A number of issues came to a head in the credit union space this year, but their impacts will begin to be felt in earnest during 2017.
And no discussion of 2016 credit union topics would be complete without a look at the National Credit Union Administration's new rule on membership. The NCUA board Oct. 27 approved the much-debated field of membership rule, which it said will make it easier for U.S. credit unions to expand their reach. But of course, not everyone thinks that news was positive. In fact, the American Bankers Association on Dec. 7 said it filed a lawsuit against the regulator over the rule.
A growing number of credit unions are making the switch from federal to state charters with more lax rules on membership as part of the attraction. But changes to the NCUA membership rule could help stem the tide.
National Association of State Credit Union Supervisors President and CEO Lucy Ito said in an interview that the new FOM rule represents the dual chartering system in action: The states modernize their membership rules, which in turn gives the NCUA an incentive to remodel rules for federal credit unions. That action, in yet another turn, may provide an incentive for even more states to reform their own rules, she said. Ultimately, consumers could be the winners with greater choices, which fosters overall system safety and soundness, Ito said.
Whether the NCUA's new rule has an impact on the frequency of federal-to-state charter changes remains to be seen — there is always an ebb and flow from each charter type. However, the NCUA's rule does not allow federal credit unions to "mix and match" charter types, such as select employee group CUs combining with community-based CUs, as is permitted by many state rules. Also, FOM is not the only trigger for federal-to-state conversions. Credit unions also value locality — the local access, local specialization and local expertise — that state supervision offers, she added. "And, of course, the decision to convert is unique to each credit union."
The ABA suit is the second significant legal offensive launched by a bank advocate against the NCUA in recent months. The Independent Community Bankers of America in September filed suit against the NCUA over changes to the member business lending rule. Those changes included removing loan-to-value limits on commercial loans and eliminating rules that require credit union customers to personally guarantee small-business loans. The NCUA board in February approved the final version of the MBL rule.
The Pennsylvania Credit Union Association has been advocating for an expansion of MBL rules for the past several years, said Patrick Conway, president and CEO of the association. "The ability to expand business lending will provide additional business loan options to all members, including those who may have had difficulty obtaining loans from other lenders in the marketplace at fair terms and pricing," Conway said.
And, of course, rising interest rates were a hot topic across the credit union space in 2016 and will continue to be so into next year and beyond. Federal Reserve officials in December announced that they raised the target range of the U.S. central bank's key interest rate by 25 basis points after their final monetary policy meeting of the year. Such a move in December had been anticipated for months.
Amplify Federal Credit Union President and CEO Paul Trylko said in an interview that the small increase in rates should not have any immediate impact to the Austin, Texas-based credit union. He said Amplify has done well and adapted to the low rate environment, but an increase in rates and margins would certainly have a positive impact. "We don't foresee that small, incremental increases in rates would adversely impact member usage," Trylko said. "The biggest impact would be in the mortgage arena, but probably only if rates rise 100 basis points from the current levels."
Refis would likely slowdown, and the credit union might also begin to see more "normal" prepayment speeds under such a scenario, Trylko said.
And 2017 will also see the dawn of the Donald Trump presidency. One of the first places a Trump administration may have an effect on credit unions could be with an appointment to fill the NCUA board seat vacated by former Chairman Debbie Matz. Trump may name a new board member and make that appointee the chairman or, more likely, appoint Republican board member J. Mark McWatters as chairman, said Geoff Bacino, who was appointed to the NCUA board by President Bill Clinton in 2000.