GAINESVILLE, Fla.–2020 has arrived and with it, fittingly, plenty of predictions and forecasts for “seeing” what’s ahead.
CUToday.info has assembled abridged versions of previous reporting on what might be expected across the full spectrum of CU operations, from the economy to bank acquisitions by CUs to new compliance rules to cyberthreats and more.
Here is a look at some of the forecasts:
The Economic Forecast 1.0: It’s All About Housing
WASHINGTON—Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group is predicts strong consumer spending will translate into positive business fixed investment into 2020. While most components of GDP experienced minor adjustments this month, residential fixed investment, which includes housing starts and other aspects of the housing sector, increased more substantially.
Owing to this expectation of economic strength, as well as comments from the FOMC indicating an unlikeliness to ease rates further, the ESR Group removed its prediction of one rate cut in early 2020 and now expects no moves from the Fed at all next year, Fannie Mae said.
Housing construction is once again poised to become an engine of overall economic growth, Fannie Mae said.
For the full forecast, go here.
The Economy 2.0: A ‘Mild Recession’
NEW YORK–An economic forecaster with a 96% accuracy rate is predicting a rather mild economic turndown in 2020, before a rebound, another slightly deeper recession in 2023, and then a strong and robust remainder of the decade.
Longer term, it’s basically good news if you’re a Baby Boomer, not so good news if you’re a Millennial or among the generations that follow. And much like real estate, there will be big differences depending on location, with some states in spirals of negative growth from which they are unlikely to emerge, which will affect credit unions.
Alan Beaulieu, senior analyst/ president/ principal with the Institute for Trend Research, offered a generally rosy picture of the next decade in remarks to the CUNA Finance Council here. Longer term? Perhaps not so rosy.
“A lot of things are going right,” said Beaulieu. “The whole nation is going to sag, and it will have a noticeable effect as we get into late 2019 and 2020, and then it will be sunshine and roses on the other side.”
Beaulieu said the U.S. economy hit its peak of growth in 2018 and is now in a slow, steady economic decline he predicts will reach its nadir by Q1 of 2020 and perhaps “bleed into Q2. And then we’re going to come out just fine.”
The full forecast is here.
The Economy 3.0: Concern over Delinquencies
ONTARIO, Calif.—Expect a steady economy in 2020 with little threat of recession, according to one economist who says the biggest concern for credit unions next year will be rising auto loan delinquencies and defaults.
During a CU Direct webcast, Elliot Eisenberg, chief economist for economic consultancy GraphsandLaughs, warned credit unions to pay attention to rising delinquencies within auto lending, driven by higher vehicle prices, longer terms and mounting negative equity.
“The economy is fine, especially if we get the trade deal with China,” said Eisenberg, who thinks that may happen soon. “There is nothing really wrong with the economy, we’ll just be going back to the same growth we had from 2010 through 2017—2018 and 2019 were aberrant years, and 2018 was wonderfully aberrant. So next year will just be normal growth.”
But credit unions, cautioned Eisenberg, should be watching their auto loan portfolios closely.
“There is no real problem in the economy other than auto loans,” he said, noting delinquencies are rising, approaching levels seen around 2010. “Keep your loan quality high and have a plan for what to do if defaults go up.”
Eisenberg’s full commentary is here.
Economic Forecast 4.0: What CUs Can Expect
MADISON, Wis.–For the first time in seven years, consumer loans grew at a slower pace than other lenders during October, while CUs added a modest 158,000 new members, in October, or 0.13%, slower than the 227,000 new members during October 2018.
Those figures and others are indicative of changing trends in credit unions released as part of CUNA Mutual’s latest Trends Report, which shows data through October of 2019.
Among some of the other topline findings and projections:
- CUNA Mutual expects new auto sales to decline 3-4% in 2020, which will “weigh on credit union new-auto lending growth in 2020, which is already in negative territory.”
- Total mortgage lending is expected to decline by 10% in 2020.
- Deposit growth is expected to remain strong in 2020, and possibly exceed 9%.
For the Full Trends Report analysis, go here.
Compliance: New Rules in Effect
WASHINGTON—The new year marks not just the beginning of the 2020s, but the effective date of several important rules for credit unions, CUNA is reminding..
CFPB HMDA Reporting Threshold
Effective Jan. 1, the Consumer Financial Protection Bureau officially extends the reporting threshold of 500 open-end lines of credit under the Home Mortgage Disclosure Act to Jan. 1, 2022. The temporary threshold was scheduled to expire Jan. 1, 2020.
For data collection years 2020 and 2021, financial institutions that originated fewer than 500 open-end lines of credit in either of the two preceding calendar years will not need to collect and report data with respect to open-end lines of credit, CUNA said.
Second-Chance IRPS
NCUA’s revision to its Interpretive Ruling and Policy Statement (IRPS) regarding statutory prohibitions, also known as NCUA’s “second chance” proposal becomes effective Jan. 2.
Other Changes
The Consumer Financial Protection Bureau and other agencies have also set thresholds for certain regulations in 2020, including:
- Exemption for loans from special appraisal requirements for higher-priced mortgage loans will increase to $27,200, effective Jan. 1. This is based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as of June 1, 2019
- The protections of Regulations Z and M in 2020 will generally apply to consumer credit transactions and consumer leases of $58,300 or less in 2020. This does not apply to private education loans and loans secured by real property, which are subject to the Truth In Lending Act regardless of loan amount
The full story can be found here,
Bank Attacks: No Let Up
TALLAHASSEE, Fla.–Credit unions in numerous states have found themselves and their tax exemption under fire in state legislatures. The banking trade groups are expected to use the acquisitions of banks by credit unions as a key point to leverage.
As an example of what to expect in 2020, the Florida Bankers Association, which has been among the most outspoken in their criticism of credit unions, plans to keep up its attacks in 2020 over what it considers too much “leniency” for CUs.
In an interview with Miami Today, Anthony DiMarco, the executive vice president of government affairs for the organization, said the association is continuing its work in Tallahassee and Washington for credit unions to be treated like other financial institutions.
“You’re out there competing like a bank, you look like a bank, you act like a bank, but you don’t pay taxes and it’s an unfair advantage,” DiMarco told Miami Today. “It’s the government picking winners and losers.”
Tax Proposal
In the interview DeMarco repeated the FBA’s call for taxing CUs over $500 million in assets and repeated criticisms over the expanded fields of membership of credit unions.
The full story can be found here.
Payments: A Twist for One Forecast
LONDON–A forecast for payments in 2020 suggests traditional forecasts will play out differently next year.
Sam Murrant, senior payments analyst at GlobalData, said that while much of the conversation around payments in recent years has been on “big buzzword technologies” such as artificial intelligence, blockchain, biometrics and the Internet of Things, he believes the “most transformative technology for payments in 2020 will not be any of those.”
Instead, Murrant expects the game-changer will be found in bank-to-bank payments systems, says GlobalData, a leading data and analytics company.
“The ability to send money in real time between bank accounts has obvious applications for remote payments, and many popular online and P2P payment services in the developed world rely on these systems to underpin their fast, cheap domestic transfers,” Murrant said. “However, the real prize is electronic payments at the point-of-sale, which has been long dominated by cards. Instant payment systems can offer much lower processing costs than cards, making them attractive to merchants. They can also offer functionality such as P2P payments and settlement speeds that card-based payments can’t match, making them attractive to consumers.
The full story is here.
The Fed & Interest Rates
WASHINGTON — As expected, the Federal Reserve took no action to change interest rates at its last meeting in 2019, and also used the meeting to indicate it doesn’t expect to take any action in 2020 as inflation remains low.
As a result, the FOMC has kept the funds rate in a target range of 1.5%-1.75%.
“The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2% objective,” the FOMC said in a statement. “The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate.”
Looking forward, MSNBC noted through the “dot plot” of individual members’ future projections, the FOMC is indicating little chance of a cut or increase in 2020. Just four of 17 members anticipating one quarter-point move up in 2020.
The full story is here.
The 2020 Elections: It’s All About 15 States
2020 will be dominated by the elections, and especially by President Trump’s re-election bid. According to one person, it’s all going to come down to 15 states.
Jason Roe, who heads the political consulting firm Roe Strategic and who works with Republican candidates, including having worked as an advisor to George W. Bush and Mitt Romney, offered some thoughts on the next election to attendees at NAFCU’s Congressional Caucus.
Reflecting on 2016, he noted Trump won 46% of the popular vote, along with 304 electoral votes. Hillary Clinton 48% of popular vote and 227 electoral votes. Roe said Trump has 164 electoral votes from 21 states “in the bag” for the 2020 election, and would need 106 more electoral votes. The democratic candidate has 15 states and 187 electoral votes locked up, and needs 83 more to win the election he said.
There are 15 toss-up states heading into the 2020 elections, representing 187 electoral votes. Those 15 states are Iowa, Ohio, Georgia, Arizona, North Carolina, Florida, Pennsylvania, Wisconsin, Michigan, Minnesota, New Hampshire, Nevada, Maine, Colorado and Virginia.
For the full story, go here.
Bank Acquisitions by Credit Unions
WASHINGTON—Credit unions have advantages—and disadvantages—when bidding to buy a bank, insists one expert who said the growing trend of CUs buying banks will not continue “unabated.”
Richard Garabedian, counsel with Hunton Andrews Kurth LLP, and who has been involved in a number of CU/bank agreements, spoke with CUToday.info about the deals, and cautioned that bankers—as they have already begun doing in lobbying Congress with a message the acquisitions indicate a departure from the credit union “mission”—will eventually seek to stall such purchases.
Garabedian said he has noticed a growing interest in banks acquiring credit unions. “In that case the members actually get paid for their ownership interest, unlike a credit union merger,” said Garabedian, prior to First Bank of Berne’s announcing it intends to merge in the $18.4-million Adams County Credit Union.
For more, go here.
CU Acquisitions by Banks: ‘Just a Question of When’
WASHINGTON–Could banks actually start purchasing credit unions? Two people who have been involved in the wave of credit unions buying banks in recent years told CUToday.info that scenario could also work in reverse, even if many believe the idea of for-profit banks purchasing the not-for-profit cooperatives is impossible. Not so, they say.
Richard Garabedian, counsel with Hunton Andrews Kurth, LLP, and who has been involved in a number of CU/bank agreements, believes there is a strong possibility banks will eye credit unions as acquisition targets.
“I think it certainly could happen. Last year I gave three speeches before bankers’ association meetings about this and what it could mean,” he said. “And I have had discussions with a number of banks that are interested in doing this.”
Such deals have already occurred. Garabedian said approximately five such deals have already taken place, the most recent a decade ago when Nationwide Savings Bank purchased the Ohio-based Nationwide Credit Union. He said most of the CU acquisitions have been made by mutual banks.
Also, earlier this year, Alliance Bank, Waco, Texas, bought the loans but not the deposits of neighboring Texas Farm Bureau FCU.
Added attorney Michael Bell, “There is an absolute, black and white regulatory pathway for a bank to purchase a credit union. Over the past few years I have been involved on behalf of a few CUs that have considered this. However, none of those deals came to fruition for business reasons, but not regulatory reasons. I absolutely think it will happen; it’s just a question of when.”
For the full story, go here.
RDC Patent-Related Lawsuits
WASHINGTON—Credit unions could face another wave of lawsuits following USAA’s $200-million judgement against Wells Fargo. As CUToday.info reported, a U.S. District Court jury has awarded USAA $200 million in a patent infringement lawsuit against Wells Fargo involving remote deposit capture (RDC).
USAA filed suit in June 2018 against Wells Fargo alleging that the bank infringed on certain USAA RDC patents, specifically patents related to mobile check capture.
Now that jury’s decision has gone against the San Francisco-based bank, legal analysts expect the company will become aggressive in suing financial institutions and will cast a wide net in the process.
“USAA has sent out demand letters in the past on this, so obviously I would think with this decision that they will feel emboldened to do that again,” said Lance Noggle, CUNA senior director of advocacy and senior counsel for payments and cybersecurity. “And with the judgment from a jury trial standing behind them, they may try to litigate with credit unions—and they have already litigated and won.”
Carrie Hunt, NAFCU’s executive vice president of government affairs and general counsel, said the effect of the decision on credit unions is still somewhat difficult to predict.
For more, go here.
What Google is Searching For
PALO ALTO, Calif.–Plans by Google to get into the checking account business by initially partnering with one credit union and one bank has far less to do with getting further into the financial business and far more to do with another motivation—and it’s going to have strong implications for CUs, analysts told CUToday.info.
As CUToday.info reported, Google plans to begin offering checking accounts in 2020 through Stanford FCU and Citibank. According to the company, Google will not be front-and-center on the offering and instead the Stanford FCU and Citi brands will be consumer facing, with the financial institutions responsible for all of the back-end operational support and compliance. Partner banks and credit unions will offer the so-called “smart checking” accounts through Google Pay. Google has not yet announced whether the accounts would charge fees and, if so, what the fee structure might be.
While details around how the new Google account will work or be priced are not clear, some experts contend the product offering is really just a play for data by the tech giant.
“Google already has contractual relationships with a couple of thousand financial institutions to have their credit and debit cards active in Google Pay,” said Lou Grilli, AVP of product development and thought leadership at Florida-based Trellance. “That’s not driving a whole lot of activity. Apple Pay usage spiked recently due to the Apple Card, which is tied closely with the Apple Wallet and Apple Pay. I believe, to counter this, Google took a different direction. Rather than issue a Google co-branded card, why not allow access to the FI’s checking account through the app? That would drive usage. But more importantly, that would yield much richer data.”
For more views on what Google may be after in 2020 and beyond, go here.
Thoughts to ‘Hurt Your Head’ in 2020
MONTEREY, Calif.–It may “hurt your head” to think in new ways about how open banking, open data and an “open future” are going to change the operating environment for credit unions, but CU leaders would be wise to embrace the pain, according to one expert. The same person also offered a preview of a “weather report” she said credit unions should pay attention.
Admitting that neither she nor her message are always “terribly likeable,” Dr. Louise Beaumont said she sees some “rich opportunities” ahead for credit unions––although she stressed those opportunities are anything but a “given”–especially given what brand-new research reveals about changes taking place in the “dominant codes of trust.”
It’s the kind of thinking on which credit unions should really be focused, rather than “wasting their time” on bank attacks, she added.
Beaumont is a strategic advisor to SapientRazorfish and co-chair of the techUK Open Bank Working Group, and says she has a particular interest in the intersection between technology, financial services and the public sector.
Beaumont urged credit unions to pay attention to four “interwoven drivers” of change, and further urged CUs to rethink brand, engagement, ecosystems, trust, and “emerging codes.”
Beumont’s full insights can be found here.
The New Threats Go Old School
LONDON–As cyber security becomes more complex due to machine learning, AI and blockchain, fraudsters are likely to refocus on low-tech methods when targeting consumers in the future, according to a new analysis.
GlobalData said its new Consumer Payments Survey highlights just how diverse and spread out the methods of defrauding accounts are. The most prevalent is Internet fraud, with 23% of respondents falling victim to it, however most other methods are quite varied as well.
“Almost 17% of respondents did not know how their account had been compromised, showing that avenues to gain access to somebody’s bank account are much broader and more diverse than just stealing a credit card,” said Vlad Totia, payments analyst at GlobalData. “Some more old-school techniques are less popular among fraudsters, but are still used successfully. For example, 8% of respondents’ accounts were compromised through a confidence trick such as phishing.
For more on GlobalData’s analysis, go here.