WASHINGTON—Noting 2021 is likely to be one of the most “consequential years” for the credit union industry, NCUA Chairman Todd Harper outlined how the agency will assist CUs in the coming months, while also touching on potential problem areas he said the agency’s examiners are encountering.
Harper, during CUNA’s virtual GAC Tuesday, strongly emphasized credit unions must also pay careful attention to consumer protection issues, particularly in light of the CFPB’s new leadership, which has stated it will be cracking down on those who financially mistreat Americans.
Harper detailed key areas of focus for the industry in 2021.
“We obviously have lots of work ahead of us. But by staying focused on capital and liquidity, consumer financial protection, and diversity, equity and economic inclusion, we will together achieve a more vibrant economic outcome for everyone in society,” stated Harper. “Today, the credit union system sits at the intersection of several crossroads, and we each will likely face many difficult days and decisions ahead.”
Emphasizing the need for greater consumer protections, and sharing that NCUA examinations have revealed shortcomings here among credit unions, Harper, reminded the agency plans to create a dedicated program to supervise CUs for compliance with consumer financial protection and fair lending laws.
What Examiners are Finding
“In doing so, we will better protect consumers’ interests, ensure that the credit union system lives up to its commitment to serve members, and provide a comparable level of consumer protection oversight as federal bank regulators,” said Harper.
Harper noted NCUA examiners have observed several issues, suggesting some credit unions may not be paying attention to consumer financial protection as “closely as warranted.”
“In some cases, the NCUA’s examiners found weaknesses in credit unions’ compliance management systems, which can lead to compliance issues, violations or harm to consumers if not adequately addressed,” stated Harper. “If left unchecked, issues such as deficient recordkeeping, or inadequate training, or weak internal review or audit processes could lead to heightened risks.”
Shortfalls Identified
Based on those findings, Harper said NCUA has observed “notable shortfalls” among CUs in complying with the Fair Credit Reporting Act, the Electronic Fund Transfer Act and the Truth in Lending Act.
“Credit unions with Fair Credit Reporting Act problems typically did not establish and implement reasonable written policies and procedures about the accurate reporting of member information to a consumer reporting agency, potentially affecting the credit scores of consumers and their ability to obtain fairly priced credit,” explained Harper. “Credit unions with Electronic Fund Transfer Act issues typically did not promptly investigate errors or provide complete disclosures, preventing members and consumers from understanding their accounts and leading to expensive fees. And, credit unions with Truth in Lending Act problems typically did not provide complete and accurate disclosures to their members or correctly calculate the finance charge for certain consumer loans, potentially increasing the overall cost of credit for the consumer.”
Economic Trends
Turning to the economy and how it will affect the industry in 2021, Harper emphasized high unemployment levels will likely continue to impede loan demand, particularly for non-mortgage consumer loans, and could affect credit quality of loans already on the books.
“Credit unions also face a prolonged period of very low interest rates, and short-term interest rates are expected to remain low for the foreseeable future,” Harper said. “Longer-term interest rates are expected to edge higher, but they will generally remain lower than pre-pandemic levels, suppressing already compressed net interest margins. In the year ahead, your credit union’s ability to manage interest-rate risk will play a crucial role in financial performance.”
Looking Forward
Going forward, the top priorities for the NCUA board will be ensuring the credit union system and the Share Insurance Fund are prepared to weather any economic fallout related to the pandemic.
“To protect the Fund, we are actively monitoring certain segments of the system, including credit unions closely connected to the oil and gas, travel and leisure, and agricultural sectors, among others,” he said. “We are also focusing on credit unions with elevated risks, such as those credit unions with large concentrations of commercial real estate loans relative to assets.”
Harper added that, as in past recessions, credit union performance lags the unemployment rate by one to two years.
“Accordingly, your credit union should pay careful attention to capital, asset quality, earnings and liquidity,” concluded Harper. “You should also heed the age-old advice of a ‘stitch in time saves nine’ by acting quickly to mitigate problems when they develop. As the pandemic evolves, the NCUA will also continue to adjust its supervision and examination program to mitigate potential risks to the Share Insurance Fund and the broader system.”