JUNE 14, 2013
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Your Help Is Needed!
More than 1,800 Georgians have written Congress in support of preserving the credit union income-tax exemption, but much more action is needed to secure the future of our industry.

  CU Supplemental Capital Bill Circle Expands
Two U.S. House veterans have become co-sponsors of a bill that would allow well-capitalized credit unions to raise other forms of capital in addition to retained earnings.

  Movement on Reverse Mortgage Bill
By a voice vote, the U.S. House passed the Reverse Mortgage Stabilization Act, which is intended to let the Department of Housing and Urban Development make quicker changes to its Home Equity Conversion Mortgage (HECM) program.


Fighting Patent Trolls
Politico reported on the White House's proposal for a major patent-reform package, which includes protection from frivolous patent-infringement lawsuits for businesses, including financial institutions, that use "off-the-shelf" products.

  Ahead of the Curve
A recent meeting between Brunswick-area credit unions and State Rep. Alex Atwood was a good example of the value of early relationship-building between the credit union industry and legislators with influence over it.

  Summer Study on Fair Tax
The state Senate appointed five legislators to the State Fair Tax Study Committee, a group that is to consider the possible role of the Fair Tax system in Georgia tax reform and is scheduled to report on the issue by year's end.

  Financial Trend: Overdraft Revenue
A study found that overdraft-fee revenue collected by financial institutions fell slightly in first quarter 2013 compared with first quarter 2012, while overdraft transactions fell to their lowest rate since 1999.

  Waterlogged with Disclosure Rules
In a report on big banks’ checking account practices titled Checks and Balances, Pew Charitable Trusts urged the Consumer Financial Protection Bureau to publish account disclosure rules for financial institutions.

  Focus on Overdraft: CFPB Report Raises Concerns
The CFPB released a report on bank overdraft practices that expressed concerns that banks had transformed a onetime courtesy service into a major source of revenue.

  Fastest Growth in Five Years
NCUA figures released May 30 showed that federally insured credit unions saw their best loan growth in five years in the first quarter of 2013, and that membership grew by more than 800,000 in the quarter.

  A Tale of Two Surveys
A recent survey found that credit union websites scored significantly higher for user satisfaction than those of banks and other financial institutions; a second survey found credit unions outscoring banks in several areas of satisfaction.

  Shedding Light on Student Debt
A recent consumer survey by the Affiliates found that 22 percent of respondents have a student loan, and that many are not on track to repay those loans, which for 10 percent of respondents amount to more than $20,000.

  Branch Transactions Down 45 Percent
Branch transactions at credit unions and community banks have declined 45 percent since 1992, according to a recent study, while mobile payment transactions have increased sharply in recent years.

  Eliminating Free Checking
PNC Bank plans to stop offering outright free checking over the next year, instead requiring minimum balances and/or other conditions to keep accounts free, the Atlanta Business Chronicle reported.
We need youYour Help Is Needed!

Protecting credit unions and the members you serve is a year-round effort, and this summer it is extremely important (regardless of how one feels about politics!) to communicate with elected officials about the benefit of credit unions to consumers. Please make sure that your members, employees and board are all engaged in the “Don’t Tax My Credit Union” campaign. It is imperative that all credit unions get involved; on June 13th the Senate Finance Committee listed the elimination of the credit union tax status in their tax options paper on exempt organizations. A copy of the report can be found here. As Congress considers tax reform plans, this nationwide initiative is urging lawmakers to preserve the federal income tax exemption credit unions receive as not-for-profit, member-owned cooperatives.

Because credit unions are, per the IRS, “organized and operated for mutual purposes and without profit,” they have been exempt from paying income tax since 1916, when the income tax was first instituted. The “Don’t Tax My Credit Union” campaign emphasizes any tax on credit unions is a tax on its members as credit unions are cooperatively owned by the people they serve. At press time, almost 1,800 Georgians had written to Congress in support of protecting the tax status of all credit unions. While that number is a great start for this long campaign, our representatives need to hear from more people who support credit unions. In Georgia we have more than 6,000 employees and volunteers, and more than 1.9 million members. Please get your credit union active now; both Democrats and Republicans in Congress have shared with GCUA that tax reform is on the agenda.

Save the dateNeed ideas? It’s easy to get the word out about the call to action via social media; check out Health Center CU’s Twitter feed campaign here and Delta Community CU’s Facebook post on the campaign here. There are several tools available to help get your team, your board, and your members engaged. In the GCUA toolkit is a variety of resources which includes what has been utilized by other credit unions around the state. A new edition to the toolkit as of this week is a “take one” brochure that can be customized for your credit union. These brochures can be placed near each teller window to make educating (and engaging) members easy!

Credit unions all over the state are plugged into the efforts to protect the industry. Please join in this campaign today. Each year it is important that members of Congress hear from credit unions, and this year it could not be more vital. As such, please mark your calendars now for the September Hike the Hill to share and reinforce the credit union message in person with our elected officials in Washington, D.C.: September 17-19, 2013! More information about the details of the trip will be shared when available.

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Inside U.S. Capitol domeCU Supplemental Capital Bill Circle Expands

Two prominent members of Congress became the latest co-sponsors of the credit union supplemental capital bill H.R. 719, the Capital Access for Small Businesses and Jobs Act: Rep. Spencer Bachus (R-AL), past chair of the House Financial Service Committee, and Rep. Charles Rangel (D-NY), former Ways & Means chairman. The bill would allow well-capitalized credit unions to match a growing deposit base from a growing membership with capital from sources other than retained earnings, which currently is the only type of capital that counts toward capital ratio. The bill was introduced in February and has 31 co-sponsors.

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Reverse mortgageMovement on Reverse Mortgage Bill

The Reverse Mortgage Stabilization Act (H.R. 2167), which would allow the Secretary of Housing and Urban Development (HUD) to alter the Federal Housing Administration's (FHA) "reverse mortgage" insurance program, passed the U.S. House by voice vote on June 12th. The bill is intended to help HUD make quicker changes to its Home Equity Conversion Mortgage (HECM) program. Home Equity Conversion Mortgages (HECMs) are federally insured reverse mortgages backed by the U.S. Department of Housing and Urban Development.

Currently, HUD changes to this program require a lengthy 18-month regulatory process before they can become final. H.R. 2167 would allow the HUD secretary to make administrative and policy changes to the Home Equity Conversion Mortgage Program through a mortgagee letter "when immediate changes are necessary to improve the fiscal safety and soundness of the program," according to a House Financial Services Committee release announcing the vote. The bill requires Senate approval before it can be signed into law.

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TrollsFighting Patent Trolls

Politico reported on June 5th the White House outlined a major patent reform package aimed at curbing abusive patent litigation. The problem has grown by leaps and bounds; the number of patent troll lawsuits has tripled in the last two years, accounting for 62 percent of all patent litigation. The package includes seven legislative proposals, as well as five executive branch actions to be taken immediately. The administration also urged Congress to require patent applicants and holders to disclose the real party in interest in their demand letters, so as to allow courts discretion in awarding legal fees as a sanction for frivolous suits, and to protect consumers and businesses using “off-the-shelf” products from patent infringement suits just for using the product. This threat is a serious and growing problem for financial institutions of all sizes.

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Atwood Hike
From left: Brandee Bickle, GCUA; Pat Conn, United 1st FCU; ED Walker, United 1st FCU; Nancy Stanley, Altamaha FCU; State Rep. Alex Atwood; Bob Steensma, Five Star CU; Janice Miller, Five Star CU; Kellie Sperring, Five Star CU
Ahead of the Curve

Cultivating relationships and the understanding of the credit union industry is an important action to take with any legislator, and doing so early puts one in a much better position from an influence perspective. On June 4th, credit unions around the Brunswick area were ahead of the curve when they sat down with State Rep. Alex Atwood (R-Brunswick), who after the 2013 state session is quickly becoming a “go-to” legislator for state House leadership. He was tasked to move forward several bills, one of which could have been detrimental (if passed) to credit unions, as it would have allowed homeowner associations to supersede the lien priority status. This was a good opportunity to express thanks on NOT passing the HOA issue in the process!

To promote success in future sessions it is beneficial to have a strong relationship with those individuals who can shape legislative initiatives, and the credit union leaders helped build his understanding and strengthen his relationship with the industry. Rep. Atwood remarked afterwards how much he enjoyed sitting down and discussing politics, credit unions, state and local issues – so time well spent to grow awareness and a positive relationship. Rep. Atwood saw what makes credit unions unique, what the industry monitors at the state legislature, and that almost 20,000 people in his district (including him) rely on credit unions for financial services. Our thanks to the credit union leaders from Altamaha FCU, Five Star CU, and United 1st FCU who shared two hours of their time with Rep. Atwood. It was definitely a success!

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SummerSummer Study on Fair Tax

Last week the state Senate appointed Sens. Judson Hill (R-Marietta) chair, Don Balfour (R-Snellville), Steve Gooch (R-Dahlonega), Hardie Davis (D-Augusta), and William Ligon (R-Brunswick) to the Senate State Fair Tax Study Committee. This study committee, established during the 2013 state session through S.R. 72, will review whether the implementation of the Fair Tax system at the state level should be considered if reforming the current system of taxation in Georgia. The committee is tasked with making its report by the end of 2013; stay tuned!

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Excessive feesFinancial Trend: Overdraft Revenue

Overdraft revenue for financial institutions dropped at an annual rate of nearly $1 billion (2.8 percent) during first quarter 2013 from first quarter 2012, according to a quarterly study by Moebs Services. Total deposit service charges fell 2.9 percent on an annualized basis, which is the first quarterly drop since fourth quarter of 2011 and the second drop in two years. The study also shows that while population, household formation and newly opened checking accounts continue to grow, overdraft transactions fell to the lowest level since 1999. It found:

  • Overdraft revenue for first quarter 2013 was $31.1 billion.
  • That compares with $32 billion in fourth quarter 2012;
  • $31.8 billion in third quarter 2012,
  • $31.5 billion in second quarter 2012, and
  • $31 billion in first quarter 2012.

These are annual rates; overdraft revenue fell from $8 billion in the fourth quarter of 2012 to just under $7.8 billion in this year's first quarter. The Consumer Financial Protection Bureau's decision to delay potential overdraft regulations so it could study the issue (please see below for their report) put banks and credit unions in a dilemma over how to position price changes on overdrafts – and in the end most financial institutions decided to keep the prices the same while the consumer was overdrawing less. Please see the related June 11th article in The Washington Post on how the CFPB is reviewing the wide variation of overdraft charges.

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Drowning in paperWaterlogged with Disclosure Rules

In a May 31st report on big banks’ checking account practices titled Checks and Balances, Pew Charitable Trusts urged the CFPB to publish account disclosure rules for financial institutions. The report reviewed the checking accounts offered by 36 of the nation’s 50 largest banks according to their practices in three areas: disclosures, overdrafts and dispute resolution (14 were excluded because they did not disclose online or by e-mail). The study built on two previous Pew reports: “Hidden Risks: The Case for Safe and Transparent Checking Accounts,” and “Still Risky: An Update on the Safety and Transparency of Checking accounts.” Pew made recommendations to the CFPB, including:

Disclosure Policies

  • Require depository institutions to provide information about checking account terms, conditions and fees in a uniform, easy-to-read format available online and in branches.
  • Require institutions to provide accountholders with clear, comprehensive terms and pricing for available overdraft options when a customer is considering opting in to a plan.

Overdraft Policies

  • Require institutions to provide accountholders with easy-to-read terms and pricing for overdraft options when a customer is considering opting in to overdraft protection.
  • Require that overdraft penalty fees be reasonable and proportional to the institution's costs in providing the overdraft loan or to the size of the violation.
  • Require institutions to post deposits and withdrawals in a fully disclosed, objective and neutral manner, such as in chronological order that does not maximize overdraft fees. 

The report shares a model disclosure box for checking accounts they think is formatted to be easy for consumers to understand. While these are recommendations at this point, there is a possibility the CFPB will move on amending checking account disclosures in the next year (see below related article).

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Focus on Overdraft: CFPB Report Raises Concerns

The CFPB released a report on bank overdraft practices on June 11th with concerns that banks have turned what was once considered a courtesy service into a major revenue source. Roughly one in five open checking accounts were charged an overdraft fee in 2011 for an average of $225 paid over the year per customer. And, the report highlighted bank customers are at risk of paying higher penalties when overdrafting their checking accounts because some banks are making it harder to avoid the fees.

FocusThe CFPB began studying how financial institutions that fall under it were charging fees in February 2012; banks and credit unions with less than $10 billion in assets were excluded. The CFPB cited industry research, however, that showed community banks relied even more heavily on overdraft fees for revenue than their larger competitors. The CFPB’s report also contained some unflattering statistics related to credit union overdraft income: While bank and thrift service charges on deposit accounts have declined since 2008, credit union fee income has increased by 15 percent. Because credit union fee income (as reported to the NCUA) includes several sources, the report said, defining how much comes from overdrafts and NSFs is difficult. Since the report focused on large-bank practices but mentioned credit unions, CUNA clarified that no credit unions were directly studied by the agency. However, the report does include information voluntarily submitted by credit unions or their vendors in response to the bureau's request for information preceding the report.

The report also showed policies varied widely across the industry. Many banks set caps on how many transactions they will allow and some waive overdraft fees for smaller transactions, while others charge hefty penalties if the account is overdrawn by as little as a penny, according to the report. One potential target could be the order in which banks post transactions to a consumer’s account; the bureau said some banks were processing larger transactions first, which leads to more subsequent overdraft fees than if smaller transactions were processed first. CFPB Director Richard Cordray said the banks are marketing these programs as protective measures that allow customers to avoid returned checks and declined transactions. But the study raises serious questions. Cordray said the report has three "major takeaways":

  1. The CFPB claims opting into overdraft coverage of ATM and debit card transactions makes consumers more vulnerable to increased costs and involuntary account closures;
  2. Financial institutions have very different policies, procedures and practices that can be highly complex and difficult for consumers to understand, yet greatly affect if and how often they incur overdraft fees.
  3. The outcomes for consumers vary widely across financial institutions. The average amount of annual overdraft charges in the study of the largest banks was $225. But consumers at some paid an average of $147, while consumers at others paid $298.

Banking regulators have issued overdraft fee rules in the past, and Cordray said the purpose of the study was to help the agencies better supervise the practice. To read more click here, as well as the CFPB Fact Sheet on overdraft practices.

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CheetahFastest Growth in Five Years

NCUA released figures on May 30th showing first-quarter loan growth for federally insured credit unions rose at the fastest pace in five years and membership had grown by more than 800,000. NCUA’s data also showed a decline in the number of delinquencies and charge-offs during the first quarter. This data seems to reflect continuing overall improvement in the credit union industry’s performance. Other points:

  • Delinquencies fell to 1.02 percent at federally insured credit unions, while
  • Net charge-off ratios fell to 0.61 percent — compared with highs of 1.84 percent and 1.21 percent, respectively, in 2009.
  • Net income at federally insured credit unions totaled nearly $2.2 billion, a slight increase from the last quarter of 2012.
  • The industry’s return-on-average-assets ratio fell by three basis points but remained stable at 83 basis points.
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SurveyA Tale of Two Surveys

On May 29th, ForeSee Financial Services released its financial services benchmark which reports on online and mobile customer satisfaction trends for various industry segments, including banks, credit unions, investments and lending companies and other financially-focused organizations. Credit union sites scored the highest in user satisfaction with average scores of 82, or "highly satisfied." Overall, average customer satisfaction with financial websites is at 72 on ForeSee's 100-point scale. Investments and lending organizations scored much lower than credit unions with average satisfaction scores of 69 and 70, respectively. Banking and other financially focused organizations, such as financial media sites, fell in the middle range, with average satisfaction scores of 71 and 74. To read the full results click here.

In another survey, credit unions scored consistently higher than banks across the board in six areas that drive consumer satisfaction. According to the new credit union industry study from CFI Group, the 2013 Credit Union Satisfaction Index found credit unions scored an overall 90 on a 0-to-100 point scale, significantly higher than other industries, including retail banking. CFI Group's report noted it considers scores in the 70s as good, 80s as excellent and 90s as outstanding. Credit unions ranked:

  • Branch staff, 93;
  • Online banking, 92;
  • Information/communications, 90;
  • Products and services, 89;
  • Branch convenience, 85; and
  • Rates and fees, 83.

The index also tells why members joined their credit union:

  • Benefit through employer, 23%;
  • Someone recommended it, 20%;
  • Good rates and fees, 14%;
  • Offerings are right for me, 13%;
  • Convenient location, 11%;
  • More personalized service, 11%; and
  • Other, 7%.

The survey also looks at penetration of products and services among members. Checking and savings products each account for 94 percent penetration, and debit cards, 73 percent. Other products have 30 percent or less penetration.

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Student debtShedding Light on Student Debt

More than 22 percent of respondents to the Georgia Credit Union Affiliates (GCUA) consumer survey said they have an existing student loan, and 12.8 percent said they are not on track to pay it back. The results published in the June 2013 edition of Consider Thisnoted that more than 5 percent of respondents owe between $10,000 and $20,000, and 10 percent of respondents owe more than $20,000. "Falling behind on your student loan payments can be very costly," said Michael Huff, project manager of Associated CU in Norcross. "It also damages your credit, which can have negative ripple effects to all aspects of your financial life."

The soft job market has led many people to choose extended repayment plans of up to 25 years, Huff explained. "The extended payment option can turn a $25,000 student loan debt into $52,000 in total amount paid," Huff added. "And 25 years spent in paying off college debt can really impact their borrowing power for future purchases like a new car or home." As student loan balances increase and job prospects continue to look bleak for young graduates, it is harder for students to repay the money it took to complete their degrees, GCUA said.

Tuition costs have risen by more than 26 percent since 2005. As a result, student loan debt is rising too, currently estimated at $986 billion, according to the National Center for Education Statistics. A recent study by TransUnion reports more than half of all student loans are now delinquent or in deferral. While students are borrowing twice what they did a decade ago, they face more challenges in repaying their debt. A study by The Associated Press found 53.6 percent of Americans under age 25 are either unemployed or underemployed. Many young Americans graduate only to find it impossible to repay their student loan debt. More than 13 percent of graduates default on their student loans within three years of leaving college, according to the U.S. Department of Education.

Also, roughly one out of three millennials (between the age of 22 and 32) of the 1,414 surveyed in a recent Wells Fargo study said they now believe they would have been better off directly entering the workforce after high school instead of going to college. The reason for that about-face is that more than half of those surveyed used student loans to finance their college education, and many found they created a an overwhelming financial burden. Currently, U.S. student loan debt is totaling roughly $798 billion, exceeding U.S. credit card debt.

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Empty branchBranch Transactions Down 45 Percent

Branch transactions at credit unions and community banks have declined 45 percent since 1992, according to the 2013 FMSI Teller Line Study. The average cost per transaction has increased to $1.08 from 48 cents. Meanwhile, mobile banking is on the rise. The study is a compilation of statistics from credit unions and community banks in geographic regions across North America. The March 2013 study encompasses more than 17 million teller transactions and compares the same to the previous 21 years of the study. Regarding mobile banking, the study said worldwide mobile payment transactions surpassed $171.5 billion in 2012, up 62 percent from $106 billion in 2011. Usage in U.S. increased by 50 percent since 2011.
Among the reasons for the decrease in branch productivity is the number of branches have increased at a higher rate than the population. The ratio of population to branches had declined dramatically by 2008 from where it was in 1970, the study said. In 1970, 9,340 people were served per branch; by 2008 that number dropped to 3,683 per branch. Overall, credit unions and community banks have experienced a 17.9 percent decline in transactions per teller hour, the study said. Based on average branch monthly volume, credit unions have seen a 12.1 percent drop, while banks have seen a 26.2 percent decline. Teller processing labor cost per transaction has increased 6.5 percent at credit unions, and jumped 18.4 percent at banks.

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No free checkingEliminating Free Checking

The June 10th edition of the Atlanta Business Chronicle reported PNC Bank will eliminate outright free checking over the next 12 months. Every account except one will have minimum balance requirements and/or other options to keep accounts at free status. PNC is the eighth largest bank in the metro area.

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