By Angie Picardo
It’s no secret that mobile banking has exploded in the past five years. As smartphone and tablet saturation increases, consumers have begun to expect that their financial institution will offer a free mobile application (app) for their mobile devices that provides services such as checking account balances, finding ATMS, and transferring funds. Additionally, most banks offer other on-the-go services, such as text alerts and sites optimized for mobile use.
Concurrent with the trend towards mobile banking has been the growth in popularity of credit unions. After the Great Recession, many consumers became disenchanted with traditional banks and began shifting their money to credit unions, and with good reason. In many cases, credit unions offer consumers better rates on products such as mortgages and car loans, as well as more personalized and friendly customer service.
Credit unions are also becoming easier to join. While many credit unions used to only be available to those in certain professions, such as military members or educators, credit unions are opening their doors to a wider swath of consumers. Statistics related to credit union membership belie these trends; according to the National Credit Union Administration a federal agency, which oversees federal credit unions, credit union membership in the United States grew by 743,000 in the third quarter of 2012.
Given these developments, it’s not surprising that credit unions have been hard at work developing mobile technology that can compete with that of major banks. Most national credit unions now offer their customers some type of mobile banking app as well as other mobile banking services, and some, like Twin Star Credit Union, have adopted state-of-the art technology to provide a truly superior mobile experience.
Quality and sophistication of mobile services vary significantly between credit unions. Check out the graphic below to see the benefits and drawbacks of mobile banking services offered by five large credit unions; note that viewing transaction histories and finding ATMs is a feature available in all of the apps listed below:
Angie Picardo is a writer at NerdWallet, a financial literacy website where you can find advice on topics from credit union advantages to answering the question, “should I get a joint account with my spouse?”
Filed under: Consumer Financial Protection Bureau
Earlier this week the Consumer Financial Protection Bureau (CFPB) issued guidelines for how indirect auto lenders can avoid violating the Equal Credit Opportunity Act (ECOA). In recent months, the CFPB focused on auto lenders potential violations of the ECOA.
The ECOA prohibits lenders from discriminating against borrowers based on specific protected classes which include race, color, religion, national origin, sex, marital status or age. Allegations of violations of ECOA arise when similarly situated consumers are provided different credit opportunities, and an allegation is made that the different credit opportunity arose because of a consumer’s protected class status. While other factors may contribute to the difference in credit offered, the financial institution bears the burden of proof of establishing that the different credit was based on factors other than race, color, religion, national original, sex, marital status or age.
Indirect auto lending occurs when a consumer seeks financing directly at the car dealership. The car dealer uses information about the consumer and applies for financing with various financial institutions. The financial institution then evaluates the consumer and either agrees to provide financing or passes on offering financing. Some financial institutions give parameters to the car dealer, such as that they will buy the loan at a set interest rate, but the dealer may charge additional interest or a reserve, which they will keep as a profit.
The CFPB is primarily concerned with situations where the dealer charges additional interest or a reserve. The concern is that members of protected classes may be charged higher rates for their loans, which may violate ECOA.
While some indirect lenders may claim that they are not liable under the ECOA because they are not originating the credit or directly accepting the application, the CFPB indicated that they would still be liable if they make a credit decision (such as offering a rate or agreeing to buy a loan at a set rate) or if they know that the car dealer is violating the ECOA.
Although the CFPB has been focusing on indirect auto lenders for ECOA violations, they offered tips for indirect auto lenders which include:
- Imposing controls on dealer markup, or otherwise revising dealer markup policies;
- Monitoring and addressing the effects of markup policies as part of a robust fair lending compliance program; and
- Eliminating dealer discretion to markup buy rates, and fairly compensating dealers using a different mechanism that does not result in discrimination, such as flat fees per transaction. (See CFPB Bulletin March 21, 2013).
Indirect auto lenders are facing stricter scrutiny under the CFPB. They should develop or revise their programs to ensure that the dealers they work with are not engaging in discriminatory practices. Because an indirect auto lender may be using multiple lenders across the country, liability can be established based on discriminatory practices at one dealership or multiple dealerships.
Auto lenders will need to make sure they have a well-developed program and continued monitoring of its dealers. In this age of heightened scrutiny, the best defense may be a good offense.
Jennifer Monty Rieker is a partner of Litigation & Defense located in the Cleveland office of Weltman, Weinberg & Reis Co., LPA (WWR) who can be reached at 216.685.1136 and firstname.lastname@example.org. Amy Holbrook is a partner of Consumer Collections located in the Cleveland office of WWR who can be reached at 216.685.1141 and email@example.com.
By Timothy K. Spencer, Attorney
Recently, the Consumer Financial Protection Bureau (CFPB) indicated an interest to delve further into overseeing and making recommendations concerning the private student loan market. Chiefly, the Bureau may seek to regulate student loan servicers and mandate (or at least highly suggest) the implementation in the private student loan market many of the borrower options available in the federal student loan market.
Under the Consumer Financial Protection Act (Section 1035 of the Dodd-Frank Act) , the CFPB has supervisory authority over all nonbank covered persons offering or providing private education loans. The Dodd-Frank Act authorizes the CFPB to supervise nonbank covered persons for the purposes of: (1) assessing compliance with Federal consumer financial law; (2) obtaining information about such persons’ activities and compliance systems or procedures; and (3) detecting and assessing risks to consumers and consumer financial markets. Acting in this capacity, the CFPB may, amongst other things, conduct examinations on and request information from supervised entities; the CFPB is empowered to then use this information for the purpose of making policy recommendations to the Secretary of the Treasury, the Secretary of Education, and Congress.
The CFPB recently proposed a new rule that will permit the CFPB to supervise some nonbank student loan servicers and place new restrictions on the quickly expanding market. The new rule would give the CFPB access to servicers’ information relating to the whole process of student lending, from issuing loans to debt collection and credit reporting for both federal and private student loans. CFPB Director Richard Cordray stated that the purpose of the new rule “help[s] ensure that tens of millions of borrowers are not treated unfairly by their servicers” as “servicers are now facing the stress of an increasing number of delinquent borrowers” brought on by “[t]he student loan market…grow[ing] rapidly in the last decade… .” The CFPB currently oversees student loan servicing at larger banks; this rule would expand that oversight to nonbank servicers.
The CFPB has also issued an initiative to address the growing concern over defaults and delinquencies in the private student loan market. This initiative is in the form of a request for information to determine options that would increase the availability of affordable payment plans for borrowers with existing private student loans. The CFPB hopes to use this information in forming its “student loan affordability plan,” an effort aimed at easing the burden on private student loan borrowers and decreasing the amount of defaulted and delinquent private student loans. Options include imposing on the private student loan market various repayment features such as income-based repayment, long-term forbearance, rehabilitation options if a borrower defaults and refinance options. While these features are available with federal student loans, no requirement exists that private student loans have these features as well.
 12 U.S.C. 5301 et seq.
 12 U.S.C. 5514(a)(1)(D).
 12 U.S.C. 5514(b)(1).
By David S. Brown, Attorney
Lending officers should be aware that an applicant’s national origin is one of the prohibited bases listed in the Equal Credit Opportunity Act (“ECOA”) and 12 CFR 202 (“Regulation B”). Simply put, lenders cannot consider a loan applicant’s national origin when considering whether to authorize a credit transaction. The question that remains, though, is whether financial institutions can deny credit to an applicant based on the fact that he or she is not a U.S. Citizen. This question focuses on the distinction between national origin and alienage – the difference between being from a particular country and being a citizen of any country other than the U.S.
To be certain, Regulation B allows lenders to consider information necessary to ascertain the lender’s rights and remedies regarding repayment of the credit line being applied for. This provides for the consideration of residency and attachment to the community. Specifically, the Official Staff Commentary to Regulation B states that “immigration status and ties to the community (such as employment and continued residence in the area) could have a bearing on a creditor’s ability to obtain repayment”. Thus, creditors “may consider and differentiate, for example, between a non-citizen who is a long-time resident with permanent resident status and a non-citizen who is temporarily in this country on a student visa”.
With respect to an applicant’s citizenship, Regulation B and the ECOA make clear that citizenship status is not a “prohibited basis”. In fact, an Official Staff Comment to Regulation B states that “[u]nder the regulation a denial of credit on the ground that an applicant is not a United States citizen is not per se discrimination based on national origin”. The commentary supports the view that, as long as a lending institution does not single out and deny credit to non-citizens from particular nations, a policy to deny applications of all types of credit to all non-citizens would not be a per se violation of the ECOA or Regulation B.
In addition to Regulation B and the ECOA, lending institutions must consider 42 USC § 1981. Section 1981(a) provides that “All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts . . . .” In 1974, the United States Court of Appeals for the Fifth Circuit concluded that § 1981 extends to protect non-citizens from private alienage discrimination. Thirteen years later, the Fifth Circuit reversed course with a seven-to-six vote and dismissed a non-citizen’s claim for private discrimination by finding that § 1981 only protects non-citizens from state action, and not from private discrimination. The Bhandari decision is still good law today, and is particularly relevant to the topic of lending to non-citizens, as it involved a financial institution’s denial of a credit application based solely on the fact that the applicant was a non-citizen.
What’s unclear, is how subsequent amendments to 42 USC § 1981 may impact a lender’s right to deny credit applications based on the criteria of citizenship alone. In 1991, § 1981 was amended to include subpart (c) which states, “the rights protected by this section are protected against impairment by nongovernmental discrimination and impairment under color of State Law.” Some have interpreted this statutory amendment as superseding Bhandari and indicated that private discrimination, as well as governmental discrimination, is prohibited by § 1981. In fact, both the Fourth Circuit and the Second Circuit have since rendered opinions in conflict with Bhandari – citing the 1991 amendment to § 1981 as proof that Congress intended to proscribe alienage discrimination by private actors, as well as through state action.
To date, Bhandari remains good law as the U.S. Supreme Court has refused to consider this issue on numerous occasions. Additionally, the ECOA and Regulation B continue to provide for the consideration of a credit applicant’s citizenship, as long as the lender’s policy does not constitute discrimination based on national origin. In other words, policies which provide for the denial of non-citizen credit applications across-the-board continue to be valid under Bhandari, the ECOA and Regulation B.
Lenders should take note; however, of the growing body of case law which supports the idea that 42 USC § 1981(c) may prohibit private discrimination, as well as discrimination by government actors. It may only be a matter of time before the Fifth Circuit’s holding in Bhandari is challenged. With this in mind, lending practices that provide for the denial of credit based solely on alienage should be reviewed and strengthened as such policies could lead to litigation in federal court.
 James T. Bork, Credit Decisions Regarding Non-U.S. Citizens Considered, http://business.cch.com/bankingFinance/news/10-25-jb.asp
 Reg. B Commentary, ¶ 6(b)(7).
 Reg. B Commentary, ¶ 6(b)(7).
 Guerra v. Manchester Terminal Corporation, 498 F.2d 641 (5th Cir. 1974).
 Bhandari v. First National Bank of Commerce, 829 F.2d 1343 (5th Cir. 1987). The Bhandari decision is peculiar in that it was reached via reconsideration. In fact, the Fifth Circuit originally held that “the law of this Circuit recognizes actions for private alienage discrimination under § 1981 . . .” before later reversing course and finding that no private cause of action was supported.
 See Duane v. Geico, 37 F.3d 1036 (4th Cir. 1994) and Anderson v. Conboy, 156 F.3d 167 (2nd Cir. 1998).
Filed under: compliance
By Matthew D. Urban, Attorney
Ever since the enactment of the Dodd-Frank Act and the creation of the Consumer Financial Protection Bureau (CFPB), compliance related issues have increasingly impacted credit unions’ day-to-day operations. Tasks that used to be handled internally by one or a small group of employees and management, now requires the hiring of additional staff, including but not limited to third party vendors. Not surprisingly, this additional devotion of time has also meant an additional allocation of resources. However, while this increase can easily be measured in terms of money allocated, what often gets overlooked is that these “costs” ultimately trickle down to the member whether it be through an increase in fees or a loss of services or products.
Recently, the CFPB indicated an interest in determining how much it costs financial institutions to comply with the regulations that are issued. Specifically in a March 20, 2013 blog post on its website (www.consumerfinance.gov), the CFPB indicated that their Research, Markets and Regulations team was going to study the costs of the rules that are issued as they “hope to become better and smarter regulators.” While this promise may seem laughable to those closely following the progress of the CFPB, perhaps their acknowledgement of the issue may offer a sliver of hope to credit unions that are already well aware of the costs the CFPB is pledging to look into. However, instead of waiting for a CFPB report to be issued, I solicited opinions and information from several CEO’s of credit unions of varying sizes in Pennsylvania in order to better understand the exact nature of the impacts of recent regulations.
Not surprisingly, all of the credit unions surveyed specifically mentioned the increase in employee costs as the main impact of the increased emphasis on compliance issues. While the larger credit unions typically have hired additional employees for newly created compliance positions, the smaller credit unions have not been able to absorb those costs, but rather, have relied on the cross-training of existing employees or otherwise re-assigning employees from one job within the credit union to a compliance position. No matter how they have gone about increasing their compliance staff, those CEO’s surveyed all indicated that in order to compensate for the rapid growth in their personnel costs, they have been looking for ways to generate new sources of revenue through an increase in existing member fees or the creation of new fees such as application fees where they may have not existed in past. While many of these fees may not be overwhelming to the membership at large, the inclusion of the new fees are serving to further create a competitive disadvantage between credit unions and other financial institutions such as banks that may be better situated to absorb those additional costs. However, it should be noted that not only does this disadvantage exist between credit unions and banks; it has also created similar disadvantages between small and large credit unions.
Perhaps the more subtle impact of growing compliance costs is the impact on services and products offered. Although each CEO questioned indicated they had no intention of eliminating any existing products, all acknowledged that member services such as courtesy pay have already or may have to be eliminated. Additionally, the CFPB’s new one-size-fits-all regulations governing mortgages have led CEO’s, particularly those at smaller credit unions, to re-consider whether or not they will be able to offer affordable and competitive mortgage products to their membership due to issues such as SAFE Act certification for staff and new requirements for the establishment and maintenance of escrow accounts. However, most troubling was the suggestion by the CEO’s queried that while they are hopeful that they will not have to eliminate any products, any credit union that is not already offering a product to it’s members may not be able to financially justify the risk and exposure required to add anything new, such as mortgage and home equity loans, that in the past helped to increase income but also attract new members which in turn have helped sustain and even grow many small and mid size credit unions.
As member owned financial institutions, credit unions have always held a unique position within our financial system. Being member owned, the focus has naturally always been on serving the diverse financial needs of their members and by tailoring their products and services to a specific membership base which represents all levels of the economic ladder. While direct and measureable impacts of new regulations include an increase in employee costs, elimination or reduction in services, increase in fees, elimination of products or an unwillingness to offer new products, there are many indirect impacts that credit unions and the economy at large will experience that will never show up in a CFPB study on the issue. Ultimately, the pathway to a modern economy and economic freedom is the availability of credit. Unfortunately, as credit unions endure the current compliance environment and the associated costs, those members at the lower end of the credit market will be made to suffer as their local credit union, which they have always relied upon for credit, may not have the resources necessary to be there to offer that credit in the future.
Filed under: online
By Jill A. Keck, Attorney
As the internet shopping craze spills over into the purchase of vehicles, leaders in the auto lending market need to get on board for the ride. Online shoppers agree that making purchases, both big and small, can save time and money. All it would take for a credit union to succeed in this arena would be a little marketing and education. Credit unions already offer their members the lowest interest rates on auto loans than any other financial institution and especially lower than dealerships. The problem is that many members are unsure how to purchase a vehicle online and still finance it through a credit union. This is where the credit union needs to market to current and potential members of not only their low interest rates but also their services to walk the member through the process of locating and selecting a vehicle to purchase online, obtaining the financing through the credit union.
How does a member purchase a vehicle online? Purchasing vehicles online is a fairly simple process when the person has been given some basic steps. First, the member should get an idea of how much car he can afford. It is important to know the prevailing annual percentage rate (APR) for an auto loan. Also, keep in mind insurance and fuel costs. If possible, the member can even prequalify for a loan.
Second, the member needs to research different vehicles and make a list of which ones fit within his budget and that he thinks he wants to buy. This can be done any day of the week and at any time. There are no car salesmen breathing down their neck while browsing. The member can scan numerous online dealers and auction companies within a matter of minutes, comparing makes, models, color and other options. The best part is that it can all be done in the comforts of the member’s own home. They should keep in mind that the location the vehicle is stored should not be too far from their home. It is recommended that the radius be no more than 20-30 miles from a member’s home to make the next steps in the process easier.
Next, they should go test-drive several of the vehicles on their list to possibly narrow their options. I know this sounds old-fashioned and seems to obliterate the advantages of shopping online, but getting behind the wheel and driving can tell the member a lot about whether a car is going to meet their needs and desires.
After test-driving, members should go back and research the specifics about the cars remaining on their preferred list to make sure he/she is making the right choice. There is a lot of information about vehicles online, right at the member’s fingertips, including Kelley Blue Book pricing, safety testing results, ratings, and so forth.
The next step in the online process is to compare prices at several different online dealers and auctions to find the best deal. Because the sales departments of online dealers and auctions are paid based upon the number of vehicles sold instead of commission, they understand that members are looking for a fair price and thus, sales move along fairly quickly. In addition to the actual sales price of the vehicle, members can work out the smaller details such as extended warranties. Now members can go back to the credit union to apply for a loan, or if already prequalified, sign for the loan.
The final step is the financing, which should be the easy part for the credit union since the financing of vehicles is already a service provided to its members. The process to finance an online car purchase is not really any different than the financing the credit union provides for vehicles purchased by a member from a car dealer. The member applies for a loan, the credit union processes the application and if approved, issues the loan.
If the credit union currently only processes auto financing at its branches, it should consider having an option to process the loan online. Not only will that appeal to many of the current members who are purchasing vehicles online, but it will also market to new members who are in the process of purchasing a vehicle online and are looking for the best financing options. Online financing keeps in line with many of the benefits offered by purchasing a vehicle online, including the fact the member can do so from the comforts of his own home at a time more convenient for him.
Filed under: credit unions | Tags: compliance, directors, relief, testing, volunteers
As part of my CFPB presentation, I talk about how credit unions can better leverage volunteers as a cost cutting tool. I figured that I could put some more meat on the concept and perhaps get a decent post out of it, so here goes.
At one time in the movement, there were examples among credit unions of volunteers filling every role at the cooperative. We had volunteer CEOs and member service reps in addition to volunteer directors and committee members. What has happened to that spirit? Is it a sign of the times as to how people want to spend their time? Is it a failure of marketing to people by credit unions to get more people to volunteer?
If Clay Shirkey is at all right, people still have volunteer time available or as he calls it: “cognitive surplus.” If that is true, perhaps it is just a matter of wanting more volunteers and then marketing to members to become volunteers.
What can volunteers do? I propose that volunteers can be rounded up into task force assignments in order to handle various regulatory requirements cheaply rather than by hiring a vendor. At a baseline, they need to be at least 18 years old, bondable and a member of the credit union.
Three areas I want to focus on include vendor due diligence, risk analysis and compliance testing. All three of these functions have been required by NCUA and all three are resource intensive. Here’s how it would work:
Vendor due diligence. The board chair would appoint a task force of volunteers to pick 3 vendors for the particular service (say core processing) and then review their financial statements, reputation, experience and other attributes required by NCUA. The task force would then report it’s findings back to the Board of Directors after an appropriate time and make a recommendation (which the board is free to follow or not). This would take a great deal of pressure off staff and the directors themselves in meeting NCUA due diligence requirements at a cost of zero.
Risk analysis. Most compliance requirements at the credit union are risk based. This means that NCUA would prefer that you assigned risk values to every vulnerability and then build your policy around that. Put another way, you could spend a billion dollars on a BSA policy and it would still not be perfect. We don’t have billions to spend on policies so it helps to document the risks we have and put what resources we have around them. Therefore, the task force could meet, take various credit union compliance policies, document the particular risks that the credit union has on a 1 to 10 scale along with the credit union’s experience with the particular risk and then make a recommendation to the Board and to Management as to any changes that need to be made. This report could then be placed in the file with the particular policy (BSA, Disaster Recovery, Social Media, etc.) to be shown to the examiner later.
Compliance testing. Most material credit union policies need to be reviewed and tested annually. Volunteers can be trained to do ECOA testing (see how members are treated, review past applications and look for discrimanatory effects of policies), Disaster recovery (table-top testing or even creating a mock disaster), BSA (review of cash data versus CTR filings, review of SAR quality, review of OFAC compliance) and a host of other things. What is either a time consuming task for staff or an expensive task to hire a vendor to complete can be done quite effectively at no cost by volunteers.
The new compliance burden is real. 700 credit unions no longer exist since the passing of the Dodd Frank act. Volunteers are a credit union’s secret weapon. It is time for credit unions to reach out to volunteers again to meet these increasing compliance demands.