Essentials

...to help all of Delaware's credit unions exist, compete, and prosper   Summer 2006

SMALL CU ROUNDTABLES CONTINUE TO BE POPULAR

Delaware credit unions with assets of under $10 million have met on two occasions recently to network about successes and challenges unique to small credit unions. Debra Cohn, corporate account manager for Mid-Atlantic Corporate FCU, and Lauren Bethea and Tawanna James of NCUA’s Office of Small Credit Union Initiatives led a discussion at this year’s League annual meeting held on April 21. Topics of discussion included:
  1)      Where is the money going and why?
  2)      How can marketing to young or new members help your credit union?
  3)      How is your credit union getting the word out about its products and services?
  4)      Where will your credit union be in five years?
  5)      Why are some credit unions growing, while others are shrinking in assets?



Debbie Cohn leads discussion with members of Wilmington Postal andU-Del Federal Credit Unions.

On May 24, nineteen people from eight credit unions joined League staff and NCUA examiners Mike Renkey and Debbie Barton for another roundtable session. The first hour was spent in reviewing a Bank Secrecy Act video, which will help those credit unions in attendance to fulfill the act’s training requirement.

During the second part of the program, credit unions discussed new products and services that they are now offering to their members. ICI America FCU has signed up for the Motor Vehicle Certification Program and the GenPass card program (see article on page 5). Southern Delaware Postal Employees FCU has implemented a “new member” incentive, which provides a cash reward for current members recommending the credit union to their fellow postal employees.

Delinquent loans, charge-offs, and bankruptcy are always a concern of small credit unions. Often members who have retired or are fired from a sponsor group will stop paying on a loan once payroll deduction stops. Small credit unions know their members personally so when a layoff occurs, they work with individual members to lessen payments until money is available to continue the regular payments. These credit unions are also concerned about trying to compete with banks on savings rates in this uncertain economy.

Bank Secrecy Act/OFAC Notes

NCUA examiner Mike Renkey reviewed some important points from the BSA video at the recent roundtable.

  • Currency Transaction Reports (CTRs) are required for more than $10,000 in cash deposited in one day.
  • “Know Your Member/Customer Identification Program” compliance is required of every credit union, regardless of size. Your credit union is required to have on record the name, date of birth, social security number, and physical address (not a PO Box) for every member. When an individual joins the credit union, he/she must provide that information and show a driver’s license or other documentary evidence to verify the information. The credit union should make a copy of the driver’s license for future reference.
  • For children’s accounts, there are three ways to verify the member: 1) An older child can show school identification, a report card, etc. 2) If the minor is accompanied by an adult who is already a member, the credit union can verify the adult’s information. 2) If no one is a member, the credit union must still take the information of the adult when opening a minor’s account.
  • Ignoring the requirement that independent testing must be done to show that your credit union is complying with BSA is one of the most frequent violations of BSA. Many auditing firms are offering this service (sometimes for a fee of up to $2000), so check with your auditor about the cost of a BSA audit. However, a small credit union can use NCUA Letter to Credit Unions 03-CU-16 for a self-audit. Caution: this self audit would need to be done by someone other than the manager – for example, the supervisory committee.
  • The Office of Foreign Assets Control (OFAC) is responsible for helping insure that United States entities do not engage in transactions with “enemies” of the U.S., as defined by various Executive Orders and Acts of Congress. OFAC has the ability to enforce penalties of up to $5 million and 30 years in jail for violations. Credit unions, especially those with a small member base, feel their risk of an OFAC violation is so remote that it is not worth investing in a filtering system of some kind. (Delaware credit unions use such systems as PatriotGuard through the League and Coast to Coast, offered through Mid-Atlantic Corporate.) However, OFAC realizes that entities who seek to avoid having their transactions blocked may seek out small credit unions that they feel will be less likely to have OFAC filtering in place. Credit union compliance requirements in connection with the Office of Foreign Assets Control regulations are outlined in NCUA’s Letter to Credit Unions 01-CU-25. Copies of NCUA Letters can be found on the agency’s website at www.ncua.gov. Or call Susan Fallon at the League office for a copy of any of the letters mentioned in this issue.

    • At the small credit union roundtable, Mike Renkey handed out a chart that defines the major requirements of the Bank Secrecy Act, Customer Identification Program, FinCEN record searches, and OFAC reporting. In addition, participants received copies of a Bank Secrecy Act procedural checklist. These resources were sent out to each Delaware credit union manager/CEO in the last League mailing. If you would like to obtain additional copies of these resources, call Susan Fallon at the League office.

    CUNA Offers Free Bank Secrecy Act Guide

    CUNA has developed a Bank Secrecy Act Compliance Guide that explains all pertinent aspects of BSA and OFAC regulations. This guide is free to all credit unions that belong to the Delaware Credit Union League. This online resource is updated periodically, as needed, to keep the information relevant and fresh. That is why credit unions need to download the guide from CUNA’s website: http://www.cuna.org/compliance/member/bsa_manual.html

    NCUA CHANGES REQUIREMENTS FOR 5300 FILINGS FOR SMALL CREDIT UNIONS

    Beginning with the third quarter 2006 cycle, NCUA will require all federally insured credit unions to file the same quarterly Financial and Statistical Report. Therefore, the alternate Form NCUA 5300SF for credit unions with assets of less than $10M has been eliminated. All credit unions must use the newly revised Form 5300 beginning with the second quarter 2006 reports, due July 20, 2006.

    CONTROLLING LOAN DELINQUENCY

    Credit unions attending the recent roundtable agreed that bad loans and bankruptcy are major problems that they face. However, as contradictory as it may seem, having no delinquent loans at all might be just as bad as having too many. NCUA has recently released statistics based upon the 12/31/05 call reports showing the ratio of delinquent loans to total loans nationwide (www.ncua.gov/ReportsAndPlans/statistics/yearend2005.pdf). For credit unions with less than $2M in assets, the rate is 4.53%; credit unions from $2-$10M, 2.17%; credit unions $10-$50M, 1.23%; credit unions $50-$100M, 1.06%; and credit unions $100-$500M, 0.76%.

    Loan delinquency is your member’s failure to pay his or her debt when due according to the loan agreement. Some of the loans your credit union makes will go delinquent. Too many delinquent loans could cause the failure of your credit union. Controlling loan delinquency, then, should be your goal.

    Most delinquencies could be prevented before the loan is granted if you establish sound lending and collection policies. The main criteria for granting a loan should be based upon:
      Character of member
      Capacity to pay
      Capital (the difference between what is owned (assets) and what is owed (liabilities)
      Collateral or security offered
      Conditions or circumstance (the general economic condition)
      Credit report
      Credit scoring

    Causes of Loan Delinquency

    One of the purposes of the credit union is to encourage thrift through savings and the wise use of credit. Wise use of credit means that if a loan is properly made, the member will remain financially secure during the life of the loan. The loan officer and/or credit committee has the responsibility for making prudent loans. They should recognize procedures that might lead to delinquency dangers:

    1. Establishment of payments which are too high
    2. Failure to determine member's total debts
    3. Failure to refuse a loan when necessary
    4. Failure to re-schedule payments after difficulties
    5. Loans which do not serve the purpose for which they were given
    6. Decisions based upon favoritism

    Lending Policies

    The credit union's lending policies can be the cause for loan delinquency. In most cases these policies do not contain procedures to:

    1. Contact the member at the time of the first missed payment.
    2. Obtain adequate financial information about the member.
    3. Establish a system for missed payments.
    4. Prepare the note and other loan documents properly.

    The individual member also can be the reason for loan delin­quency. This may be due to events which the member cannot control, such as illness, death, or unemployment. Other reasons may also include carelessness in handling money, failure to maintain a budget, or forgetfulness. Members may view a loan as an automatic right. Teach these members about loans and credit and how defaulting on a loan negatively impacts other credit union members.

    Most loan delinquencies can be prevented before the loan is made. Start with the loan application and make sure that:
           • The application is filled out completely.
               • Personal references are given.
               • All collateral is accurately described.
               • Address (not just PO Box), telephone number, and employer information is current.
               • All debts, income, and expenses are complete and accurate.
           •    The member can repay the loan.
               •The co-signer (if applicable) is notified of all details of the loan.

    You should also make sure that the loan is within the maximum limits established by your board of directors and the law. If a loan is made to an official of the credit union, make sure all procedures are followed. When the loan is finally granted, advise the member of the payment amounts and the dates they are due, as well as the legal rights and obligations concerning the loan.

    These are a few ideas of how sound lending practices can aid in delinquency control. In the next issue of Essentials, we will examine ways to reduce no-pays.

    NCUA OFFERS TRAINING FOR SMALL CREDIT UNIONS

    The Office of Small Credit Union Initiatives offers a variety of credit union events.

    The following is a list of upcoming Credit Union Conferences hosted by the Office of Small Credit Union Initiatives. The training is FREE, and you can attend any location that is convenient. The sessions will be held from 8:45 a.m.-3 p.m. Topics will include disaster recovery planning, regulatory hot topics, financial literacy, and due diligence/best practices. If you have any questions regarding the events listed below, please contact NCUA by phone at 703-518-6610 or e-mail at OSCUIMail@NCUA.Gov

    September 16, 2006
    Renaissance Philadelphia Hotel Airport
    500 Stevens Drive, Philadelphia, PA

    November 4, 2006
    Holiday Inn Inner Harbor Hotel
    301 West Lombard Street, Baltimore, MD

    In addition, NCUA examiner Debbie Barton is hoping to schedule small credit union training here in Delaware. Milford Memorial FCU has offered to host a session in the southern part of the state, and the League will host a session in the fall in Northern Delaware. Debbie is seeking topics for which small CUs would like to receive training. Send your input to Debbie by email to dbarton@ncua.gov or call her at 609-923-7455.

    MID-ATLANTIC CORPORATE PARTNERS WITH COMPANIES THAT CAN AID SMALL CREDIT UNIONS

    ¯ Coast to Coast. Mid-Atlantic Corporate has entered into a partnership with Coast to Coast Financial Services, Inc. (CTCFS). CTCFS provides authentication of individuals by searching various nationwide public information databases through the Internet. CTCFS was formed to help financial institutions combat fraud by allowing them to identify individuals who enter their place of business as potential customers. CTCFS is an Internet based company, where services are convenient, quick and easy to learn. Services provided by CTCFS are:
                • Social Security Number (SSN) Search
                • Telephone Number Search
                • Reverse Address Search
                • OFAC Search
                • Fraud, Mail Drop and Cell Phone Databases
                • Pre-Employment/Background Checks

    For questions or more information, contact Debra Cohn, Corporate Account Manager, Mid-Atlantic Corporate FCU, 800-622-7494, ext. 3227.

    ¯ Genpass Offers PayCard. PayCard is an innovative valuable tool for companies who still pay employees by check. The PayCard is a debit card to which some or all of an employee’s pay is deposited, in a manner similar to direct deposit. Many employers see this as the last “piece of the puzzle” that will allow for complete elimination of paychecks. Others see it as a valuable employee benefit. In either case, the PayCard eliminates a significant cost and administrative burden for employers, while it can provide a safe, low-cost financial instrument for employees.

    Although some employers have seen the elimination of paychecks as the ultimate benefit of the PayCard, to date the focus of the product has been on the “unbanked” segment of the market. “Unbanked” employees certainly benefit, as they avoid steep check-cashing fees, have a far safer means of accessing their money than cash, and can use the card as a budgeting tool.

    Certainly this employee group is the one that has the most to benefit from the card. As the market has evolved, however, it has become evident that a significant number of all employees could benefit.

    ·         “Underbanked” – The “underbanked” are primarily part-time workers (students, teens) who maintain a bank (as opposed to a low-cost credit union) account primarily for cashing their paychecks. The PayCard can be a more efficient and lower-cost alternative, since this segment pays for the privilege of a checking account, but seldom writes checks.

    ·         Money Transfer – Millions of Americans transfer money regularly to other family members – both domestically and internationally. The PayCard can facilitate money transfers faster, more conveniently, and, most importantly, at a far lower cost than traditional money transfer companies like Western Union and MoneyGram.

    ·         College Students – Most college students receive regular aid from their parents. The PayCard can be a valuable money management tool – the parent can have a portion of his/her pay automatically deposited to the student’s PayCard, eliminating the need for the student to maintain an expensive bank account or use a check cashing agency. If there is need for emergency funds and the parent also has a PayCard, money can be transferred quickly and efficiently to the student’s card.

    ·         Money Management – Many households have two or more individuals who share the same share draft account. Many have had one or more household members abandon use of the debit card attached to the account, as they were unable to communicate to each other which individual accessed the account and for how much, resulting in high overdraft fees. With the PayCard, one family member can have his/her spending money put on the PayCard, while the other uses the debit card on the account.

    ·         Budgeting – Many consumers with share draft accounts have found it a challenge to budget, especially with the advent of MasterCard and Visa debit cards. The PayCard can be an excellent budgeting tool – allowing consumers, for instance, to place money for meals, groceries, gasoline, dry cleaning, etc. on the PayCard, while using their share draft account for rent or mortgage, utilities, card payments, etc.

    We believe that because of these options, the PayCard will become a mainstream employee benefit. Credit unions are well-positioned to benefit from the PayCard product. You can offer the product as a fee generator to your related employers or other small businesses in your communities. It can also help your credit union to further strengthen your relationship with your members by preventing a potential bank from providing a financial service. Finally, as long as they are employed and agree to have their pay directly deposited onto the PayCard, your credit union can also offer the PayCard to those consumers who are currently declined for share draft accounts, thus providing these individuals a service heretofore unattainable.

    Genpass is working with the Mid-Atlantic Corporate Federal Credit Union and its affiliated credit unions to provide this service to your members. For questions or more information, contact Debra Cohn, Corporate Account Manager, Mid-Atlantic Corporate FCU, 800-622-7494, ext. 3227.

    CUNA’s SMALL CREDIT UNION RESOURCES

    Are you familiar with CUNA’s small credit union resources? If not, be sure to visit their website at www.cuna.org/initiatives/small_cu/index.html.

    The website has information about upcoming small credit union forums, Governmental Affairs Conference iInformation, operations/training, scholarship opportunities, regulations and advocacy, a small credit union listserv, CUNA Small Credit Union Committee information, small credit union statistics, and other links.

    The small credit union listserv is a super resource for you to find out what “issues” other credit unions are dealing with and finding answers and solutions to them. If your credit union has “issues” and/or problems, you can go to the listserv and ask other credit unions to respond. Normally, another credit union can help you with a response to your problem. Examples of topics/issues that have been discussed are employee problems, lending, collections, policies, ALM issues with examiners, overdraft privilege programs, gift cards, etc. – anything and everything operationally that credit unions face day to day.

    Sign up today and take advantage of all the resources that CUNA has to offer small credit unions.

     

    Essentials is published periodically by:
    The Delaware Credit Union League
    4 Quigley Boulevard
    New Castle, DE 19720
    (302) 322-9341 or (800) 292-7875; Fax:  (302) 322-9354
    Editor:  Alice Smith, E-mail: alice@dcul.org