What credit unions need to know for the rest of 2019

Reg watch

With the first presidential primary debates of the 2020 campaign over, many are already keeping a close eye on next year. But credit union professionals still have plenty of concerns about the remainder of 2019, from robocalls to payday lending and CECL and more. CU Journal queried a variety of industry leaders to get their take on their regulatory and congressional priorities for the remainder of the year.

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All eyes on 2020 (or even 2021)

With most Americans already closely watching early developments in the 2020 presidential contest, hopes are beginning to fade that credit unions will see much more legislative progress in 2019. And with the election likely to suck up most of the oxygen next year, some in the industry are girding themselves for the possibility that the legislative picture may not improve until after the next inauguration.

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More extreme weather coming, and what it means for CUs

Many regions of the country, including large parts of the Midwest, are still recovering from natural disasters earlier this year and in 2018, and with hurricane season underway it's a good bet there will be more to come. A disaster-relief bill signed into law by President Tump earlier this month could help shield credit unions form losses in places like Nebraska and California. But there are still questions about the long-term impact extreme weather events will have on credit unions' loan performance as more consumers face the possibility of delinquencies as a result of natural disasters impacting their jobs.

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Buying banks

The dominant theme from the first half of 2019 has been the massive increase in credit unions buying banks, with those numbers already near last year's total and surpassing all previous years. But that sets up a question that could be relevant well beyond the second half of 2019: Sure, credit unions can buy banks, but can they keep the customers? Sources say that while holding on to retail customers may be relatively easy, keeping commercial clients could be a much bigger challenge.

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Mergers slowing?

Data from the first quarter of 2019 paints a confusing picture about the state of credit union mergers. There's no doubt that the industry continues to shrink, but Q1 saw a significant drop in merger approvals when compared with the first quarter of each of the last four years. One potential factor, sources said, is that the industry has simply consolidated so much that there are fewer merger candidates. On top of that, the number of credit unions buying banks is at an all-time high, so there could be an overall shift in strategy. But neither of those explanations tells the full story.

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Reg changes coming?

Even if legislation doesn't move forward much, the second half of this year could see major changes on the credit union regulatory front. For starters, along with delaying implementation of its risk-based capital rule until 2022, the National Credit Union Administration this month announced its intention to present a proposal on subordinated debt for credit unions by the end of 2019, along with the prospect of examining a credit union version of the Community Bank Leverage Ratio. While some in the industry have greeted that news warmly, the additional RBC delay was panned by U.S. Sen. Sherrod Brown, D-Ohio.

On top of that, the Financial Standards Accounting Board has also pledged to consider delaying the CECL implementation date for smaller institutions, which would include the vast majority of credit unions.

Can CUs capitalize on ongoing bank mergers?

For as much as the credit union landscape is shrinking, the number of FDIC-insured banks is also on the decline, and some markets – South Florida, in particular – are hotter than others.

But do credit unions in a particular market benefit from bank consolidation there? Quite simply, it depends who you ask.

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Is a fight brewing over nonmember deposits?

A proposed rule from the National Credit Union Administration could help credit unions address looming liquidity problems.

NCUA approved a proposed rule during its May board meeting that would allow federal credit unions to accept nonmember deposits for up to 50% of the institution’s unimpaired capital and surplus while also eliminating the current waiver-request process. If the rule is finalized, that would increase the threshold from its current 20% to 50%.

But the proposal is far from a done deal, and banking trade groups have plenty to say about it.

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Contactless and rewards

If you like contactless cards and competition from fintechs, you're going to love the rest of this year (and beyond). While credit unions have begun rolling out contactless credit and debit cards in limited numbers, that's expected to grow in the remainder of 2019, particularly given an early June announcement that Bank of America plans to issue 4 million contactless cards in select markets before year-end. Credit unions could also begin seeing widespread changes to rewards programs before the start of the new decade, as program structures shift from a focus on points to merchant categories.

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