CUSOs: Member Spending Shows Inflation Stress

on 2:55 PM

 Credit union members are paying much more for gasoline, groceries and restaurant meals than a year ago with inflation becoming a growing contributor, according to reports from payments CUSOs.

PSCU’s Payments Index released June 16 showed members whose credit unions use PSCU services spent 15% more by credit card and 6% more by debit in May than they did in May 2021.

The changes bracketed the 11.7% gain reported by the Census Bureau June 15 for retail spending in May, excluding vehicles and auto parts.

PSCU’s numbers reflected a shift from debit to credit with the debit gains smaller than Census figures and the credit gains larger.

Co-op Solutions of Rancho Cucamonga, Calif., also reported strong one-month spending gains across most categories among members at credit unions in its network.

Beth Phillips, director at Co-op Solutions, said May’s data shows a continuation of the year-long shift away from debit spending to credit.

“Debit card users are pulling back on spend, possibly moving to credit for smaller, everyday purchases, while, reserving their cash available for larger purchases, like home improvement, or to keep it on hand due to economic conditions,” Phillips said.

Brian Caldarelli, PSCU’s EVP and CFO, said overall consumer spending growth remained strong throughout May 2022, with gasoline showing the top growth rates in both credit and debit as fuel prices remain elevated.

“The Consumer Price Index increased this month as we continue to face the highest level of inflation in more than 40 years,” Caldarelli said. “While the Federal Reserve announced another rate increase this week, a pause in the series of aggressive rate hikes is unlikely until inflation returns to an acceptable level.”

By segment, Census and PSCU reported the following 12-month gains in May:

  • Gasoline spending rose 43.5%, according to Census. PSCU reported gains of 54% by credit and 32% by debit.
  • Grocery spending rose 7.9%, according to Census. PSCU reported a gain of 15% by credit and 5% by debit.
  • Restaurant spending rose 16.8%, according to Census. PSCU reported gains of 26% by credit and 8% by debit.

The PSCU report found a “notable lift in restaurants as consumers continued to return to dining outside the home, which comes at the expense of less growth in the grocery store sector.”

Average credit card account balances among PSCU-affiliated members finished May 2022 at $2,724, up 2.9% compared to May 2021. This was the third consecutive month in which year-over-year growth in balances was greater than 2%. Average credit card account balances were down 5.5%, or $157, from May 2021.

“As consumers have less liquidity, we see a return to a greater reliance on credit activity as the market deals with persistently high inflation,” the PSCU report said. “After a period of tangible credit card balance paydowns, we could see growth in balances from more recent bigger-ticket travel and entertainment sector purchases.”

Co-op Solutions’s June 15 report also showed credit balances have increased steadily since the beginning of 2022 on a year-ago basis. May 2022 showed the strongest growth trend yet, with 8.1% higher balances as compared with May 2021 and a lift of nearly 1% over April 2022.

The Fed’s G-19 Consumer Credit Report released June 7 showed the amount of credit card debt held by both banks and credit unions in April continued to inch closer to the level of February 2020, the month before COVID-19 was declared a pandemic and credit card debt began to plummet.

Credit unions held $64.7 billion in credit card debt in April, up 10.8% from a year earlier, but still 0.9% below February 2020. Banks were just 0.2% below February 2020.

PSCU’s February Payments Index was based on data from credit unions that have been processing payments with PSCU since January 2020. It encompassed 2.7 billion transactions valued at $137 billion of credit and debit card activity in the 12 months ending May 31.

What’s in a name? A credit union’s LGBTQ program finds a wider audience

on 11:21 AM

 Credit unions that tailor services for members of the LGBTQ community may find an unmet need among other demographics as well.

Michigan State University Federal Credit Union in East Lansing, Michigan, is nearing the finish line on development of a feature within its digital banking platforms and card offerings that will allow members to set a preferred name and set of pronouns. The program, which is expected to go live before the end of the third quarter, is like many others that allow credit card users, for example, to put their preferred name on the card.

While such services are developed with a transgender audience in mind, they also appeal to other marginalized groups such as international students or indigenous persons, said Amanda Denney, director of diversity, equity and inclusion for the $6.8 billion-asset MSU FCU, which serves students and staff of the university, as well as employees of the state.

“We have a lot of international students that come over and actually pick Americanized names, and they do this for a number of reasons, but that project is helping that group of people too,” Denney said. “When we hear preferred names and pronouns, people automatically jump to LGBTQ+, but there is such a huge impact [with this project] across the board with really anyone.”

The credit union first explored the concept internally in 2020 with the inclusion of pronouns in staff email signatures and editing of employment documents wherever legally allowed to record a new chosen name. It also incorporated educational material into its trainings on diversity, equity and inclusion to explain the significance of MSUFCU’s change.

Banks and credit unions that provide such products must also make sure their staff are properly instructed on using preferred names and pronouns in every customer interaction.

“Our goal is to allow everyone to be their full, authentic self and that’s really hard to do if you’re consistently being affronted with microaggressions by being misgendered [and] mislabeled,” Denney said. “Very specifically for the LGBTQ+ community, especially individuals that are nonbinary, or transgender, this can be a really important tool for them.”

Organizations such as Daylight, a New York-based digital banking provider for the LGBTQ community, and Mastercard have also launched preferred-name projects with the aim to better serve transgender and nonbinary consumers who endure negative encounters due to a difference between their legal and preferred names.

Some credit unions that already have similar initiatives in place are working to now offer more tailored services in lending for consumers seeking to undergo gender affirming procedures, as well as other LGTBQ funding needs.

Linda Bodie, chief executive and innovator at the $44 million-asset Element Federal Credit Union in Charleston, West Virginia, said she has worked alongside local pride organizations to better understand the needs of its LGBTQ members and determine which areas are most underserved.

“We have specialized lending for adoption, weddings, surgery [and really] anything particular to the LGBTQ+ community … We work closely with our local pride organization, Rainbow Pride of West Virginia, to identify our community needs,” Bodie said.

Element is planning to further its commitment to aiding local members through collaborative housing and employment partnerships with local realtors, pride organizations and other groups to address instances of discrimination during the search for a home.

In addition to her 24-year tenure as Element’s CEO, Bodie helped to organize and launch the LGBTQ credit union support association CU Pride in June 2020, which now has more than 1,200 members nationwide and is dedicated to progressing inclusivity within the industry and offering educational toolkits and opportunities for collaboration.

“With our tenets, which is to create educational opportunities for the credit union system … It gives them the opportunity to understand the community and really push towards our mission, which is to get the entire industry to embrace the LGBTQ+,” said Zach Christensen, co-founder of CU Pride and director of diversity, equity and inclusion and communications at Mitchell Stankovic. 

“Organizationally, credit unions are not queer or LGBTQ, but credit unions can be organizational allies,” through better education, he said. 

A Pew Research Center survey of 10,188 U.S. adults in May found that 5.1% of those under 30 reported they identify as transgender or nonbinary, with the share of adults knowing someone who is either transgender or nonbinary growing to 44% in 2022 from 37% in 2017.

Experts from trade organizations such as the National Association of Federally-Insured Credit Unions and the Credit Union National Association say that institutions need to closely analyze research and feedback from the data gathered or otherwise risk new programs becoming ineffectual.

“One of the things that we’re doing is becoming more intentional about this work and about listening to our communities,” said Samira Salem, vice president of diversity, equity and inclusion for CUNA, which is a supporting organization of CU Pride.

Better serving LGBTQ communities means developing products and services specific to their needs, Salem said. “It is in the DNA of credit unions to serve the underserved [and] the marginalized, and it is our value system.”

But beyond ensuring the success of the new services, credit unions aiming to stand as allies of those belonging to the LGBTQ community must also ensure that their efforts go beyond marketing campaigns and lead to change within the organizations as well.

“It’s not just about marketing and sort of this outward-facing messaging about what you are as an organization [and] what you stand for; you have to put your money where your mouth is, so to speak … and demonstrate that you have diversity, for example, on your board of directors and within your management,” said Ann Petros (formerly Kossachev), who works as the vice president of regulatory affairs for NAFCU.

Offer Your Members More

on 10:08 AM

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Credit unions are invited to attend a free informational webinar to learn how they can drive member loyalty and increase member benefits with CU Offers. Register for the webinar here. Attendees will also hear from one of CU Offers’ discount partners – Gentreo. With Gentreo, members get a full suite of Estate Planning documents, education, and secure document storage available with a CU Offers discount.

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Financial inclusion bill could reignite credit union-bank conflict

on 10:01 AM

 The trend of credit unions buying banks has grabbed a lot of attention in recent years, but two other key issues have raised tensions between the two industries. 

Bankers have long opposed attempts by credit unions to expand their field of membership and  their business lending capabilities, but proposed legislation would open the door to both. The bill, H.R. 7003, the Expanding Financial Access for Underserved Communities Act, was approved last week by the House Committee on Financial Services by a 27-22 vote.

Introduced by the committee’s chair, Maxine Waters, D-Calif., the bill would allow all federal credit unions to apply to the National Credit Union Administration to expand their field of membership to include underserved communities, including those without a branch within 10 miles.

It would also exempt loans made by credit unions to businesses in those areas from the credit union member business lending cap. Under current law, credit unions are restricted from lending more than 12.25% of total assets to member businesses.

According to the Credit Union National Association, the bill’s member business lending exemption would apply to 2,207 federally insured credit unions that are not already exempt due other designations. 

CUNA also points out that there are no provisions in the bill restricting banks from opening operations in those underserved areas.

Still, the bankers are not amused.

In a letter to the House Financial Services Committee, the American Bankers Association said the legislation will not deliver on the “purported” objective of improving banking access to underserved communities but instead expand taxpayer subsidies of business lending.

According to the NCUA, commercial loans made by credit unions increased $17.3 billion, or 18.4%, to $111.7 billion in the fourth quarter of 2021 from a year earlier.

“What H.R. 7003 seems to provide is the ability for credit unions to expand out-of-market, which contradicts the credit union purpose of serving well-defined local communities and small groups of consumers of modest means,” the letter states. “The legislation also creates a major new loophole in the credit union business lending cap, long one of the most controversial issues in financial services. Bankers remain staunchly opposed to efforts to gut this limitation.”

But credit unions see the proposal primarily as a way to fill a gaping void.

The proposed changes are essential to increasing access to “safe, fair and affordable” financial services in rural communities, communities of color and other underserved places, said Todd Harper, chairman of the NCUA, in a press release.

“They would also advance financial inclusion within our nation’s financial system,” he said.

CUNA said the bill would give communities, small businesses and individuals who have lost access to affordable financial services — or perhaps have never had them — easier access to federal credit unions.

According to CUNA research, more than 750 census tracts in the U.S. are financial deserts, and a net 7,800+ bank branches closed between January 2005 and March 2021. During the same period, more than 1,400 net credit union branches opened.

But the business lending component is the key to the legislation, said Patrick Keefe, a credit union industry observer, former industry advocate and editor of the Regulatory Report.

Any relief from the 12.25% cap would be a big win for credit unions, he said.

“That’s potentially a big shift for credit unions, who are looking for new revenue sources whenever possible,” he said. “The exemption means they could start making more MBLs without constriction.”

Jason Stverak, CUNA’s deputy chief advocacy officer for federal government affairs, said the trade group is working with lawmakers on both sides of the aisle to build consensus around the legislation. 

“Whether the policy advances on its own or along with other legislation is up to House lawmakers, but we’re optimistic we’ll see movement this Congress,” Stverak said.

But according to Keefe, the outlook for the legislation is "challenging, to say the least,” he said. The bill faces a big uphill climb and will likely have to be brought up again in the next Congress.

He pointed to CUNA’s own letter to the House committee members in which CUNA said the only known opposition to the legislation comes from the banking industry, “and their opposition to this legislation reveals their true colors: first, they abandon underserved communities and then they try to keep credit unions out,” the letter states.

“Yeah, that’s all: just opposition from the banking industry. No big deal,” Keefe joked. “Except, it is. Banks clearly see this as an expansion of credit union powers — providing more services to people who aren’t now eligible for membership — and credit union commercial lending, which banks are out to impede, vigorously.”

It will take a pretty big push by the credit unions to get the legislation enacted, according to Keefe, and he is not convinced that most credit unions really care about more business lending authority. “Even though they probably should,” he said.

Introverted Workers Say WFH Was Good for Productivity, Want to Stay There

on 4:43 PM

 Odds are you are reading this from your home office or from your couch with your tablet in hand. That’s because new data from Poly, an audio/video technology company, shows that 63% of employees are still resisting returning to an office.

The company surveyed 5,000 U.S. employees and found that a strong majority (72%) of employees agree that their employers can do a better job to create a uniform experience between people who work at home and those that are returning to the office.

“Our research indicates that hybrid work is here to stay,” said Dave Shull President and CEO, Poly. “Organizations will need to adapt and upgrade their office gear, to include video-enabled meeting rooms with technology that’s as easy to use as the devices we have all come to know and love while working from home.”

Other findings show:

The majority (65%) of employers are pushing for a return to the office despite the benefits workers cite in remote and hybrid working 71% agree that working from home suits their personality type better, and the same percentage agree that working from home has positively impacted their performance

41% of workers say their work equipment is better at home than in the office (35%)

Despite these benefits, over half (57%) of workers agree they have felt pressure from their manager or company to return to the office

Those wanting to return to the office also depends on worker personality traits, the study finds. For example, employees who consider themselves more introverted are almost twice as likely to say hybrid or remote work is better suited to them (48% vs. 25%) compared to working in the office.

Introverted workers also feel their productivity has increased since the pandemic (64%), compared to extroverted workers (51%). This can be attributed to a better work-life balance (38%), and remote work increasing their confidence (35%).

Those employees who consider themselves more extroverted are also more likely to say hybrid or remote work is better suited to them than working full time in the office (41% vs. 30%).

Higher interest, rising prices, fewer listings: A bad mix for mortgages

on 1:04 PM

 Rising interest rates and elevated prices have caused sales of new homes to drop, tightening the mortgage market for banks and credit unions.

In addition, pandemic-related supply-chain problems put a strain on the supply of lumber and other building materials over the past two years,  making it more difficult to put new inventory on the market. 

Those factors pushed housing prices to new highs in several major markets. Home prices rose 2.2% in February from January and 20% year over year, according to the CoreLogic Home Price Index. 

Many new homebuyers were forced to the sidelines as a result. Home sales in March were 12.6% lower than last year.

“While the spike in interest rates is undoubtedly having some impact, construction delays appear to be the main culprit,” Curt Long, chief economist and vice president of research for the National Association of Federally-Insured Credit Unions, said in a press release.

As interest rates have risen in response to inflation, refinancing activity is drying up. Freddie Mac said the 30-year fixed-rate mortgage averaged 5.27% for the weekly period that ended May 5, up sharply from 2.96% a year earlier and the highest it's been since 2009. The higher rates have begun to curb demand for home purchases, too.

The $1.9 billion-asset Hanscom Federal Credit Union in Massachusetts was one of many midsized lenders across the U.S. that saw first mortgages dip from the end of 2020 to the end of last year. 

Hanscom’s president and CEO, Peter Rice, said lenders who took high-risk applicants and lowered credit qualification standards probably should be worried entering this market of rapid interest rate increases. 

“We’ve seen this play out time and time again,” he said.

Rice said that despite lower home inventory, he expects Hanscom’s first-mortgage portfolio to remain steady, although he said a “dramatic” industrywide slowdown is certain.

“I’d be very worried about mortgage brokers who, due to the record refinance numbers, have become dependent on that market,” he said. “The interest rate increase will surely bring their business — and business model — to a screeching halt.”

The slowing of the refinance business is expected to result in a 30% year-over-year drop in mortgage originations for the $7.2 billion-asset Wright-Patt Credit Union in Beavercreek, Ohio. 

Eric Bugger, Wright-Patt’s chief lending officer, said the credit union has a team of about 45 employees in its mortgage originations area and the credit union is seeing some competitors do “crazy things” with interest rates, causing Wright-Patt to lose some loans. 

“That always happens, though,” Bugger said. “We’re combating that by keeping a close eye on market rates and trying to come up with new products that fit our members’ needs. We can’t always have the lowest rate. Someone can always undercut us.”

Banks, too, are warning of a sharp slowdown in mortgage activity as interest rates climb and housing supply shrinks.

Megabanks such as Wells Fargo and JPMorgan Chase reported lower mortgage volumes in the first quarter. Regional banks such as Truist Financial and Citizens Financial Group delivered similar results to investors for the quarter. 

“The mortgage origination market experienced one of its largest quarterly declines that I can remember,” Charlie Scharf, Wells Fargo's president and CEO, said on the company’s earnings call last month. Rising interest rates will likely have further “negative impact on mortgage volumes," he said. The $1.9 trillion-asset bank confirmed last month it was laying off a number of home lending employees due to current market conditions. 

Bugger said the key will be having a balanced loan portfolio and in some cases steering members toward a purchase with a payment they can afford. Otherwise, customers may need to wait a little longer to increase their down payment so the monthly outlay can remain manageable. 

But many potential buyers are taking a wait-and-see approach.

“The combination of swift home-price growth and the fastest mortgage-rate increase in over 40 years is finally affecting purchase demand,” said Sam Khater, Freddie Mac’s chief economist.  

For the week that ended April 29, home purchase loan application volume increased 2.5% from the prior week but was 50% lower compared with a year earlier, according to the Mortgage Bankers Association. Its refinance index inched up 0.2% from the prior week after falling for seven straight weeks.  

“The drop in purchase applications was evident across all loan types. Prospective homebuyers have pulled back this spring, as they continue to face limited options of homes for sale along with higher costs from increasing mortgage rates and prices,” said Joel Kan, the MBA’s associate vice president of economic and industry forecasting. “The recent decrease in purchase applications is an indication of potential weakness in home sales in the coming months.” 

Community banks that developed mortgage operations to generate fees on originations and diversify revenue also are warning about the specter of a sustained slowdown.  

The $12.7 billion-asset FB Financial Corp. in Nashville, Tennessee, reported a first-quarter loss for its mortgage division. 

“A confluence of events has created a challenging operating environment in the mortgage industry,” FB President and CEO Christopher T. Holmes said on an earnings call last month.

“We do expect continued tough sledding for mortgage,” he added. “We're reducing our mortgage origination capacity and the corresponding size of our operational functions to operate through the current forecasted down environment.”