An E-publication from the Delaware League Services
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An E-publication from the Delaware League Services |
Fourth Quarter 2006
Proactive Compliance...
The Visionary Approach
Author: Michael Dougal, Principal Consultant, HRValue Group
In my current reading file, there are at least a dozen articles on avoiding employment lawsuits. Published in credit union journals, human resource publications and generic management and supervision magazines, every article is packed with stories of multi-million dollar settlements, followed by 10 or 20 steps for guarding against expensive and time-consuming lawsuits.
Consequently, when you finish reading such an article, you’re left with a sense of urgency to beef up your human resource policies, check your performance appraisals for adverse impact and review your wage and salary program for pay equity.
I’m concerned that the media frenzy over high-profile employee lawsuits is making us more reactionary and less proactive when it comes to human resource management.
Take, for example, employee performance appraisals. Many managers and supervisors simply look at performance appraisals as a necessary evil which will protect the credit union should it ever be sued in a termination case. And documentation of human resource policies is often undertaken in response to a real or perceived threat of a lawsuit.
But, establishing policies and documenting performance – merely for the sake of avoiding a lawsuit – is missing the point. The real benefit of a customized human resource policy manual is improved communication, consistency and fairness of decisions, and the time-savings realized by having a comprehensive management tool at your fingertips. And customized performance management programs offer a clear understanding of job expectations and the opportunity for a supervisor to mentor and coach employees to maximize their performance.
These are the true benefits of human resource management. Communication, fair decisions and improved performance.
It’s important to maintain that perspective in formalizing your HR policies and procedures. So for all the right reasons, take a look at your performance appraisal system, your HR policies and your wage and salary administration program. Are they fair? Are they objective? Do they open the lines of communication between staff and management?
If you answer yes to these questions, chances are they will also stand up to any challenge in a court of law and, more importantly, they will eliminate the need for employees to seek legal recourse in the first place.
If you answered no to any of the questions, HRValue Group offers the tools necessary to set in place comprehensive programs that comply with state and federal laws. Our programs also offer improved communication and other benefits that focus on making the workplace a mutually beneficial environment for both the credit union and its employees.
As businesses, credit unions have a duty to comply with applicable employment laws; however, as caring employers, they also have the moral duty to be fair, equitable and conscientious. Will we ever get back to the simpler times of company loyalty, mutual respect and unwavering trust between a company and its employees? Perhaps not, but should we try? Of course.
As a strategic partner for the credit union industry, HRValue Group provides several resources that can ensure your organization is in compliance and competitive in the market. For more information on these services and other human resource solutions, contact us at 888-272-4598 or info@hrvaluegroup.com.
Keep Your Card Portfolio for the Right Reasons
By Robert R. Hackney III
The trend continues: Credit unions are selling their credit card portfolios, often to the big banks that threaten their very existence. But a card program helps anchor member relationships and is a high-yield product that boosts your bottom line. Before you sell, consider the power of card relationships.
Remember why you started offering credit and debit cards in the first place? Your members needed convenient ways to make payments, and more of them wanted to use plastic. And unlike cash or check payments, every card transaction generates revenue for your credit union.
This is truer than ever today. Debit cards generate significant interchange (per-transaction) income, and credit cards typically yield the highest return on assets (ROA) of any payment vehicle a credit union can offer.
Still, credit unions continue to sell their credit card portfolios, and those portfolios get smaller each year (Figure I). In many cases these credit unions see cards as an ancillary product rather than as a core strategic product.
Such credit unions may not market their card programs aggressively or adjust their value propositions to stay competitive as the market evolves. Big banks make more attractive offers to their best cardholders, often through compelling direct-mail balance-transfer solicitations. As banks siphon off these income-generating accounts, unmanaged credit union portfolios stagnate.
Credit unions also may fear escalating fraud, not realizing there are many tools and industry experts available to help them keep it in check. They sometimes throw up their hands, saying “I’d better sell today because the portfolio’s worth more than it will be tomorrow or next year.”
Credit unions need to look at the ROA and ROI (return on investment) potential. Recent research from Raddon Financial Group, Oakbrook Terrace, Ill., shows that credit cards are the credit union industry’s highest-earning asset, with an average ROA of 1.83% vs. 1.23% for home equity loans, 0.7% for mortgages, and 0.32% for auto loans (Figure II).
Credit cards can make a far greater contribution to a loan portfolio’s revenues and net income than their percentage of overall loans would suggest. At Toledo Area Community Credit Union, Sylvania, Ohio, for example, credit cards constitute 9% of loans but cards account for 40% of total loan income, and the card program ROI is 3.1%. Its mortgage program, which accounts for 46% of loans but only 26% of loan income, has an ROI of 0.4%.
Credit unions need to look at cards as a strategic, income-boosting, relationship-building product, as well as one that attracts new members and presents cross-sell opportunities. Two important steps can increase chances for success:
Despite 35% platinum growth in 2004, credit unions’ share of the platinum market still is very low, so the opportunity is huge.
Robert R. Hackney III is president of Card Services for Credit Unions (CSCU), Clearwater, Fla., and a member of Visa USA Inc.’s board of directors.
COLLATERAL PROTECTION CAN MINIMIZE LOSS AND ADD REVENUE
Research Shows One of Every Seven Drivers Has No Insurance
Credit unions are offering creative loans, such as nontraditional vehicle lending to generate income, but with the rewards come risks.
Non-traditional lending typically means non-prime, where the borrower has flawed credit, or indirect, where a third-party handles the transaction, said Tim O’Meara, vice president, Collateral Protection products for CUNA Mutual Group. "The less control you have over a borrower, like riskier credit scores or little direct contact, the more you need to protect yourself,” said O’Meara.
Collateral Protection Insurance (CPI) helps credit unions manage the risk of loss due to accidents or defaults by uninsured motorists, said O’Meara. He noted a well run CPI program can save a credit union hundreds of thousands of dollars each year.
“Credit unions said their biggest concerns with CPI were too many false placements of insurance, too much member noise or negative feedback, and reliable service,” said O’Meara, who offered credit unions a checklist of “must-haves” when considering a CPI program.
A study from the Insurance Research Council (IRC) indicated one of seven drivers has no insurance, and in some states it is one of every three. The IRC reported a typical uninsured motorist has more accidents than an insured motorist, and the chances of damage occurring from an accident caused by an uninsured driver are higher.
State Employees Credit Union (SECU), Raleigh, NC, the second largest U.S. credit union, runs its own collateral protection program, not only to minimize losses from uninsured motorists, but to cross-sell new products such as auto and homeowners insurance.
“We aggressively manage risk in our program, and it has helped control losses significantly. We also use the insurance tracking data to find cross-sell opportunities, which has increased revenue,” said Harry Dixon, senior vice president, State Employees Credit Union.
Not every credit union has the staff or resources to implement its own CPI program, and many turn to partnering for collateral lending risk management services.
“Not having a successful equation for efficient title administration, repossessions, vehicle remarketing or even overall servicing can be dangerous to a credit union’s bottom line,” said Marie Persichetti, vice president of SST Inc., a leading consumer loan servicer. “Credit unions may be challenged in hiring experienced personnel in these areas so partnering all or some servicing is often the best answer.”
Wescom Credit Union, Pasadena, CA, developed its own in-house automated tracking system. Cynthia Sakai, the credit union’s vice president of lending, said even with improved communications with members, forced placements were occurring, and manual corrections were too tedious.
“The program automatically adds the premium to the loan, re-amortizes the loan, changes the payment amount, places a comment on the account, and debits the appropriate general ledger accounts,” said Sakai. “Our staff never has to manually apply the CPI premium.”
For more information about minimizing loss and adding revenue through collateral protection insurance, call CUNA Mutual Group at 800-333-2644 ext. 5622 or visit the company’s Web site at www.cunamutual.com.
WHAT TO DO DURING THESE TRYING TIMES
These are trying times but I don’t need to tell you that. Purely from an interest rate point of view, we are in a different place on the economic cycle. For the past two years the Federal Reserve has been raising interest rates from one percent to 5.25 percent. Now share accounts, certificate rates and loan rates are higher, and the competition from other financial institutions is fierce.
The housing industry, which is the fuel for the most recent expansion, is slowing down at a rate much more dramatic than previously forecast. The president of Toll Brothers, the largest builder of luxury homes in the United States recently said, “the slowdown is the worst he has seen in 40 years in business.” The American consumer, who has used his home as an ATM machine, is getting tapped out. Additionally, the worst possible combination of increasing rates and a housing slowdown is occurring; the perfect storm if you will. This housing ATM represented 70 percent of the increase in Gross Domestic Product (GDP.)
What is a credit union to do? The answer to that question is at your fingertips; it’s your membership in Mid-Atlantic Corporate. As a member of Mid-Atlantic Corporate, you are part owner and we work for you. When you need financial products and services; why not look to the Corporate first.
With that in mind, Mid-Atlantic Corporate can offer a credit union solution to liquidity and investment needs, either in-house or through a business partner relationship. If liquidity is tight, but you have an investment or certificate reaching maturity, why not borrow the funds from Mid-Atlantic Corporate to hold you over. We offer an array of loan products designed to provide flexibility in meeting our members’ liquidity needs, while satisfying asset/liability and liquidity management requirements.
If you are one of the lucky ones with excess liquidity as your “problem,” Mid-Atlantic can help you out there as well. We offer you a variety of certificates to choose from. If you are considering an Agency and would prefer to pick-up ten or 15 additional basis points, our fixed callable certificates are an excellent option. If it’s a specific time period or a “bucket” on your investment ladder that you would like to fill, we can help by creating a customized certificate to meet your individual needs.
What if you are interested in a fixed income investment? Mid-Atlantic Corporate has partnered with CU Investment Solutions, Inc (ISI), a wholly owned broker/dealer subsidiary of US Central that provides investment options. The ISI Corporate Agent program provides brokerage services offering permissible credit union investments, such as U.S. treasuries, new issue agencies, secondary bullet and callable agencies, collateralized mortgage obligations and corporate bonds. At the present time, Mid-Atlantic Corporate has six Series 7 licensed brokers who are dual employees of the Corporate and ISI, and they are ready to help credit unions with investments. Now more than ever, we have at your disposal, the financial resources needed to meet your specific investment and liquidity needs.
If you are looking for independent risk measurements, ALM advisory services or balance sheet strategy formation, look toward our partners, Fisher-Rager Consulting (formerly AmeriServ Associates) or FIMAC Solutions LLC for help. This is another example of how we are working to exceed your service expectations through strategic partnerships.
Bottom line, we are “Your Friend in the Business,” and we’re here to help! For more information, or to discuss your individual investment or liquidity needs, please contact your Corporate Account Manager.
Brad Stewart, Vice President and Chief Investment Officer, Mid-Atlantic Corporate FCU, wrote this article.
Paul Butler, Jane Bailey, and Dave Mullen at Credit Union House in Washington, D.C.
Dave Mullen Retires from CUNA Mutual
Retiring after 26 years with CUNA Mutual Group, Dave Mullen has had a very rewarding and enjoyable career. As account manager for many of our Delaware credit unions, Dave’s role was to provide sales and service for CMG’s business products.
“The thing I enjoyed most about my job,” states Mullen, “was the interaction with the wonderful people in Delaware. I truly feel that Delaware is the best state to do business in. The credit union individuals there are wiser than most when it comes to making decisions for their operations.”
Dave’s achievements with CUNA Mutual are impressive. He’s been one of the company’s top salesmen for 14 years and was the annual top salesman twice. “It’s easy to see why Dave is so successful at what he does,” states Jane Bailey, executive vice president for the Delaware League. “He has always been most responsive to our needs and those of our credit unions. He cares as much about the success of the league and our credit unions as he does about his company’s success.”
Anthony Hinds, CEO of DPL FCU, reflects on his association with Dave, “I have known Dave since I got involved with the local credit union movement some fourteen years ago. He had the unusual ability of being able to look at situations from both the side of his company's objectives and the needs or wants of my credit union. This is something I truly appreciated. He loves the credit union movement and he will be missed. It will be a boon to the movement if he finds some way to stay connected.”
Paul Butler, Vice President of Credit Union Services, CUNA Mutual, describes Dave this way, “Dave has a passion for selling solutions to customers aimed at helping to grow their credit unions. It’s going to be very difficult to fill his shoes.”
Not one to lounge around in retirement, Dave plans to work with his sons in their Pennsylvania landscaping business. He also plans to dedicate himself to improving his golf game.
“Dave could be counted on to get you information if he did not know the answer. He provided us with excellent service and dedication over the years,” states Cheryl Chilcutt, manager of Chestnut Run FCU. “You could talk to him. He knows our business and knows what services would best suit us. I am going to miss him.”
So are we Cheryl. We will all miss him. Best wishes to Dave as he begins a new chapter in his life.
Thank you for reading Service Issues!
Service Issues is produced by Jane Bailey, Executive Vice President, and published quarterly by Delaware League Services, Inc.