LAKE BUENA VISTA, Fla.–NCUA Board Member Rodney Hood outlined a series of what he called “challenges” to the credit union community in remarks to the NACUSO Network meeting here.
While uncertainty remains related to the economy, Hood told the group there is good news to be seen in the strong jobs growth and wage gains, but there are also “headwinds,” some of which are the result of global developments.
“Obviously, the number that a lot of us are focused on -- and a lot of credit union members are focused on, as well – is the inflation rate, which can only be described as punishing,” said Hood. “The reported rate of inflation in March was 8.5% over the same period last year, and that’s causing a lot of pain when it comes to gas prices, food prices, and other staples. I wish I could promise that relief is just around the corner, but I don’t believe that’s the case right now. So, we’ll need to need to keep a close eye on interest rate risk; the pressure that rising prices put on credit union operations; and the potential for a economic slowdown in the near future.”
The ‘Question’
Hood also pointed to the supply chain crisis, the war in Ukraine and more as challenges he called “manageable,” but that also “bear watching.”
“Against that backdrop, I should emphasize that credit unions have performed very well. In the fourth quarter of 2021, federally insured credit unions continued to show strong performance. Eighty-four percent of credit unions had positive net income in 2021, and we’re seeing solid growth in loan activity while delinquency rates remain manageable,” Hood said. “Credit unions have added more than seven-million members since the start of the pandemic two years ago…The question is, how do we maintain that strong performance and institutional stability in a very uncertain, precarious, and highly competitive environment? How do we keep the credit union sector strong and growing?
“As a regulator, people ask me all the time: what should our institutions be doing in this uncertain environment? And I urge them, to, first, focus on the fundamentals – but at the same time, be prepared to embrace prudent innovation and creative collaboration to shore up those fundamentals,” Hood continued. “When I think about credit union service organizations, that’s what I have in mind: innovation and collaboration. Through my two tenures on the NCUA board, I’ve seen how powerful CUSOs can be as a tool for credit union growth, collaboration, and innovation. And so I’ve looked for ways to give federally insured credit unions more flexibility in making use of those tools.”
Other Points
Other points raised by Hood during his remarks included:
- 2021’s NCUA CUSO Rule. The rule expanded the types of loans that CUSOs could offer. “This was something I had been working on for some time, going back to my chairmanship, because when I saw how rapidly the landscape was changing with regard to lending, I was concerned that credit unions were going to be left behind. Take, for example, auto lending. Just a decade ago, buying a car online was still relatively unusual – now it’s increasingly common, and more and more consumers never set foot in an auto dealership to purchase the next vehicle. My concern was that if the NCUA were to simply stand by idly while the marketplace undergoes this rapid evolution, credit unions were going to be left behind. Expanded lending authorities through CUSOs is one clear way to address that dynamic and give credit unions the tools to scale and compete in the online marketplace.”
- Expanded CUSO Authority. “I’ve also made it clear that I don’t believe we should stop with these reforms. I’m open to going even further in expanding CUSOs lending authorities, and I look forward to working with my colleagues on the board to revisit this issue.”
- Investments by CUSOs. Hood says he believes CUSOs should be able to invest in fintechs without becoming CUSOs, with the appropriate safety and soundness guardrails in place, “We don’t want to see credit unions get left behind because of fintech. But I’m concerned that’s what’s happening right now since CUSOs cannot invest in fintechs unless they become a CUSO—something that isn’t workable for a lot of fintech companies.”