Credit unions are closing out 2016 with outstanding results. Membership growth as of third quarter was 4.0%, the fastest pace since 2002. First mortgage originations hit the highest level ever for a single quarter — $40.3 billion. What’s more, share growth has accelerated and member product usage continues to rise.
Credit unions are turning out these results amid another opening provided by the big banks to highlight the cooperative difference. In September, Wells Fargo’s nowformer chairman and CEO John Stumpf twice appeared in front of Congress to answer questions about how the San Francisco-based bank opened as many as 2 million fake accounts over the past five years under his watch.
Throughout the post-recession banking fallout, Wells Fargo generally maintained a sound reputation and emerged with the largest market capitalization of any U.S. bank. Now, neither statement holds true. Wells’ reputation is damaged, and Chase is overtaking Wells’ market capitalization.
The timing of the Wells Fargo news was such that it is unlikely to have had much of an impact on third quarter performance results at credit unions. That bodes well for the fourth quarter and the momentum credit unions have built as 2017 begins.
Consumers are increasingly attracted to a model that puts their interest at the forefront. Banks continue to demonstrate they are acting in the interest of shareholders who are looking for earnings, not customers who are looking for honest financial guidance.
Everything You Want To Know About 3Q 2016 Data
Callahan’s Credit Union Strategy & Performance is one of the top strategy-oriented publication in the credit union industry. In addition to a financial snapshot, in our third quarter 2016 issue, Callahan’s editorial team looks ahead to 2017, considers mortgage lending for the modern age, makes core processing a core competency, and asks if streamlining options can benefit both credit unions and their members.
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A Different Regulatory Outlook For 2017
The dominant story of third quarter 2016 was the U.S. presidential election. The election ended in a result that surprised many, and the regulatory environment is expected to be significantly different with Donald Trump in office and a Republican majority in Congress.
Although much of the regulation enacted over the past eight years was not intended to affect credit unions, there is no doubt it has, and credit unions have made significant compliance-related investments in people, processes, and resources since the Great Recession.
The NCUA and the CFPB have been driving the regulatory agenda affecting credit unions, and changes are expected in both agencies.
The NCUA will have a new chairperson and a Republican majority on the board of directors. Changes could include a return to a more flexible approach to regulation that allows strong-performing credit unions to be more responsive to member needs. It could also mean a delay in or even an elimination of the risk-based capital rule, which board member J. Mark McWatters opposed. It is even possible McWatters will be appointed chairman under the Trump administration.
There could be significant changes at the CFPB as well. In September, the House Financial Services Committee passed the Financial CHOICE Act that committee chair Rep. Jeb Hensarling (R-TX) introduced. The legislation targets a number of Dodd-Frank elements, including revamping the CFPB’s oversight and governance. The bill replaces the single director structure with a five-member commission that would be subject to congressional oversight. It also provides regulatory relief to community financial institutions, including credit unions, and is almost certain to be introduced in the new Congress.
The shrinking American middle class was one topic that emerged during the election season and drew significant attention from both sides of the political spectrum.
The Important Role For Credit Unions
The U.S. election results will likely lead to changes in the regulatory environment, but one topic that emerged during the election season and drew significant attention from both sides of the political spectrum — one topic that underscores the important role of credit unions — was the shrinking American middle class.
Both Donald Trump and Bernie Sanders attracted large crowds at their events with messages that focused on helping those feeling left behind in today’s economy.
According to a report released this year by the Pew Research Center, the share of adults living in middleincome households, defined as a household of three earning between $42,000 and $125,000, dropped in nearly 89% of the 220 metropolitan areas studied between 2000 and 2014. Over the same period, the share of those living in lower-income households climbed in nearly 70% of metro areas. Those living in higher-income households increased in more than 75%.
Credit unions might not be able to solve all the challenges presented by income inequality, but their efforts in educating their communities about how to make smart financial decisions can help households better manage money. Products designed to reward members for good financial habits reinforce the value of good behavior. Loans that re-price periodically when borrowers make on-time payments or improve their credit scores, for example, can greatly lift up those individuals who typically pay the most for financial services — those who are often most vulnerable to and can least afford financial entrapments — and provide a path toward financial stability.
At Langley Federal Credit Union ($2.3B, Newport News, VA), a front-line staff member identified a checking account need for would-be members with low credit scores. In response, the credit union developed a checking product it could offer members with credit scores lower than 600 while still controlling for risk.
Langley launched Essential Checking in April 2015. The account includes a debit card, online and mobile banking, and ATM access. It also allows courtesy pay of up to $250 after 90 days based on the member’s activity. The credit union mitigates its risk by eliminating offline ATM and debit transactions, disabling remote deposit capture, and requiring direct deposit. Without actively promoting the product, Langley FCU still has opened more than 6,000 accounts totaling $700,000 in deposits.
Langley also recognized the need to help these members build credit, so it launched a credit builder loan that deposits up to $2,000 into a member’s savings account. The term of the loan is 24 months, and the member must keep the funds in the savings account until they pay off the loan. At that point, the member has built a savings of $2,000 as well as a positive credit repayment history. Members can then transition to another new Langley FCU product, the Essential Visa credit card, which further helps the member build a stronger credit profile.
Initiatives such as these demonstrate how credit unions are working to address what remains a significant, if not growing, consumer need.
Looking Ahead To 2017
Although challenges do lie ahead, the environment appears to be moving in the favor of credit unions. The industry is in a strong position to help its members and communities in the coming year, and results through the third quarter indicate the movement’s momentum is not slowing.
The economy continues to gain traction as well, reflected in the Federal Reserve raising the federal funds rate for the first time in 2016 in December. More significantly, it indicated an expectation that it will accelerate the pace of rate increases in 2017 with three increases now anticipated.
With a more favorable environment, credit unions are poised to make an even greater impact in 2017. The need is there, and consumers are demonstrating the value they see in the credit union approach.