News Now Archive

Filed on October 6, 2011, published the first business day after.

• NEW: Cordray CFPB nomination approved by Senate Banking Committee
• Matz: NCUA will review TDR standards
• York to testify for CUNA on MBLs Oct. 12
• Cordray CFPB nomination approved by Senate Banking Committee, future bumpy
• Compliance: Employee rights notice deadline is postponed
• Geithner testifies on oversight committee issues
• 30-, 15-year mortgages remain at record lows
• Inside Washington
• No News Now on Monday--federal holiday
• CUs reach out with no-debit-fee promos
• Tucker Carlson: ‘CUs do things the right way’
• Consumer bankruptcies drop 10% in first nine months
• Speaker: Risk inherent to all CUs--big and small
• Enhance CUs’ investment portfolio--Online Discovery
• Mad City Money teaches real world to Calif. students
• CU System briefs
• Market News
• News of the Competition
• Akcelerant, SWBC enhance loan origination platform

NEW: Cordray CFPB nomination approved by Senate Banking Committee

WASHINGTON (UPDATED: 10:40 a.m. ET, 10/6/11)--The Senate Banking Committee this morning approved the nomination of Richard Cordray to be Consumer Financial Protection Bureau director.

Cordray's nomination was approved by a 12-10 vote, and will now move on for a vote in the full Senate. Credit Union National Association (CUNA) Senior Vice President of Legislative Affairs Ryan Donovan said Cordray's nomination "still faces several obstacles," adding that "over 40 senators have said they will not vote to confirm any CFPB nominee unless changes to the CFPB are enacted." Those changes include increasing CFPB leadership to a five-member commission and reforming some operational rules.

Speaking before the committee following the nomination hearing, Treasury Secretary Tim Geithner encouraged members of the committee that did not support Cordray's nomination to meet with the CFPB nominee. Geithner said Cordray is "exceptionally qualified" for the job, and reminded the senators that a "vast array" of financial institutions will remain outside the scope of consumer protection regulations if the Senate fails to nominate a CFPB director.

CUNA has encouraged Cordray to "consider ways in which the bureau can help minimize regulatory requirements for credit unions and other financial institutions" and has also encouraged the CFPB to establish an Office of Regulatory Burden Monitoring to help the agency "track, consider, and help mitigate the cumulative regulatory burden under which credit unions and others must operate."

Matz: NCUA will review TDR standards

WASHINGTON (10/7/11)--The Credit Union National Association (CUNA) strongly supports a plan announced by the National Credit Union Administration (NCUA) to review its Troubled Debt Restructuring (TDR) policy, and has been raising TDR-related issues in meetings with agency staff, CUNA Deputy General Counsel Mary Dunn noted Thursday.

State leagues have also weighed with the agency on these issues.

Early Thursday, NCUA Chairman Debbie Matz said the agency would review its TDR policy in the near future. A timeline for the board review has not been set, but the agency told News Now that NCUA staff members are reviewing the TDR policy to make recommendations for change.

TDR loans, which have very specific accounting and reporting requirements, occur when a credit union or other lender grants a concession to the borrower and modifies the terms of the loan based on the borrower's financial situation. The financial statement notes and call report data associated with TDRs are also unique.

Matz said the agency "supports credit union efforts to find creative solutions for members who need loan modifications to stay in their homes," and added that the NCUA "is seeking solutions that would better assist credit unions which are working diligently to provide members with alternatives to foreclosure."

However, CUNA and others have followed up on credit union complaints that NCUA examiners have sometimes discouraged TDRs. Credit unions are also burdened by regulatory requirements that force credit unions to segregate TDRs and report TDR payments as delinquent until the member has made timely and consecutive payments for six months after the modification. This generally requires credit unions to manually track such payments, Dunn said.

NCUA board member Gigi Hyland in July said an Interpretive Ruling and Policy Statement (IRPS) on TDRs, if released, would recommend that credit unions adopt charge-off, loan grading and modification frequency standards that are similar to those currently used by banks.

Credit unions would be advised to create and implement their own limits on the number and frequency of loan extensions, loan deferrals, loan renewals and loan rewrites, and would need to develop effective risk management, reporting and internal controls related to these types of loans, Hyland said.

York to testify for CUNA on MBLs Oct. 12

WASHINGTON (10/7/11)--Jeff York, president/CEO of Coasthills FCU, Lompoc, Calif., will testify Oct. 12 on the benefits a higher cap on credit union member business lending (MBL) would have on the nation's economy and its small businesses. York, a Credit Union National Association (CUNA) board member, will testify on behalf of the CUNA.

National Credit Union Administration (NCUA) Chairman Debbie Matz is also among the scheduled witnesses.

The hearing, announced last week by the House Financial Services subcommittee on financial institutions and consumer credit, will study pending legislation that would increase the MBL cap to 27.5% of a credit union's assets, up from the current 12.25%.

Reps. Ed Royce (R-Calif.) and Carolyn McCarthy (D-N.Y.) introduced H.R. 1418, the Small Business Lending Enhancement Act, earlier this year in the House. The bill has 80 co-signers. On the Senate side, Sen. Mark Udall (D-Colo.) has introduced S. 509, the Small Business Lending Enhancement Act, which has 20 co-sponsors.

CUNA emphasizes that lifting the MBL cap would have a number of beneficial effects on the ailing economy, including infusing $13 billion in new credit for small businesses and adding 140,000 new jobs within the first year of enactment—all at no cost to the American taxpayer.

Also scheduled to testify, according to a subcommittee announcement, are:

• Sal Marranca, president/CEO of Cattaraugus County Bank, on behalf of the Independent Community Bankers of America;

• Albert C. Kelly, Jr., president/CEO of SpiritBank and chairman-elect of the American Bankers Association;

• Gary Grinnell, president/CEO of Corning CU, on behalf of the National Association of Federal Credit Unions; and

• Mike Hanson, president/CEO of the Massachusetts Credit Union Share Insurance Corporation.

The hearing is scheduled for 2 p.m. (ET).

Cordray CFPB nomination approved by Senate Banking Committee, future bumpy

WASHINGTON (10/7/11)--The nomination of Richard Cordray to be Consumer Financial Protection Bureau director will now move on to the full Senate after the nominee was approved by the Senate Banking Committee Thursday.

The committee by a Thursday voice vote also approved Alan Krueger to join the Council of Economic Advisers, David Montoya to serve as U.S. Department of Housing and Urban Development Inspector General, Cyrus Amir-Mokri to serve as Assistant Secretary of the U.S. Treasury, and Patricia Loui and Larry Walther to join the Export-Import Bank Board of Directors.

Cordray's nomination was approved by a party-line 12-10 vote. Committee Chairman Tim Johnson (D-S.D.) said the vote was "an important step forward for American consumers," and called on his Senate colleagues to confirm Cordray as soon as possible.

Credit Union National Association (CUNA) Senior Vice President of Legislative Affairs Ryan Donovan said Cordray's nomination "still faces several obstacles," adding that "over 40 senators have said they will not vote to confirm any CFPB nominee unless changes to the CFPB are enacted." Those changes include increasing CFPB leadership to a five-member commission and reforming some operational rules.

Speaking before the committee following the nomination hearing, Treasury Secretary Tim Geithner encouraged members of the committee that did not support Cordray's nomination to meet with the CFPB nominee. Geithner said Cordray is "exceptionally qualified" for the job, and reminded the senators that a "vast array" of financial institutions will remain outside the scope of consumer protection regulations if the Senate fails to nominate a CFPB director.

CUNA has encouraged Cordray to "consider ways in which the bureau can help minimize regulatory requirements for credit unions and other financial institutions" and has also encouraged the CFPB to establish an Office of Regulatory Burden Monitoring to help the agency "track, consider, and help mitigate the cumulative regulatory burden under which credit unions and others must operate."

Compliance: Employee rights notice deadline is postponed

WASHINGTON (10/7/11)--Private-sector employers got a reprieve Thursday from an approaching regulatory deadline that would require them to publicly post notices of employee rights, as detailed under the National Labor Relations Act (NLRA), in their offices beginning on Nov. 14. The National Labor Relations Board (NLRB) pushed the implementation date for its rule back to Jan. 31, 2012.

The NLRB said it delayed the deadline following queries from businesses and trade organizations indicating uncertainty about what businesses fall under the board's jurisdiction. The board finalized the rule to a back drop of significant opposition from the business community, saying that "many employees protected by the NLRA are unaware of their rights under the statute" and adding that the rule "will increase knowledge of the NLRA among employees, in order to better enable the exercise of rights under the statute."

The new notice is similar to one required by the U.S. Department of Labor (DOL) for federal contractors. The NLRA notice must be posted "in conspicuous places" where they are readily seen by employees, including all places where notices to employees concerning personnel rules or policies are customarily posted. A similar notice must be posted online if personnel rules and policies are customarily posted there. Translated versions of the poster are required in workplaces where 20% or more of employees speak a language other than English.

Credit Union National Association (CUNA) compliance staff noted that since credit unions that are not specifically excluded from the NLRA's definition of "employer," they will be subject to the rule.

CUNA has noted that credit unions that already comply with DOL posting requirements will be in compliance with the new NLRB rule. For more on the NLRB rule, use the resource link below to see recent postings on CUNA's CompBlog.

NLRB Release http://www.nlrb.gov/news/posting-employee-rights-notice-now-required-jan-31-board-postpones-deadline-allow-further-educa

Geithner testifies on oversight committee issues

WASHINGTON (10/7/11)--U.S. Treasury Secretary Timothy Geithner appeared before the Senate Banking Committee Thursday to review recommendations that were included in the Financial Stability and Oversight Council's (FSOC's) first annual report, which was released in July.

The report included a comprehensive view of financial market developments and potential threats to the U.S. financial system and Geithner is the current chair of FSOC. The council is comprised of 10 voting members--nine federal financial regulators, including the National Credit Union Administration (NCUA), and one independent member--and five nonvoting members.

Geithner used the opportunity of the hearing to express his support for The American Jobs Act, stating that, "according to estimates by outside economists, [the act] would raise economic growth by one to two percentage points and help create one to two million new jobs." The Obama administration noted on its twitter feed, WHLIVE, Thursday that the U.S. Senate will begin consideration of the jobs bill Tuesday; it is expected that the early votes will be mainly on procedural matters.

Secretary Geithner summarized the recommendations of FSOC's report, which include:

• Taking further action to strengthen the financial position of the core of the U.S. financial system, particularly the largest institutions, which should be able to manage their businesses so that they have the ability to weather more challenging future environments without government assistance in crisis;

• Reforming the housing finance system, including taking action to establish national standards for the mortgage servicing market, in order to better align incentives and help reestablish confidence in the integrity of the housing market.

The report emphasizes the importance of broader reforms to help return private capital to the housing market, strengthen mortgage underwriting, and reduce over time the role of the government in the housing markets.

While saying he was optimistic about the future, Geithner acknowledged that much work remains to sufficiently strengthen the financial system, stating that the U.S. must continue to implement financial reform and move forward with the other recommendations in the report.

"We will do this with a balanced approach, weighing the benefits of regulation against the costs of excessive restraint." This is an approach that the Credit Union National Association (CUNA) strongly supports, and one that CUNA urges the NCUA to follow to avoid unnecessary regulatory burdens for credit unions.

Geithner, in his prepared remarks to the committee, also said that in order to continue to repair our financial system, the country must have qualified people in place to run the financial agencies, which, he added, requires that Congress provide sufficient funding for enforcement agencies to do their jobs in a complicated and challenging financial environment.

Geithner testified later in the day before the House Financial Services Committee.

30-, 15-year mortgages remain at record lows

WASHINGTON (10/7/11)--Average rates on 30- and 15-year fixed rate mortgages fell to all-time lows for the second straight week, totaling 3.94% and 3.26%, respectively, Freddie Mac reported.

Thirty-year mortgages averaged 4.01% last week and 4.27% this time last year. Fifteen-year mortgages averaged 3.28% last week and 3.72% this time last year.

Freddie Mac Chief Economist Frank Nothaft said these record low mortgage rates are due to a "sharp drop in 10-year Treasuries early in the week as concerns over a global recession grew."

Five-year Treasury indexed hybrid adjustable-rate mortgages (ARMs) also fell during the week, averaging 2.96%. Last week's total as 3.02%. However, one-year Treasury-indexed ARMs averaged 2.95% this week, up from the 2.83% total reported last week.

Nothaft said the one-year ARM increase was tied to the Federal Reserve's move to replace $400 billion in short-term Treasury securities. These securities serve as benchmarks for many ARMs, Nothaft said.

For the full release, use the resource link.

Inside Washington

• WASHINGTON (10/7/11)--Regulators will soon release one of the most contentious elements of the Dodd-Frank Act: a proposal to ban proprietary trading and limitations on private equity investments. The plan would define proprietary trading, describe the circumstances in which financial institutions can invest in hedge or private-equity funds, and require banks to put in place internal compliance controls for the so-called Volcker Rule (American Banker Oct. 6). The Federal Deposit Insurance Corp. is scheduled to issue its proposal Tuesday. Other regulators are expected to unveil their plans around the same time. Under the proposal, regulators would define proprietary trading as participating in the purchase or sale of one or more covered financial positions as principle for the trading account of the banking entity. It would not include acting as an agent, broker, or custodian for unaffiliated third parties. Under the original statute, banks can engage in underwriting and market making-related activities. In the new proposal, certain requirements must be met so the trading activities are within exempted categories. A separate section of the proposal outlines the types of relationships a bank is prohibited from having with hedge and private-equity funds. The proposal would also prohibit a bank from acting as a general partner or trustee, selecting directors and managers, or having a name similar to a covered fund. Any bank taking part in certain trading or fund activities would be also required to comply with the prohibitions and restrictions related to Volcker Rule. These would include internal written policies and procedures, internal controls, management framework, independent testing, training and record keeping ...

• WASHINGTON (10/7/11)--U.S. banks have made progress in reforming their compensation practices since the 2008 financial crisis, but more changes are needed, according to a Federal Reserve report released Wednesday. "Incentive compensation practices at banking organizations are continuing to evolve and develop," the Fed said. "We expect this evolution to continue." Before the crisis, big banks didn't pay adequate attention to risk when creating their incentive compensation packages, according to the report. "Some employees were provided incentives to take imprudent risks," the Fed added. But all firms reviewed in the report have made progress in identifying the employees, such as traders and loan originators, whose incentive compensation packages could threaten the safety and soundness of an organization, the Fed said ...

• WASHINGTON (10/7/11)--Although he did not publicly criticize Bank of America Corp.'s decision to charge a monthly fee for debit card use, Raj Date, the de facto head of the Consumer Financial Protection Bureau, implied that a uniform disclosure standard for checking-account terms may be in the best interests for consumers (American Banker Oct. 6). Checking accounts often come with unexpected costs that can add up for consumers, Date said. Consumers should ideally have a more simple way to evaluate checking account costs, he suggested. Consumer groups and financial institutions are developing simplified disclosures that allow consumers to compare the checking account options from credit unions, large banks and community banks, he said ...

No News Now on Monday--federal holiday

WASHINGTON and MADISON, Wis. (10/7/11)--Although Monday is a federal holiday, with many credit unions, leagues and government offices closed, the Credit Union National Association's Washington, D.C., and Madison, Wis., offices will remain open for business.

News Now will not publish an issue Monday, but will resume its regular publication schedule on Tuesday.

CUs reach out with no-debit-fee promos

MADISON, Wis. (10/7/11)--Banks' new debit card fees have become the last straw for many outraged consumers. Credit unions are jumping at the opportunity to let consumers know they can get a better deal at credit unions through a variety of no-fee promotions and anti-fee advertisements.

For example, Raleigh, N.C.-based Coastal FCU took advantage of "active social media monitoring, brilliant staff execution, $35, a bale of hay, and a healthy dose of public anger" to buy a public relations coup in the wake of the Bank of America's (BofA) announced debit fee increase last week, said the North Carolina Credit Union League (Weekly Update .

The $2 billion asset credit union decided in August to increase the dividend rate on its Go Green Checking Account to 2.51% for 30 monthly debit swipes, effective Oct. 1. It had announced the change to members and scheduled television ads to announce the change this month.

"Other than television ads, we hadn't thought about doing a media announcement on the rate change," Joe Mecca, Coastal's marketing/advertising manager, told the league. The thinking changed when BofA's $5 a month fee on debit transactions was announced Sept. 29.

That evening, Mecca and Lauren Stranch, Coastal's PR/networking specialist, monitored Twitter to gauge public reaction. "We noticed that people [on Twitter] were really angry about the bank fee, and our members were actually replying back to them to let them know about Coastal's account and including us in the tweet," Mecca said.

Sensing an opportunity, the credit union jumped. It sent local media a press release announcing the increased swipe dividend on debit purchases and scored several hits, including WRAL-TV and the Raleigh News & Observer.

It also brainstormed its new ad, "the last straw," and produced it the same day, Mecca said. Coastal Advertising Lead Paul Styron bought props for it: a bale of hay, some trash bags and a downloaded sound effects file. Total cost: $35 and staff time to edit the spot in-house.

The ad hit the area's airwaves Tuesday and the credit union doubled up on its planned ad buy for the next two weeks. (To view it, click on the embedded video above.)

Although it's too early to demonstrate any movement by the general public toward Coastal's checking account, Mecca said the nimble response was warranted in the competitive checking arena. "Checking is a cornerstone product. We know that a good, solid checking relationship leads to a broader relationship."

Coastal's new Go Green product has been a major hit for Coastal. Members currently receive 1.01% annual percentage yield for a minimum of 12 debit transactions, and 2.51% for a minimum 30 transactions. The only qualifier: the rate is limited to the first $50,000 on deposit in the account.

Other efforts in the wake of the BofA fees:

• Co-op Services CU, Livonia, Mich., launched a challenge to bank customers to go "ShredMyCard" and receive $105 to do so (MarketWire Oct. 6). Consumers can take their bank debit card to any Co-op Services location, open a free checking account with direct deposit, shred the old bank card, and receive $105. "There's a major difference here," said Anthony Carnarvon, president/CEO of the $401.5 million asset credit union. "The big banks will take your money for just having a checking account and debit card; we give you money."

• CommunityAmerica CU, a $1.8 billion asset credit union in Kansas City, Mo., is seizing the opportunity to market itself with its Escape Your Bank promotion. Consumers fed up with their banks' fees can receive $75 for opening a new Free-ing Checking Account. "When you can have a Free-ing Checking account with no minimum balance, no monthly charges, free online bill pay and a free debit card, you'll start to see banks as pretty confining," said the credit union's website. "And no one likes confining."

• Mission FCU, San Diego, announced Thursday it does not plan to charge monthly debit card fees (BusinessWire Oct. 6). "The credit union wants to reassure its 150,000+ members that these fees will not be heading to their pocket-books." "As a not-for-profit, member-owned community-based credit union, we answer to our members, not to shareholders or Wall Street," said Debra Schwartz, president/CEO of the $2.1 billion asset credit union. "One of the many benefits of credit unions is that we are able to pass those savings onto our members in the form of lower or no fees."

• The Golden 1 CU, based in Sacramento, Calif., renewed its commitment to continue providing debit cards free. "Golden 1 is well known for providing value-oriented services such as free checking accounts and free debit cards," said Donna Bland, president/CEO. "Consumers who are affected by these new bank fees should recognize that they have a choice. They can choose to accept and pay these new fees, or they can send a message to their banks by taking action and moving to a financial institution such as Golden 1" with free services. Golden 1's Free Checking account has no minimum opening balance requirement and no monthly service charge. Accountholders receive a free debit card and have free use of online, mobile and text banking, and bill payment and online deposit services.

• State Employees' CU, Raleigh, N.C., told WRAL.com (Oct. 6) it has seen an increase in new accounts in the past week, which could be a result of banks' new debit fees. "As a credit union, we are not in the business to make money. We are a not-for-profit cooperative," said Leigh Brady, SECU's senior vice president of education services. "Credit unions tend to be a better value for members...in terms of offering lower fees and better interest rates."

Tucker Carlson: ‘CUs do things the right way’

FREEPORT, Maine (10/7/11)--Political commentator Tucker Carlson had high praise for an audience of 120 credit union representatives at the Maine Credit Union League's Legislative Forum Tuesday.

Keynote speaker and political commentator Tucker Carlson said "the future is bright for credit unions" at the Maine Credit Union League's Legislative Forum on Tuesday. From left, Jon Paradise, league governmental & public affairs manager; Carlson; John Murphy, league president/CEO; and Quincy Hentzel, league director of governmental affairs. (Photo provided by Maine Credit Union League)

"I hate dealing with banks and, the circumstances of the past three or four years have proven that credit unions do things the right away so I think the future is bright for credit unions," Carlson said.

Carlson was the keynote speaker at the forum. He spent the morning discussing the 2012 U.S. presidential elections, offering insight on the Republican field of candidates and President Barack Obama's re-election prospects.

"The power of an incumbent president is very difficult to beat," Carlson said. "Everywhere the president goes gets attention, as does everything a p resident says. That is quite an obstacle to overcome. That being said, President Obama is vulnerable; however, the candidate most capable of beating the president in a general election may not be the nominee."

When asked about the country's financial woes, Carlson said the nation's biggest problem is that neither party is honest about Medicare. "Everyone loves Medicare, myself included, but we simply cannot afford it in its present form," he said. That is a fact, and until we get to the heart of it, we will continue to struggle financially as a country."

In the afternoon, the forum featured two Maine political analysts, former state Sens. Ethan Strimling and Phil Harriman, who discussed the state legislature, Gov. Paul LePage, and the 2012 legislative elections.

Buddy Gill, senior strategic communications and external relations advisor to National Credit Union Administration (NCUA) Board Chairman Debbie Matz, concluded the program with a regulatory update. Gill encouraged Maine credit unions "to let your voices be heard on rules, regulations and the operating environment. NCUA really does want to hear from you."

League President John Murphy noted that the forum "reinforces the interest and involvement level that Maine's credit unions have in the political process."

Consumer bankruptcies drop 10% in first nine months

ALEXANDRIA, Va. (10/7/11)--U.S. consumer bankruptcy filings fell 10% during the first nine months of the year, according to the American Bankruptcy Institute (ABI), citing data from the National Bankruptcy Research Center. Credit unions saw fewer loan delinquencies and loan net chargeoffs through the first half of 2011, according to the Credit Union National Association (CUNA).

Consumer filings totaled 1,044,722 nationwide during the first nine months of 2011, from the 1,165,172 filings during the same period a year ago. September consumer bankruptcies declined 17% nationwide from September 2010. The overall consumer filings total for September reached 108,517, down from the 130,329 filings recorded in September 2010.

"The trend of declining filings has been consistent with consumers continuing to reign in their spending, household debt, and an overall pull back in consumer credit," said ABI Executive Director Samuel J. Gerdano. "Total consumer filings for 2011 will be less than 2010."

The September filings also represented a 4% decrease from the August total of 113,432 bankruptcy filings, a slight change that could be the result of one less day in the month, ABI said.

The percentage of chapter 13 bankruptcy filings for September was 30%, a 1% increase from August.

Credit unions' consumer loan delinquencies inched down as of June to 1.09% of total loan outstanding from 1.15% in March, according to CUNA's U.S. Credit Union Profile.

Also, credit unions' consumer loan net chargeoffs decreased as of June to 1.25% of average loan dollars outstanding from 1.48% in March, CUNA said.

Speaker: Risk inherent to all CUs--big and small

MADISON, Wis. (10/6/11)--The future sustainability of small credit unions in today's challenging economic environment will require improved decision-making strategies, proficient and proactive risk assessment, and more efficient operational execution, a CUNA Mutual Group risk manager told Online Discovery Conference attendees Tuesday.

Online Discovery is CUNA Mutual Group's free Web-based conference. The one-day event attracted a national and international audience of more than 1,800 credit union and league staff.

Risk can be managed effectively in all credit unions, and smaller ones are not necessarily at a disadvantage, said Joette Colletts, regional manager of credit union protection risk management.

"In fact, smaller credit unions have several advantages in managing risk," Colletts said. "With fewer employees and close relationships, their culture readily promotes open communication and a willingness to share suggestions. This agile atmosphere lends itself well to reviewing, re-evaluating and upgrading planning to promote a healthy risk culture."

Credit unions must assume some risk to innovate and grow. That means having a culture that aligns risk with goals and properly managing the process to optimize return, she said.

"Too little risk taking hinders innovation, which can threaten a credit union's survival, while too much risk taking can be just as crippling by uncontrollably expending resources, leading to losses," she added.

Colletts focused on two challenges facing credit unions: employee dishonesty and vendor fraud.

"The common denominator in my 27 years as a risk manager has been that the credit union either lacked the controls to help prevent the fraud from occurring in the first place, or became more relaxed about its controls over time," Colletts said. "If you think you don't need to implement controls or tighten existing controls, please think again. I assure you, you're providing the ideal environment for a dishonest employee."

Among the best practices for thwarting employee fraud:

• Implementing dual control for currency shipments and cash replenishments;
• Controlling access to data, information, checks and cash;
• Maintaining an active supervisory committee;
• Conducting surprise audits, and
• Performing bondability verification and background checks.

Third-party vendors play an increasingly important role in helping credit unions compete and expand member services. While outsourcing generally creates member value and improves the bottom line, it can create significant risk if due diligence is improperly performed when selecting and managing vendor relationships, Colletts noted.

Understand a third-party's organization, business model, financial health and program risks, she added. "Remember due diligence never stops. It's an ongoing process," she said.

Colletts recommended implementing an enterprise risk management (ERM) program to improve strategic decision making and risk communication. "ERM integrates risk management with strategic planning and is a systematic approach to managing all your credit union's key risks," she said.

ERM can be implemented in any size credit union and can be scaled down if needed and implemented in incremental steps.

Enhance CUs’ investment portfolio--Online Discovery

MADISON, Wis. (10/7/11)--Credit unions should set aside personal investment biases and change their investment style to use all investment tools allowed by their charters and investment policies to build a solid investment portfolio, credit union leaders at CUNA Mutual Group's second annual, daylong Online Discovery Conference were told.

MEMBERS Capital Advisors' Jeremy Whitish, left, senior analyst-investment risk, and Ed Meier, director and senior fixed-income portfolio manager, spoke at CUNA Mutual Group's Online Discovery Conference Tuesday. (Photo provided by CUNA Mutual Group)

Online Discovery is CUNA Mutual Group's Web-based equivalent of a face-to-face conference. The free event attracted an international audience of more than 1,800 credit union and league staff.

Ed Meier, director and senior fixed-income portfolio manager, and Jeremy Whitish, senior analyst-investment risk, both with MEMBERS Capital Advisors, gave attendees a history lesson to understand the change in investment strategy over the years.

"Many of us have personal investment biases that need to be justified in today's economic environment," Meier said. "For example, in the early 1990s many investors swore off investing in CMOs (collateralized mortgage obligations). While that may have made sense at the time, it doesn't today. CMOs are typically underutilized," Meier added.

Today, investors must consider all of their options and quantify their risks. "You have to ask yourself the question: ‘How does this optimize my credit union's portfolio?' If it doesn't, then move on," Meier said.

This can be a challenge, especially for investors with a conservative investment style, but the gain to the credit union's bottom-line can be substantial. Meier and Whitish urged credit union leaders to consider their credit union's funding needs, asset liability management (ALM) model output and economic outlook before ruling out a particular type of investment.

"Just because an executive investment manager doesn't like a particular investment doesn't mean it isn't a good investment for the credit union," Whitish said.

Credit union leaders need to think about their investment strategy differently today than they did 20 years ago. Most portfolios are excessively short in duration, Meier said. Credit unions must build in cornerstone securities, which have a potential for a higher yield and longer duration but maintain top-tier quality.

"It's critical for investors to understand their credit union's ALM model because if you don't have loans on your books, then you must have investments that match or reach longer term than your liability stream," Meier said. "We propose having a core group of cornerstone investments in your portfolio--no matter if it's good times or bad times, rising rates or lower rates--because it acts as a hedge that you can rely on despite the times or rates," Meier added.

To achieve a balanced approach to investing, credit union leaders should reduce their liquidity and invest in slightly longer-term securities to protect against economic uncertainties and adopt a flexible investment style that limits personal investment biases, said Meier and Whitish.

"The best way to build a strong investment portfolio is to use all of the investment tools your credit union's charter and investment policy allow," Whitish said. "If you don't, you will continue to struggle to build a solid investment portfolio for your credit union."

Mad City Money teaches real world to Calif. students

ONTARIO, Calif. (10/7/11)--Twenty-eight students from a Santa Ana, Calif., high school received a taste of the financial realities of paying mortgages, buying cars and paying for groceries during a "Mad City Money" financial simulation event Sept. 24.

Representatives of Orange County, Calif., credit unions served as "merchants" during the Orange County Chapter-sponsored Mad City Money financial simulation event in Santa Ana, Calif., where students from Century High School got a lesson in the basics of finances.

Century High School student Neleyda Sanchez speaks with Leticia Mata, assistant vice present of community education at Orange County's CU, Santa Ana, Calif., during a Mad City Money financial reality simulation game sponsored by credit unions. Mata acted as a grocery store merchant during the event. (Photos provided by the California and Nevada Credit Union Leagues)

Mad City Money is the Credit Union National Association's simulation game where students are "transported" into a future and must manage all the financial responsibilities. The event, which took place at Century High School's Business Academy in Santa Ana, was sponsored by credit unions in the Orange County Chapter of the California and Nevada Credit Union Leagues.

For Sandra Alvarez, who plans to be a Google executive, the two-hour game was eye-opening, especially upon learning the consequences of credit card debt. "The biggest thing I learned today is that I need to go to college, and look for a job to support myself and my family," she said.

Another student, William Sanchez, also was taken aback by the amount of debt one can accumulate so quickly. "(I learned) to keep better track of the money I spend and keep better track of my debt," he said. "It was a really good thing to go through all of this."

Seventeen volunteers from four credit unions acted as merchants and business people--including the staff of a credit union.

"Not only did we as 'merchants' get to see the students in action as they considered their options, but we had a chance to learn their perspective on how they view the world and the many challenges they face," said Marina Miller, Orange County Chapter president and SchoolsFirst FCU internal service center manager. "It was very rewarding and encouraging to see that we have a great group of upcoming leaders."

The chapter helps facilitate the league's goals of providing education, advocacy and information.

CU System briefs

• WEST MONROE, La. (10/7/11)--(Corrected version.)John Larry Gathright, 38, a financial adviser in West Monroe, La., was arrested and charged with bank fraud and money laundering of funds possible exceeding $1 million in thefts from 11 clients (The News-Star Oct. 5). He was arrested after a man who holds the power of attorney for his 75-year-old mother, reported allegedly suspicious activity in his mother's retirement account. The victim's son alleges more than $200,000 was taken. According to court documents, more than $250,000 had been withdrawn from the victim's checking account between July 2010 and March 2011. According to court records, Gathright was already under investigation at the request of Ouachita Valley CU for allegedly depositing suspicious third-party checks into the credit union ...

• BARTLETT, Tenn. (10/7/11)--Frank Buckley III, 38, of Arlington, Tenn., was charged with robbing First South Financial CU's Cordova, Tenn., branch on Sept. 27 after a teller recognized him while shopping in the area the next day. The teller's husband wrote down Buckley's license tag number, and gave it to police. Buckley, a fast-food cook, allegedly entered the credit union and slid her a note that said, "No bait, no dye. I have a gun and I will shoot." The robber then lifted his shirt to indicate a pistol stuck in his waistband. When the teller began handing the gunman money from her drawer and reached for a dye pack, the robber raised his eyebrows and again lifted his shirt. The next day, the woman spotted him at a local store, and he left. The teller also identified him from a photo spread, said the court records (The Commercial Appeal Oct. 4) ...

• GRAND RAPIDS, Mich. (10/7/11)--A former assistant branch manager at Lansing, Mich.-based Case CU was sentenced by a U.S. District judge to two years and three months in a federal prison for embezzling $236,000 from accounts at the $201.3 million asset credit union. Marcie Graham, 31, of Mulliken, Mich., had pleaded guilty to embezzling the funds between 2008 and 2010. Court records indicated she allegedly selected accounts with large balances believing the accountholder of large accounts would be less likely to notice missing funds. One account belonged to a relative, the records indicated. Graham also was ordered to pay $256,333 in restitution (LansingStateJournal.com Oct. 5) ...

• DUNCAN, Okla. (10/7/11)--Halliburton Employees' FCU (HEFCU), based in Duncan, Okla., announced that as of the end of July, it has reached the $100 million asset milestone. Since 2008, HEFCU has increased its assets by $30 million, the credit union said in a press release. CEO Chris Bower attributed the growth to an increase in share accounts and loans ...

Market News

MADISON, Wis. (10/7/11)

• Last week's U.S consumer confidence rating culminated in the worst quarterly performance in more than two years--when the economy still was in recession--according to the Bloomberg Consumer Comfort Index (Bloomberg.com Oct. 6). The index climbed to -50.2 in the week ended Oct. 2 from the prior week's -53, which was the second lowest reading on record. Last week's index rise was the first since late August. Falling incomes and a down labor market are stressing households, Joseph Brusuelas, a senior economist at Bloomberg LP in New York, said. Stagnant incomes and higher prices will likely further dampen consumer sentiment, he added ...

• September sales for U.S. retailers posted a 5.1% increase at stores open at least a year--as retailers prepare for the holiday season, according to a Thomson/Reuters report that tracked 23 retailers. September is deemed a critical month for retailers because they begin stocking cold weather gear while clearing out the remnants of summer goods. That and back-to-school shopping can be a gauge of how consumers view the future (The Wall Street Journal and The New York Times Oct. 6). However, heavy promotions have boosted some sales, the Times said. Retailers likely will use more aggressive discounting to maximize their holiday sales, Chris Donnelly, an executive in the retail practice for consulting company Accenture, told the Times ...

• Initial claims for U.S. unemployment benefits increased only slightly last week--less than expected--indicating companies may be starting to lessen the pace of job cuts (The Wall Street Journal and Bloomberg.com Oct. 6). Claims climbed 6,000--to a seasonally adjusted 401,000--for the week ended Oct. 1, the Labor Department said Thursday. Economists had forecast claims to rise by 19,000, according to a Dow Jones Newswires survey. When claims go below the 400,000 level, economists generally believe the economy is adding more jobs than it is losing. The labor market appears to be stagnating at this time, Sean Incremona, a senior economist at 4Cast Inc. in New York, told Bloomberg ...

News of the Competition

MADISON, Wis. (10/7/11)

• Some federal funds earmarked to trigger small-business lending instead were used to repay bailout money that banks received through the government's Troubled Asset Relief Program (TARP) (The Wall Street Journal Oct. 6). More than half of the $4 billion distributed through the Small-Business Lending Fund (SBLF) designed to bolster capital standards at smaller banks was used by the banks to eliminate higher-cost TARP debt and tougher restrictions, the Journal said. Treasury Department data revealed that of 332 banks that received SBLF money, 137 used at least a portion--which totaled $2.2 billion--to pay off TARP funds ...

• Bank of America (BofA) decided this week that it will no longer provide retail lending in six low-volume states (American Banker Oct. 6). The states are Alabama, Alaska, Montana, Nebraska, Wisconsin and Wyoming. The bank's online and telesales divisions will continue to serve mortgage customers in those states, a BofA spokesman told the Banker. BofA exited the six states because it does not have a big market presence in them and wants to "streamline" its mortgage operations, he said ...

• Visa Inc. has hired Gavin Krugel, a senior director at GSMA, a global mobile industry association, to work on the card network's global mobile team to help the card company reach unbanked consumers in developing economies (American Banker Oct. 6). Krugel will be the head of consumer strategy and market activation for Fundamo--a South African mobile payments company that Visa purchased in June for $110 million ...

Akcelerant, SWBC enhance loan origination platform

MALVERN, Pa. (10/7/11)--Akcelerant, a provider of software applications for the financial services industry, has integrated its SOLUTION.LENDING loan origination software with SWBC's Unity cross-selling application.

The new "connector" allows Akcelerant customers to support cross-sell opportunities during the loan generation process for guaranteed-asset protection, extended warranties, credit insurance and debt cancellation.

The Unity application is integrated to SOLUTION.LENDING through the addition of a new workflow step that allows loan protection products to be presented and sold to each new loan applicant. This eliminates the need for multiple software programs and decreases the risk of human error associated with double data entry, said Akcelerant.

SWBC, headquartered in San Antonio, provides insurance mortgage, and investment services to financial institutions, businesses and individuals. Akcelerant is based in Malvern, Pa., and Vancouver, B.C.