National Credit Union Administration (NCUA)
Credit Union Assets, Lending, and Delinquencies Rise in 2nd Quarter
The NCUA released the second quarter 2023 credit union system performance data. According to the latest financial performance data, total assets in federally insured credit unions increased $82 billion, or 3.8 percent, over the year ending in the second quarter of 2023, to $2.22 trillion.
During the same period, total loans outstanding rose $175 billion, or 12.6 percent, to $1.56 trillion. Insured shares and deposits also grew $31 billion, or 1.8 percent, to $1.72 trillion, from one year earlier.
Additional highlights from the NCUA’s Credit Union Data Summary for the second quarter of 2023 include:
Net income for federally insured credit unions in the first half of 2023 totaled $17.4 billion at an annual rate, down $0.4 billion, or 2.1 percent, from the first half of 2022.
Interest income rose $28.8 billion, or 45.3 percent, over the year to $92.3 billion at an annual rate in the first half of 2023. Non-interest income grew $1.2 billion, or 4.9 percent, to $24.5 billion annualized, largely due to an increase in other non-interest income.
The credit union system’s provision for loan and lease losses or credit loss expenses increased $5.8 billion, or 169.5 percent, to $9.2 billion at an annual rate in the first half of 2023.
The delinquency rate at federally insured credit unions was 63 basis points in the second quarter of 2023, up 15 basis points, or 31 percent, compared with the second quarter of 2022. The credit card delinquency rate rose to 154 basis points from 107 basis points one year earlier. The auto loan delinquency rate increased 22 basis points over the year to 67 basis points in the second quarter. The net charge-off ratio for all federally insured credit unions was 53 basis points in the second quarter of 2023, up 24 basis points compared with the second quarter of 2022.
Total shares and deposits rose by $23.0 billion, or 1.2 percent, over the year to $1.88 trillion in the second quarter of 2023. Regular shares declined by $75.1 billion, or 10.9 percent, to $614.1 billion. Other deposits increased by $97.5 billion, or 12.5 percent, to $879.9 billion, led by share certificate accounts, which grew $164.5 billion, or 68.6 percent, over the year to $404.5 billion.
The credit union system’s net worth increased by $13.2 billion, or 5.9 percent, over the year to $235.9 billion. The aggregate net worth ratio — net worth as a percentage of assets — stood at 10.63 percent in the second quarter of 2023, up from 10.42 percent one year earlier. Beginning in the first quarter of 2023, this ratio excludes the CECL transition provision.
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Consumer Financial Protection Bureau (CFPB)
CFPB Report Highlights the Role of Big Tech Firms in Mobile Payments
The CFPB published a new issue highlight which provides data on the impact of Big Tech companies’ policies and practices that govern tap-to-pay on mobile devices like smartphones and watches. Apple currently forbids banks and payment apps from accessing the tap-to-pay functionality on Apple iOS devices and imposes fees through Apple Pay. Google’s Android operating system does not currently have such a policy. The issue spotlight explains how regulations imposed by mobile operating systems can have a significant impact on innovation, consumer choice, and the growth of open and decentralized banking and payments in the U.S.
The Issue Spotlight finds:
Rapid growth of tap-to-pay usage: Consumers’ usage of tap-to-pay options in the U.S. has grown considerably in recent years, nearing an estimated $300 billion across Apple Pay, Samsung Pay, and Google Pay, with some analysts estimating that digital wallet tap-to-pay transactions will grow by over 150 percent by 2028. In 2021, there were an estimated 25 million Google Pay users and 16.3 million Samsung Pay users. An estimated 130 million people in the U.S. use an iPhone at least once per month, and three-fourths of them have activated Apple Pay. An estimated 55.8
million made an in-store payment using Apple Pay in April 2023, accounting for nearly half of iOS users.
Dominant mobile operating systems impose different regulations on contactless payments: Apple’s iPhone and other iOS devices do not permit third-party payment apps to access the NFC technology that is necessary to execute tap-to-pay contactless payments. Apple’s proprietary payment app, Apple Pay, is the only option for tap-to-pay payments on iOS devices. While Google’s Android operating system does not currently restrict third-party payment app access to the NFC chip on Android devices, this policy could change in the future.
Restrictive tap-to-pay practices may reduce consumer choice and hamper innovation: Restrictions on the use of tap-to-pay reduce consumer choice and inhibit progress toward a more robust open banking ecosystem, where consumers have more control over their personal financial information and developers provide payments solutions that better meet consumers’ needs. For example, Apple’s current NFC policy prohibits directly integrating tap-to-pay functionality into existing banking applications and other payment apps (e.g., PayPal, Venmo, Cash App).
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Federal Crimes Enforcement Network (FinCEN)
FinCEN Alert on Prevalent Virtual Currency Investment Scam Commonly Known as “Pig Butchering”
FinCEN issued an alert to U.S. financial institutions to bring attention to a prominent virtual currency investment scam called “pig butchering.” These scams are referred to as “pig butchering” as they resemble the practice of fattening a hog before slaughter. The victims in this situation are referred to as “pigs” by the scammers who leverage fictitious identities, the guise of potential relationships, and elaborate storylines to “fatten up” the victim into believing they are in trusted partnerships. The scammers then refer to “butchering” or “slaughtering” the victim after victim assets are stolen, causing the victims financial and emotional harm. In many cases, the “butchering” phase involves convincing victims to invest in virtual currency, or in some
cases, over-the-counter foreign exchange schemes —all with the intent of defrauding them of their investment. Pig butchering scams are largely perpetrated by criminal organizations based in Southeast Asia who use victims of labor trafficking to conduct outreach to millions of unsuspecting individuals around the world. Multiple U.S. law enforcement sources estimate victims in the United States have lost billions of dollars to these scams and other virtual currency investment frauds.
The alert explains the pig butchering scam methodology, provides red flag indicators to assist with identifying and reporting related suspicious activity, and reminds financial institutions of their reporting requirements under the Bank Secrecy Act (BSA). Pig butchering scams are linked to fraud and certain types of cybercrime, which are two of FinCEN’s Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) National Priorities.
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CIP and the Modern Nomad
With housing prices continuing to skyrocket, the ranks of those who decided to embrace the modern nomad lifestyle continue to swell. These individuals continue to work, often with positions that allow them to be remote or take roles as camp hosts at RV campgrounds in exchange for hook ups. Books such as Nomadland highlight individuals who choose this lifestyle because they can no longer afford to own a home or pay rent.
Others choose it because they embrace a life of travel, minimal belongings and working when they want. You can find many articles and posts around Van or RV life.
But, for credit unions, the BSA requirements do provide a challenge when opening accounts for these individuals. When opening accounts, the Customer Identification Program requirements of 31 CFR 1020.220, require credit unions to obtain:
Since the modern nomads no longer have a residential street address, credit unions would need to see what other addresses they could use. Luckily the regulation provides an option for using alternative addresses:
“For an individual who does not have a residential or business street address, an Army Post Office (APO) or Fleet Post Office (FPO) box number, or the residential or business street address of next of kin or of another contact individual”
Credit unions can use the address of the next of kin or another contact individual to fulfill the BSA address requirement.
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League InfoSight Highlight: Small Asset Size Credit Unions
Small Asset Size Credit Unions are vital to our system! We know just how tough it is to do everything that the larger credit unions do, but on a smaller scale. Here is a summary of some of the agency rules that provide flexibility and ease of burden for smaller institutions. While the list is not all-inclusive, it’s a starting point to make sure you are taking advantage of some of this relief.
NCUA CECL – Simplified Tool
Intended for credit unions under $100 million in assets, this simplified tool provides a methodology for credit unions to determine the Allowance for Credit Losses (ACL) on loans and leases in their loan portfolio.
NCUA Small Credit Union Examination Program
The NCUA’s way of streamlining the examination process for small federal credit unions with a record of solid performance. Credit Unions with assets less than $10 million and a CAMEL rating of 1, 2, or 3 will be targeted for the program.
NCUA – Liquidity and Contingency Funding Plans
Credit unions with less than $50 million in assets must maintain a basic written policy that provides a framework for managing liquidity and includes a list of contingent liquidity sources that can be employed under adverse circumstances.
CFPB – Small Servicer Mortgage Rules
Generally, a credit union is a small servicer when (together with affiliates) they service 5,000 or fewer mortgage loans where they are the creditor or assignee. There are a number of exemptions to the mortgage servicing rules that small servicers may qualify for, check out page 31 of the CFPB’s Small Entity Compliance Guide.
CFPB – Home Mortgage Disclosure Act (HMDA)
Credit unions under $54 million (adjusted annually) are exempt from the reporting requirements under the Home Mortgage Disclosure Act. There are other components as well, such as having a branch in a metropolitan statistical area. The
CFPB’s Small Entity Compliance Guide provides a nice overview of the exemptions and requirements!
CFPB – Small Creditor
Being a small creditor under the CFPB rules allows for certain exemptions. Credit unions under $2.537 billion in assets (adjusted annually) are
considered a small creditor under the rules. The first exemption is related to maintaining escrow accounts for higher-priced mortgage loans. If the credit union doesn’t already maintain escrow accounts (along with a few other requirements) and are a small creditor, they may qualify for an exemption.
As a small creditor, there are also two additional qualified mortgage options available for credit unions:
Glory LeDu,
CEO, League InfoSight and CU Risk Intelligence
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