportunities in the digital assets environment due to concerns about the outflow of savings to cryptocurrency exchanges and other digital asset providers. “Credit unions have to know their members and understand what they want,” said Morris. The need for digital asset tools will be different for each credit union based on size, sophistication and member base, he added. “Until we have clarity on the regulatory issues regarding custodial relationships and the treatment of digital assets as investments, credit unions cannot easily bring activities such as safekeeping and payments directly within their institution,” said Morris. “There is also the chance that digital asset legislation will classify certain cryptocurrencies as securities, which increases the challenge of directly offering the product to members.” Making Digital Access Convenient One component of digital assets is the digital wallet, which consumers are increasingly using due to convenience. Even if the credit union cannot be a direct custodian of cryptocurrency at this time, it is possible to engage members in discussions about different types of digital wallets, the pros and cons of each, and develop strategies that further build member loyalty. Integration of digital banking with digital assets is on everyone’s roadmap, but even with regulatory questions to be answered, there are steps credit unions can take now to build a foundation for the future, said Sundeep Kapur, president of Digital Credence. “Digitization enables convenient, faster movement of money, which consumers want,” he said. “Unfortunately, financial institutions often focus on tactics rather than strategy, but planning to compete with mobile phone apps and fintech apps requires credit unions to step back and think strategically about a digital wallet program.” When consumers wanted the ability to transfer money directly to another individual with funds from their checking accounts, institutions offered products like Zelle, which is expensive to the institution and rather than generating revenue, it was an expense, said Kapur. “You could partner with a fintech for a seamless member experience but if the fintech provider is not embedded into your digital wallet, you may end up losing the member to other services offered by the fintech.” “ Digitization enables convenient, faster movement of money, which consumers want. Unfortunately, financial institutions often focus on tactics rather than strategy, but planning to compete with mobile phone apps and fintech apps requires credit unions to step back and think strategically about a digital wallet program. ” SUNDEEP KAPUR, PRESIDENT, DIGITAL CREDENCE 19 THE NAFCU JOURNAL September–October 2023
NAFCU & DIGITAL ASSETS “Digital assets are a key focus for NAFCU because whatever our members decide is best for their organization, we want to have the same authority as banks,” said NAFCU’s Senior Counsel for Research and Policy Andrew Morris. “We want a level playing field that includes consistent oversight and consumer protections.” NAFCU’s Digital Assets Working Group meets quarterly to hear news, updates and discussion of current issues related to digital assets. Recent topics have covered interagency statements issued by the federal banking regulators regarding management of crypto-related risks, such as fraud, asset volatility and potential contagion risk within the sector. The group has also helped shape NAFCU’s principles for the creation of an appropriate digital asset regulatory framework. NAFCU has also responded to inquiries issued by federal regulators regarding the potential creation of a central bank digital currency (CBDC)—a type of digital asset that would exist as a liability of the Federal Reserve. “NAFCU has long regarded government involvement in banking as a slippery slope fraught with risk and a publicly issued CBDC would likely create tension with traditional depository institutions,” said Morris. “While cryptocurrencies and other privately issued digital assets have established themselves as either investment or payment vehicles within the financial sector, a CBDC lacks the same clear value proposition. While proponents have claimed that a CBDC can promote financial inclusion and improve payment efficiency—those goals can be achieved more reliably by credit unions.” Looking ahead, NAFCU and the working group will be eyeing legislation aimed at clarifying digital asset authorities, said Morris. “The association will also work to educate lawmakers and regulators about the costs and risks of a CBDC, and how existing financial sector infrastructure can offer a superior alternative for achieving the same goals.” One credit union is looking at member data to drive the digital strategy, educate frontline employees and communicate with members, said Kapur. “They review member account statements to identify who is moving funds from the credit union to thirdparty wallets such as Cash App,” he said. Frontline employees as well as members are educated about the best ways to pay digitally—methods that are secure, easy-to-use and vetted by the credit union. “Then employees can encourage the use of credit union fintech partners or the credit union’s own payment app.” Credit unions can enhance their value to members and improve loyalty by offering to review members’ various payment apps and provide suggestions on how to simplify and improve the process by reducing the number of disparate digital wallets. “Loyalty drives behavior,” said Kapur. This means members think of the credit union first when making a financial decision about checking, savings, loans or other products, he said. The challenges to a digital strategy that includes payment or wallet options include the siloed approach to products in most financial institutions, said Kapur. This approach means separate “wallets” for digital banking, credit card transactions, debit card transactions, person-to-person transfers and bill payments—all of which require multiple technology investments, he explained. “Developing a successful strategy requires integration of all payment options into a simple, convenient app, portal or website for members.” Kapur recommended that the organization begin by identifying one person to champion and lead the effort to unify payment processes. “The team will include representatives from the retail, lending, loyalty, operations and IT departments,” he said. It is this team that can identify and address what is needed to move forward, he added. “The solution for one credit union was a payment hub that gave members one place to visit for a variety of transactions. The hub serves as a platform to connect the different digital services offered by the institution.” While fintech partnerships can be financially positive and reduce capital investment in IT infrastructure, choosing the right partner can be a challenge, admitted Kapur. “There are too many new, shiny objects to review,” he said. “You must have an overall strategy in place first so you can make sure the solutions you review help you meet your goals. If the solution does not help you unify payment processes, it won’t provide value to the organization and its members.” As credit unions wait for regulatory guidance related to cryptocurrency, it is important to develop an overall digital strategy, said Kapur. “Digital money movement in all forms will continue to grow in importance. Credit unions must plan to offer a safe, effective, valuable way for members to move their funds or they will become irrelevant.” Reference 1. 1. Franck, T. One in five adults has invested in, traded or used cryptocurrency, NBC News poll shows. CNBC. Mar 31, 2022. www. cnbc.com/2022/03/31/cryptocurrency-news-21percent-of-adultshave-traded-or-used-crypto-nbc-poll-shows.html 20 THE NAFCU JOURNAL September–October 2023
NAFCU ANNUAL AWARDS COMPETITION WINNERS 2023 NAFCU’s Annual Awards Competition recognizes outstanding professionals and institutions within the credit union industry—each year, credit unions from around the country enter top performing employees, volunteers and institutions to be considered for the prestigious honors.
CEO of the Year More Than $500M Richard Hein Oregon State Credit Union Corvallis, Oregon “The 2023 award winners are dedicated stewards of the credit union mission and NAFCU is honored to recognize them for their exceptional representation of the industry,” says NAFCU Awards Committee Chair Eli Vazquez, CEO of Bank-Fund Staff Federal Credit Union. “Over the past year, they went above and beyond for their members and have had a remarkable impact on their communities. The NAFCU Awards Committee is proud of their contributions to the success and strength of the industry.” There are two asset-size categories with four awards each: Credit unions with assets of more than $500 million and credit unions with assets of $500 million or less. A panel of credit union peers narrows the entries down from dozens of well-deserving candidates to just eight winners that have made an exceptional mark on the industry. For information on entering next year’s competition, visit www.nafcu.org/annualawards. Interested credit unions are encouraged to begin nominations in January 2024. Oregon State Credit Union has achieved significant growth and performance under Richard Hein’s leadership over the last twenty-three years. Hein aligns his team to the vision of creating financial solutions to make lives better and he believes in the credit union philosophy of “People Helping People.” As a leader, he ensures team members are engaged with both head and heart, motivating them to work together toward one purpose: to deliver an unsurpassed service experience to Oregon State Credit Union’s member-owners. In addition to member service, Hein has been an unwavering and dedicated champion for the credit union industry for 43 years and is passionate about industry advocacy. His passion ignites excitement in his teammates who respond to calls to action, attend “Hike the Hill” events and give generously to the credit union movement. In 2021, Hein moved Oregon State Credit Union’s federal advocacy partnership to NAFCU after seeing how closely his credit union and the association’s core values aligned. Since joining NAFCU, Hein’s passion for advocacy has been evidenced through his guidance of his team’s support for NAFCU/PAC campaigns. As a result, Oregon State Credit Union was honored with the prestigious White Hat Award the first year of the credit union’s participation in 2021 and has turned in another record-breaking campaign in 2022. Under Hein’s direction, the credit union has grown assets from $234 million to over $2.1 billion since 2000. Membership at Oregon State Credit Union has also grown to over 150,000, making it the state’s fifth largest financial cooperative. Hein has overseen several big changes and opportunities for growth, including expanding the credit union’s branch network from six to 15. He also spearheaded a strategic field of membership expansion in 2015 by initiating a charter change from federal to state, which increased the credit union’s counties of service from six to 24. Hein recognizes the important role he plays as a steward of Oregon State Credit Union’s culture and leads by example with integrity. His focus on doing the right thing has ensured that, financially, the credit union is in an excellent position for continued growth. 25 THE NAFCU JOURNAL September–October 2023
CEO of the Year $500M or Less Charlotte Nemec Canopy Credit Union Spokane, Washington In her fifth year as President and CEO of Canopy Credit Union, Charlotte Nemec continues to lead the credit union on a journey of growth and innovation. Nemec started her career at Canopy in 1995, previously serving as the HR Manager and the Vice President of Administration. Throughout her tenure, she has led the organization through major strategic initiatives, including rebranding, building two new branches and implementing interactive teller machines. Nemec’s ability to create an innovative and relationship-focused culture shines through Canopy’s successes. With 60 employees serving three counties in the Inland Northwest, Canopy punches above its weight class and is at the forefront of technology and innovation. Canopy was recently named as one of the Top 10 Most Innovative Businesses in the Northwest. At Canopy, colleagues recognize that Nemec’s leadership is instrumental in creating a culture where employees and members experience belonging and feel valued. Nemec meets with every new hire during their first week and again when they hit the 90-day mark to create a meaningful relationship with every teammate. In June 2022 when inflation increased dramatically, she took bold and compassionate steps to support employees by surprising them with a $500 bonus. The attention and care that goes into Canopy’s culture was recognized in 2022 when American Banker named Canopy as the seventh best credit union to work for in the country. Day-to-day, Nemec works closely with Canopy’s board of directors, coming up with unique solutions for the credit union and ways to partner with community organizations and nonprofits. She champions maximizing Canopy’s resources, resulting in 2022 being a record year for donations to local nonprofits and community partners. Additional records were broken last year as Canopy conducted 86 financial education workshops and 201 free financial coaching sessions. Nemec’s dedication to living out the credit union mission of “People Helping People” encourages the whole team to shine brightly. She is an active member of the community, having key leadership roles on the boards for the GoWest Foundation, Greater Spokane Incorporated, the Women’s and Children’s Free Restaurant, and Whitworth University’s Institute of Leadership. Nemec’s courageous leadership and desire for employees and members to bring their whole story to the table continues to result in growth for Canopy as it strives to create a happier and healthier community through financial inclusion. 26 THE NAFCU JOURNAL September–October 2023
Professional of the Year More Than $500M Suresh Renganathan Teachers Federal Credit Union Smithtown, New York Suresh Renganathan’s unique array of experience working in enterprise IT, cybersecurity management, digital transformations and data management has allowed him to lead complex projects to completion as Chief Technology Officer of Teachers Federal Credit Union. Since joining the team at Teachers, Renganathan has spearheaded the credit union’s digital transformation. In addition, he works to establish the proper systems to improve both member and employee experiences by addressing new technological and back-end needs and coordinating with various departments in the credit union. His efforts have not gone unnoticed and, in 2022, Teachers was the first credit union to be awarded the Celent Model Bank Award, which recognized the credit union’s digital banking transformation, led in full force by Renganathan. Renganathan’s leadership and strategic vision to transform Teachers Federal Credit Union’s digital programs and processes over the last three years also made the organization’s firstout-of-state branch in Tampa, FL, possible. The credit union announced in 2022 it would be opening the branch after 70 years of banking exclusively in New York. His four-pillar digital strategy surrounding the themes of New Capabilities and Features, Business Transformation, Savings and Optimization and Foundational Technologies has driven the pursuit of the Teachers Federal Credit Union “Smart For All” pledge to provide services and experiences that members need to achieve their financial goals and dreams. Renganathan is an extension of Teachers Federal Credit Union in his commitment to providing smart guidance to help members build a strong financial foundation. He brings great advice and expertise to the team, with a recommendation to continuously listen, then learn, then lead. He emphasizes the importance of building diverse, talented teams to focus on key priorities, without the distraction of technology. Overall, teammates can feel Renganathan’s commitment to the credit union industry, and he truly connects with the major credit union value of “People Helping People.” Professional of the Year $500M or Less Kym Copeland New Orleans Firemen’s Federal Credit Union Metairie, Louisiana Kym Copeland currently serves a vital role as the Senior Development Officer for New Orleans Firemen’s Federal Credit Union where she oversees the addition of select employee groups (SEGs). This role is key to the growth of the credit union and, under her leadership, the number of SEG groups has grown nearly 20%. Throughout the credit union’s footprint in Louisiana and Mississippi, Copeland is an ambassador of New Orleans Firemen’s Federal Credit Union and is a consistent spokesperson who helps explain the distinct difference between credit unions and banks. Copeland also serves as the assistant director of a nonprofit she helped form, called The Faith Fund. In this role, she helps individuals and families better manage their money, escape predatory lending and achieve financial stability—all while executing her role at New Orleans Firemen’s Federal Credit Union flawlessly. She is a valued financial coach and excels at providing individuals and their families with an action plan to achieve solid wealth management. Copeland has never met a stranger, believes in meeting people where they are and is always looking for a way to provide a helping hand. She truly embodies Principle 6 of the Cooperative Principles of Credit Unions—she always seeks ways to leverage the power of “cooperation among cooperatives.” She is inclusive in her approach and wants everyone around her to feel welcome. Her efforts strengthen the cooperative movement and create meaningful social and economic impact. In the day-to-day, her approach towards leadership creates a welcoming environment and elevates staff morale at New Orleans Firemen’s Federal Credit Union. She is the consummate professional of the highest degree and has an “I can do that” attitude. Copeland is a servant leader who places the needs and wishes of others above her own and she is an important and integral part of the New Orleans Firemen’s Federal Credit Union team. 27 THE NAFCU JOURNAL September–October 2023
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