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THE MORTGAGE ISSUE MAY 2015 VOLUME 10 ISSUE 5 People Helping People CU Best Practices CUB Launches Team Builder Campaign Big Data Analytics Help Credit Unions Reach Influential Hispanic Market MIRIAM DE DIOS Millennials and the Branch Building Relationships with Your Most Important Customers BY MEREDITH DEEN Your members want documents that are simple and easy to understand. You want compliance and support. CUNA Mutual Group s Lending Suite delivers it all with LOANLINER Document Solutions which helps you make loans grow income protect members and service accounts. As the compliance leader serving more than 75%1 of credit unions we specifically designed LOANLINER Document Solutions to foster efficient effective and compliant processes so you can focus on delivering an exceptional experience for your members. Each product in our Lending Suite is effective by itself. But they re designed to be used together. Credit unions that offer multiple products from the Lending Suite have a higher return on assets than those that don t1. To learn more call 800.356.2644 or visit CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company a mutual insurance holding company its subsidiaries and affiliates. 1 CUNA Mutual Group Internal Reports 2014 LL-1048989.2-1014-1116 CUNA Mutual Group 2014 All Rights Reserved. Common Purpose. Uncommon Commitment. TABLE OF CONTENTS V O L U M E 10 I S S TAB 5 UE Credit Union BUSINESS 4 6 8 14 18 21 PUBLISHER S POV People Helping People Tim O Hara CFO CURRENCY 27 30 COMPLIANCE UPDATE 4 Steps to TILA-RESPA Integrated Disclosure Rule Compliance Michael Christians CEO VELOCITY What Is the Big Deal About Up 300 Basis Points in NEV Tests Emily Hollis REACHING THE HISPANIC MARKET CEO Spotlight Five Ways Golden 1 s CEO Donna Bland Achieves Alignment Innovation and Growth Scott McClymonds CDFI GRANTS AVAILABLE Big Data Analytics Help Credit Unions Reach Influential Hispanic Market Miriam De Dios THE LAW 34 37 39 42 CDFI A Fund-Filled Path to Better Serve the Underserved Stacy S. Augustine MORTGAGE LENDING Case Law Review Maintain Clear Account Card Policies Brad R. Bergmooser LENDING SOLUTIONS Beating Banks at Mortgage Lending Five Ways to Take Market Share from Banks Jim Deitch ATM BUSINESS What Type of Member Do You Have and What Type of Member Do You Want Lorrie Wohlfeil BRANCH BUSINESS Why Credit Unions Are Fleeing the ATM Business Ben Allen CU CONTENT Millennials and the Branch Building Relationships with Your Most Important Customers Meredith Deen INFLUENCE AT WORK 24 What Can Print Do in a Digital Age Six Reasons to Include Print Ads in Your Campaigns Laura Enock Influence The Ultimate Power Tool Robert Cialdini 1 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M ABOUT US TAB PUBLISHING TEAM Tim O Hara Editor & Publisher tim Iliana Nord Operations Manager iliana Patti Manzone Designer Ashok Kumar Associate Publisher ashok PUBLISHER S POV THE MORTGAGE ISSUE MAY 2015 VOLUME 10 ISSUE 5 People Helping People CU Best Practices CUB Launches Team Builder Campaign Tim O Hara CFO CURRENCY Emily Hollis CFA REACHING THE HISPANIC MARKET Big Data Analytics Help Credit Unions Reach Influential Hispanic Market MIRIAM DE DIOS Miriam De Dios THE LAW Millennials and the Branch Building Relationships with Your Most Important Customers BY MEREDITH DEEN Brad R. Bergmooser LENDING SOLUTIONS Lorrie Wohlfeil Meredith Deen BRANCH BUSINESS INFLUENCE AT WORK SUBSCRIPTIONS Robert Cialdini COMPLIANCE UPDATE Credit Union BUSINESS is published monthly (12 issues per year) by CU Business Magazine Inc. A one-year Digital membership is 75 yr. An online membership form is available at register. SALES AND ADVERTISING Michael Christians CEO VELOCITY Scott McClymonds CDFI GRANTS AVAILABLE Tim O Hara Publisher tim or 561-282-6015 1 CONTACT INFORMATION Stacy S. Augustine Jim Dietch Ben Allen MORTGAGE LENDING ATM BUSINESS CU CONTENT Credit Union BUSINESS Magazine P.O. Box 2223 Palm Beach FL 33480 (561) 282-6015 (561) 588-7711 (fax) tim Laura Enock 2 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M insights An instance of capturing the true nature of a thing. Do you know your members Insights are everywhere and coming at you fast. To make the best of this information you have to know what to ask. Member Insight from PSCU is a set of tools that consolidates the details of your members spending habits to make for richer portfolio performance. After more than 35 years as the leading CUSO we know a thing or two about the true nature of credit union growth. memberinsight 888.918.7357 PUBLISHERS TAB POV BY TIM O HARA T People Helping People Credit Union BUSINESS Magazine Inc. has been a supporter of CMN from the day we published Vol. 1 Number 1 more than 10 years ago. In almost every issue we ve included a pro-bono ad for Children s Miracle Network totaling more than 100 so far and still counting And because CUB is edited for each member of the executive credit union team this month we re launching our Team Builder paid subscription campaign. This campaign will feature a discounted subscription for up to six team members with 10 percent of the net proceeds going directly to the Children s Miracle Network hospitals in every participating CU s own neighborhood. We ll even have a Wall of Fame on the website featuring a map of the United States and a list of participating credit unions. Watch for details soon. Thanks for reading Tim his weekend I was treated to a visit from my two favorite people in the whole wide world my grandsons Charley and Noone (pronounced noon). Both are pictured on the front cover after serving as ring bearers at a recent family wedding. Charley will be five in June and already possesses the negotiating skills of a master. One perfect example On Saturday morning Charley convinced me to take both him and his little brother to the Target store so we could buy Noone (19 months) a toy. And by the time Charley had finished we had bought Noone the toy and Charley three more. I think that Noone knows I m a pushover when it comes to him because he always runs to me arms extended so I can readily pick him up and carry him in whichever direction he points. And he points quite a bit. Like most Baby Boomers I grew up in a large family of eight children surrounded by no fewer than 60 cousins. As a result of that closeness there are always little kids to look after which really goes perfectly with the CU mantra People Helping People. On that note I ve been receiving a lot of positive feedback from an article that appeared in last month s issue about how the CUSO CU Direct raised awareness and donated a large sum to the Children s Miracle Network s Credit Unions for Kids To recap To celebrate its 20 years in business CU Direct developed a campaign among member credit unions. Participants were urged to go to a special website and vote for particular CMN hospitals with the winning hospital receiving 20 000. According to my friend Bill Meyer who authored the piece and heads PR and Corporate Communications for CU Direct the total vote count topped out at nearly 400 000. In response CU Direct increased its donation to this more-than-deserving organization to 60 000 4 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M Buried Under A Mountain of Paperwork and Regulatory Red Tape With SWBC Mortgage Corporation s outsourced lending program you can increase the number of mortgage loans in your portfolio while mitigating some of the administrative hassle of paperwork or compliance-related risk. Our turnkey outsourced lending program provides you with a loan officer as well as processing underwriting and closing services for your members. Best of all we take on the full scope of the compliance and regulatory burden that accompanies mortgage lending. Let SWBC Mortgage help you with the administrative and regulatory hassle of your institution s mortgage lending efforts. Call 800-460-6990 or visit http PaperTsunami for more information CONVENTIONAL VA FHA 2015 SWBC. All rights reserved. Loans are subject to credit and property approval. Certain restrictions and conditions may apply. Programs and guidelines are subject to change. Rates change daily. SWBC Mortgage Corporation NMLS 9741 Corporate Office located at 9311 San Pedro Suite 100 San Antonio TX 78216. 8540-5625 5 15. CFO TAB CURRENCY BY EMILY MOR HOLLIS CFA PARTNER ALM FIRST FINANCIAL ADVISORS What Is the Big Deal About Up 300 Basis Points in NEV Tests What impact will moving rates up 300 basis points have on your credit union One financial expert crunches the numbers with an ARM example that demonstrates what such a scenario could spell when it comes to cumulative price changes and volatility. was recently conducting an ALM training session with a not focus solely on setting random maximum limits on loan credit union when a bright board member asked What is types (such as mortgage-backed loans to assets) instead they the purpose of moving rates up 300 basis points (bps) That should focus on the realignment of other parts of the balance will never happen instantaneously. The answer is that even sheet if one particular loan product would bring value to them though we are unlikely to see an immediate rate increase and their members. In other words while some institutions might garner too of three percent it s important to measure price volatility mismatches and the negative convexity inherent in the balance much interest rate risk with the majority of their loans in fixedrate mortgages others will be fine. On the other hand unlike sheet. But how do you explain this to a board member whose the beta of a stock price volatility can change in different rate environments. As rates rise asset price volatility (effective emphasis is not in finance The best way I can describe its purpose is to correlate a duration) can extend. It can then produce even more duration net economic value (NEV) test with a beta on a stock trade. mismatch and greater interest rate risk without altering asset A beta is a measure of the volatility or systematic risk of allocation. Exhibit 1 depicts a sample 3 1 adjustable-rate mortgage a security or a portfolio in comparison with the market as a whole. It isn t a perfect example by any means but the intent (ARM) where the coupon is fixed for three years and then adjusts is somewhat similar. That is because it is a Exhibit 1 measurement to compare and produce outliers Assets for institutions that have greater volatility than Normal up 300 Test Base Up 100 Up 200 Up 300 3 1 ARM Price Change 0.00% -0.85% -1.64% -2.40% the norm. Hence it s used to elicit red flags Cumulative Price Change 0.00% -0.85% -2.49% -4.89% where failures could occur due to withdrawals Liabilities Base Up 100 Up 200 Up 300 forced liquidation of assets depletion of capital NMD Price Change 0.00% 0.85% 0.80% 0.75% Cumulative Price Change 0.00% 0.85% 1.65% 2.40% or bankruptcy. Price Differential 0.00% -0.84% -2.49% So the question that follows is what is this beta The NCUA recognizes that the current Steep Yield Curve Assets Base Up 100 Up 200 Up 300 signaling mechanism of the 17 4 test the 3 1 ARM Price Change -2.40% -2.60% -2.75% -2.80% -2.40% -5.00% -7.75% -10.55% mortgage-backed loans-to-asset test or the Cumulative Price Change Liabilities long-term to asset test is not working well. The Base Up 100 Up 200 Up 300 NMD Price Change 0.00% 0.85% 0.80% 0.75% reason is that each credit union is unique with Cumulative Price Change 0.00% 0.85% 1.65% 2.40% different risk tolerance levels capital levels and Price Differential -2.40% -4.15% -6.10% -8.15% member needs. Financial institutions should I The disparity would be greater than 1.55 percent. That is because liability duration normally decreases as rates rise. In response financial institutions will generally lag rates and depositors will have the propensity to withdraw. 1 6 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M With 80% of U.S. households saving coins coin processing is in demand especially at nancial institutions where most prefer to redeem their change. Give customers the means to do it themselves and you can increase their satisfaction by as much as 20%. That s the power of self-service coin counters. Now Cummins Allison gives you more ways to add coin machines to your branch. Choose from fast quiet and reliable coin counters that you can buy rent lease or place free of charge. We ll even pick up and process your coins. Coin counters are a proven way to increase traf c and member satisfaction -- let us show you how. Get a custom report comparing your self-service coin options. traf c Copyright 2014 Cummins Allison Inc. All rights reserved. CFO CURRENCY CURRENCY CFO CURRENCY CFO CURRENCY CFO of time. Credit will need to be this ARM budget the price volatilities progressive and annually thereafter. rates move up flows with an end maturity In assumptions used surpluses changed government bond inputs allow the userIfto model cash100 bps the price drops by benchmark if example should bedry up theinof the assets intervals reviewed and authorized liabilities are perfectly matched in thethe standard for pricing and a decay rates that are percent. amortizations. and They have already become base scenario. and small amount of 0.85similar toIf rates move up another 100 market. the output should be recalculated to determine the impact this can take weeks. bps the priceand discountadditional 1.64for the present valuemany However ifbonds. curve steepens the new base produces of corporate the yield a different assumption. Dividend drops by an rates allow percent. And if rates if up are uncertain as move up yet another 100 bps (up 300) then the price drops by a price differential of 2.40 percent and theyou 300 bps scenario to calculations (premiums) in each modeled interest rate scenario. Knowing where swap rates and spreads are will allow different profile with many percent need price the an additional 2.40 percent for a total of 4.89 percent. As rates depicts an entirelyinvestment execution. an 8.15 requirements of effective duration are hit the price change becomes greater. If bebetter hedging andthat scenario for every When investors ARMs calculations can then mathematically Conclusion differential. So in and market sentiment the swap ofderivatives 10 million rise and the caps applying and using risk compared to thatmanaging this risk with a short-term case effectiveto gauge credit net deposits can beloss of 815 000. curve is Non-maturing viewed as a franchise value there will be an institution is of the institution s assets. in this liability that becoming the a economic value to analyze.engaging an external more important curve consider duration is calculatedthe base then a disparity occurs in the up Perhaps 300 bps is from loyalty number. In the help you mirrors the ARM in by merely backing into the price change or benefits generated not the magicof the membership when service provider to past formula. For example if the liability present value is 100 in the and in accordance to thewhen dividend rates banks generally deposits are retained old OTS guidelines are low in a higher 300 bps scenario of at least 1.55 percent 0.85 percent for the through First Financial Emily Hollis CFA is a partner with ALM the steps. them liabilities versus 2.40 percent for the assets. base 101 in the up 100 basis point scenario and 99 in the down stressed their balance sheet by 200 bps whichfinancial derivatives market environment. And vice versa A does giveinstitution Properly used Advisors LLC. To make issues more complex allduration is not rise in an that offers a non-maturity dividend rate whether than200 rates will one percent adequate indication of interest rate risk. But higher it is market 100 basis point scenario the effective rate 300 or 400 can the value in testing is risk bps offset interestvalue its unison (e.g. 200). (i.e. (101-99) the 10-year rate could move up 300 bps and the to attract hot money will decrease the economic withinofthe that is but to not to predict rates inherent measure one-year rate could remain stable producing a steeper yield liabilities. it is imperative This is vital because as competition more credit union industry model these accounts for a is price volatility disparities which curve). If liabilities are tied to requirements. The second part competencies to meet the finalthe shorter rates there will be accurate depiction of interestcreditrisk. management. sensitivity Analysis submitted when all losses. The steep grows derivatives cancritical for true unions to compete more allow rate ALM no final application is andeconomic gains to offset longer-term asset requirements are The regulator strongly new base for a what-if test. Rates a means effectively. yield curve including suggests sensitivity analyses as would completed would be a dealer contracts. to then be shocked effects bps and new prices would be produced quantify the up 300 of changing assumptions. sensitivity Emily Mor Hollis CFA is aHollis is with ALM First Financial Emily partner a partner with ALM setting up a line at a dealer is similar to becoming a First Financial Advisors First Advisors LLC. analyses are essential because the core durationevaluation may Emily Hollis CFA is a partner with ALM LLC. Financial to back into price volatilities and effective share mismatches. member of the FHLB--it can be laborious and takes a good deal 2 Advisors LLC. 1 055 000 fair value loss of the ARM ( 10 million x 0.1055) minus 240 000 fair value Exhibit 4 The outputs are calculated figures not assumptions. The have significant implication on the ALM conclusion. The Some analysts view swaps as the most likely replacement for Treasury bonds as a financial benchmark if budget surpluses dry up the government bond market. gain of the NMD ( 10 million x 0.024) 7 C R E D I T U N I O N B U S I N E S S M A November 2014 Y 2 0 1 5 C U B U S I N Credit Union BUSINESSE S S . C O M 15 March 2014 January 2014 Credit Union BUSINESS Credit Union BUSINESS 17 13 Ready for more value from your ATM provider Open your doors to a new ATM provider For decades Cummins Allison has helped you make the most of your branch resources. Now we re excited to offer a complete line of highly reliable secure full-function ATMs to fit any branch configuration from drive-up to walk-up. And best of all our ATMs are backed by the responsive dependable local service you need and have come to expect. So open your doors and give us a try. When you re ready to replace add to or expand your ATM network let s talk. Visit letstalk 2014 Cummins Allison Inc. All rights reserved. CU BEST TAB PRACTICES BY MIRIAM DE DIOS CEO OF COOPERA Big Data Analytics Help Credit Unions Reach Influential Hispanic Market Understanding credit union customers has never been easier thanks to the vast amount of information being exchanged in today s data-driven age. These best-practice Hispanic growth strategies which are formed with rich data and experienced analysis will help your CU tap into a fast-growing market and gain a competitive edge. very day at least 2.5 quintillion bytes of data are created. Each time we swipe a credit card activate a GPS or Like a post on Facebook our movements are cataloged. There s so much of such activity in fact that the amount of data gathered in one day is more than what we ve seen since the beginning of time. This almost unfathomable amount of information creates a very real opportunity for all businesses including credit unions to understand their customers like never before. In 2013 more than three-quarters of businesses in the financial services industry were using big data and predictive analytics methods to build a competitive advantage for their organizations. Credit unions are among them. CUNA in a recent white paper authored by its technology council applauded these cooperatives. It said Whether a credit union relies on big medium or small data applying that knowledge is very likely to make a positive impact on the bottom line. We know that big data is king as we move forward said Brian Griffith assistant vice president of marketing for Coopera client Gesa Credit Union. Without the right data most marketing and growth efforts are unlikely to be focused and targeted toward the right groups of members. As a whole our credit union is continuing to invest in analytic programs and strategies to help better serve our members. Like many other future-focused credit unions the 1.3 billion Gesa CU located in Washington is applying data analytics and business intelligence methods to enhance service to new markets it may not understand as innately as those it has C R E D I T U N I O N B U S I N E S S E traditionally served. Hispanics as the nation s largest fastest-growing youngest and most underserved population are key among these target members. What follows are the stories of two data-driven credit Miriam De Dios CEO of Coopera unions that have recently applied data analytics to their Hispanic growth strategies. Bethpage FCU Leadership Asks Where s the Data I can be a real data geek if you let me confessed community financial institution veteran Bob Hoppenstedt. A senior vice president for Bethpage Federal Credit Union on Long Island in New York Hoppenstedt believes the keys to even greater success for his 5.7 billion cooperative are buried among the heaps of consumer data compounding by the second. To begin digging out insightful data gems Bethpage FCU has partnered with outside experts who know precisely where to look and for what. One of these partners is Coopera. Brought in to help the cooperative make smart investments inside its M A Y 2 0 1 5 C U B U S I N E S S . C O M 8 Partnering with people businesses and communities for new economic opportunity. Your trusted experts in helping you grow by reaching and serving the largest fastest-growing youngest and most underserved community in the United States Hispanics. Our services include Assessments Consulting Training Translations Hispanic Consumer Products CU BEST PRACTICES developing Hispanic member growth plan the firm applied its data analytics capabilities to the credit union s surrounding areas. The Latino community is the fastest growing on Long Island said Hoppenstedt who noted the Hispanic population surrounding Bethpage FCU branches has nearly doubled over the last 10 years. Already comprising more than 10 percent of the Bethpage FCU membership base the Hispanic segment represents an arena in which success is critical to the sustainability of the 60-year-old credit union. Coopera began by developing what s called a Hispanic Opportunity Navigator (HON) report for the credit union. The objective of the HON which Coopera developed when it was founded in 2007 is to measure progress with a credit union s Hispanic growth strategy. The findings of the report are designed to provide two things 1. A case for modifying enhancing or replacing current Hispanic outreach practices to grow membership and assets and 2. An objective evaluation of the choices a credit union has to position itself for growth through serving the Hispanic market. An important component of the report is a Hispanic Member Analysis which gives credit union executives a clearer view of their current Hispanic membership profile. For Bethpage the analysis held a few surprises. Chief among them was that well above half (55 percent) of the credit union s current Hispanic members preferred Spanish to English. Yet the report also confirmed Hoppenstedt s gut-instinct impressions giving him and other executives the confidence to continue with some of the credit union s efforts such as increasing the attention paid to loan penetration among Bethpage s Hispanic members. According to the report loans to Hispanic members made up six percent of the cooperative s total loan picture. Moving toward the future or Overall Hispanics lag non-Hispanics by a more advanced condition. about nine percentage points. More about Bethpage s Hispanic members was revealed in the report s lifecycle study. Hoppenstedt and his team learned for instance that on average the credit union s Hispanic members are six years younger than its non-Hispanic members. As well non-Hispanic members have been with Bethpage on average three years longer than Hispanic members. Taking the data a step further Coopera was able to combine age and tenure to determine at what age members joined the credit union. Hispanic members average age at joining Bethpage is about 32 years compared with the average for non-Hispanics which is just under 35. When analyzing product categories Coopera learned that checking penetration is highest in the 20 to 24 age group and gradually decreases in the higher age ranges. Digging into the credit union s own data Coopera was able to identify the top five branches in terms of current Hispanic members as well as the lowest five. After reviewing the report Hoppenstedt was able to draw parallels between the top branches performance with Hispanics and the specific outreach strategies executed within those branches. Our strongest branch is Central Islip which Coopera identified as having a nearly 35 percent Hispanic membership said Hoppenstedt. Our branch manager is a very communityoriented Ecuadorian who is active with the Hispanic Chamber of Commerce and a number of other organizations. Several of her staff members are fluent in Spanish which as we now know is very important to many of our current Hispanic members. Perhaps this is the way to continue he said. Maybe it s not about ads but something far more fundamental. It s about going into the branch and being recognized seeing strong Latino leadership and being treated with respect. forward 10 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M CU BEST PRACTICES Per-branch analysis gave the credit union s leaders a series of data points upon which to build branch-specific strategies. This included elements like the number of deposits and loans tenure language preference and age of current Hispanic members in each of Bethpage s 32 locations. Bethpage very much embraces the credit union mission which in our view includes service to the underserved said Hoppenstedt. We have quite a few branches in underserved communities that are also heavily Latino. We recognize we still have not penetrated to a great degree those markets. Coopera helped us determine that. Looking at our branches and how they are organized and staffed to address the needs of the underserved is a priority. Among these strategies Bethpage plans to place more Spanish-speaking representatives in the branches with a heavy Hispanic population. The credit union is also exploring a partnership with a local small business development center that has developed its own Hispanic initiative. As well Bethpage is working with Coopera to understand how the credit union s products and services can be better marketed to the right audiences in the right way. Part of this effort will entail delving into the HON and its Hispanic member analysis to better understand the nuances of the marketplace. Importantly the report also revealed the revenue possibilities of increasing the credit union s engagement within its Hispanic field of membership. With an estimated 3.5 million acquisition cost to penetrate just eight percent of the Hispanic population in its field of membership Bethpage could realize incremental income of nearly 38 million from service to new Hispanic members. Coopera made a strong economic argument for garnering more of the Latino marketplace said Hoppenstedt. Although profits are not why we re in business we have to keep the lights on and we have to pay close attention to our long-term sustainability. Projections of the credit union s membership demonstrate that the Hispanic member will play an increasingly critical role in that sustainability. Using the credit union s recent new membership data and attrition rate assumptions as a basis Coopera analysts predicted Bethpage s Hispanic membership will reach more than 43 000 in five years at which time Hispanics will comprise 14.6 percent of the credit union s total membership. We re very data driven Hoppenstedt said about the credit union s overall data analytics philosophy. Our president is always challenging us by asking Where s the data and our board has come to expect these kinds of reports. Hoppenstedt said the data analysis performed by Coopera will be combined with that of other outside consultants such as Raddon. The integration of our data sources will be key as it makes the analysis that much more important. With Coopera and Raddon working on our behalf we re in a much better position to track our members to get to know them better from the data. San Francisco FCU Says Hispanics Just the Beginning Operating a credit union in the multicultural city of San Francisco requires leaders to stay on top of shifting demographics. There is an exciting complexity to our city said Jude Gogan senior vice president and chief operating officer for San Francisco Federal Credit Union. Gogan has been with the credit union for 34 years and has overseen the establishment of branch locations in nearly every corner of San Francisco County including its most recent branch in San Mateo County. She credits much of the cooperative s success within a vast array of neighborhoods to each branch manager s specialized knowledge of the area he or she serves. These professionals make it their job to stay on top of the demographics so they can supplement what is an instinctive understanding of the strategies most likely to work with members in each unique area of the city. The commitment to tailoring the credit union s approach to each member segment sparked a desire to learn more about San Francisco FCU s fastest-growing member category Hispanics. Because the city boasts one of the largest Hispanic metropolitan populations in the United States and the credit union s field of membership included more than 304 000 Hispanics the credit union was already serving many Hispanic members. In fact more than 15 percent of the credit union s membership was Hispanic as of February 2014. 11 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M CU BEST PRACTICES et Gogan knew status-quo strategies would take San Francisco FCU only so far with this influential demographic. To give the credit union s leadership the confidence they needed to truly invest more heavily in the Hispanic market she and her CEO Steven Stapp partnered with Coopera. The Hispanic growth firm has a defined approach that Gogan and Stapp hoped would jumpstart a years-long approach to understanding the nuances of not only the Hispanic community but eventually each of the communities the credit union serves. Forty-two percent of Hispanics in California are either unbanked or underserved according to the 2013 FDIC Economic Inclusion Survey. Hispanics represent an important demographic for us because of the group s size but also because its members are disproportionately underserved. So we wanted to start there said Stapp who joined the credit union in 2008. From the outset it has been our intention to apply some of the same data- and intelligence-gathering strategies to the Asian Russian and LGBT communities among others. The credit union s pledge to better understand and thus serve the Hispanic market dovetailed nicely with the local government s call on businesses to help revitalize a neighborhood known as the Excelsior district. While milliondollar condos line the streets less than three miles away the heart of the Excelsior district is characterized by vacant storefronts and illegal gambling operations. San Francisco FCU is joining others to help change that image. One of the many ways it is participating in this effort is to help the Hispanics living and working in the district revive the neighborhood. In fact the credit union is preparing to open a new branch in the district in the first quarter of 2015. Coopera examined each of the areas surrounding our branches to help us understand where the greatest opportunity for improved service to Hispanics existed said Stapp. Low and behold the Excelsior district was one of the brightest areas of opportunity in the report. Coopera identified nearly 74 000 Hispanics within a twomile trade area of the new San Francisco FCU Excelsior branch more than any of the cooperative s other locations. While some of the data analysis Coopera delivered via its proprietary Hispanic Opportunity Navigator (HON) and 12 C R E D I T U N I O N B U S I N E S S Y Target Market Analysis reports cemented San Francisco FCU s strategies other insights triggered plans for new programs. We were surprised to learn many of our Hispanic members are heavy users of technology said Gogan. Consumer adoption of technology is something we are putting a lot of emphasis on so it was interesting to see how some of our strategies on the tech side could line up nicely with our strategies on the Hispanic member service side. Stapp who works closely with credit unions in Latin America through his board position with the World Council of Credit Unions noted this reliance on technology as something he had witnessed in Guatemala. We didn t think there would be as strong a correlation here in the U.S. In fact Coopera s analysis of the data indicated that San Francisco FCU s Hispanic membership is more likely to use Internet banking (34.8 percent) compared to non-Hispanic members (33 percent). Additionally 13.4 percent of the members who opened accounts via the credit union s eBranch were Hispanic. Other learnings the credit union cited as helpful to the development of specific Hispanic growth strategies included the segment s deep family ties and sharing of household income. Whereas other cultures may view an auto loan as the responsibility of one or two heads of the household Hispanic families may be sharing that car among several adults each of whom is contributing to the pay down. All of a sudden that one auto loan becomes a touch point for three or four individuals said Stapp. It s truly causing us to look at our business differently. The influence of Hispanic business owners on the local economy is also of interest to the credit union. Hispanic business is exploding here said Stapp. He has felt the effect personally citing a local sushi restaurant with a Hispanic chef. Although Coopera found that the great majority of San Francisco FCU s existing Hispanic members are bilingual a strong percentage (57 percent) prefer Spanish. That percentage was even higher (66 percent) when Coopera examined all Hispanics in the credit union s field of membership. To address potential language barriers Stapp launched an internal education initiative. Each quarter the first 10 employees to raise their hand are invited to take part in Spanish courses funded by the credit union. M A Y 2 0 1 5 C U B U S I N E S S . C O M CU BEST PRACTICES We host lunches where everyone in attendance has to speak Spanish said Gogan. It s been a really fun experience but it s also something employees take seriously. Each student is required to study and to fulfill a series of learnings objectives. The two credit union leaders were also excited to see what Gogan called the drill-down perspective generated by granular detail of both existing and prospective Hispanic members. Facts such as age acculturation level and economic status are helping the pair change perception of the target market among staff board members and management. W hereas the credit union s Hispanic members average age is 48.4 non-Hispanic members average age is 51.1. What s more the median age of Hispanics in California is 27. In terms of acculturation the predominant segments in the credit union s field of membership are secondgeneration English-preferring Hispanics with some Hispanic cultural practices and first-generation bilingual immigrants with many Hispanic cultural preferences. The bicultural Hispanic segment includes Hispanics who are typically first generation immigrated as a child or an adult are bilingual and have many Hispanic cultural preferences. As for socioeconomic status Coopera found the largest segment to have upper middle incomes between 30 000 and 120 000 with an average median household income of 48 174. Often when you tell someone you want to work with the Hispanic market the image they conjure up is individuals who are newly immigrated and skeptical of the U.S. financial system. As we shared the real data with staff board members and management they came to see the opportunity not only within the first-generation immigrant segment but also with the second generation composed of Hispanic consumers looking to start businesses and purchase homes. Hispanics represent a much deeper part of our society and it s great to see our board really embrace that concept. Suddenly we had powerful buy-in to target this strong unified buying population that places great value on personal and family relationships. Although Coopera identified several different segments in the credit union s field of membership its analysts recommended that Gogan and Stapp concentrate on the firstgeneration bilingual Hispanic workforce. C R E D I T U N I O N B U S I N E S S Coopera found that more than 12 000 individuals met categories of this segment in San Francisco FCU s field of membership. Members of this group are first-generation Hispanics between the ages of 25 and 54. They may have immigrated as a child or as an adult and still identify heavily with the Hispanic culture yet they are bilingual. Gogan and Stapp said the data analytics is about more than getting to know this critically important market it also gives them a baseline measure of their overall Hispanic growth program. Now we can work and tailor our products and services with a plan to generate measurable results said Gogan. What s more we now have a task-oriented framework for reaching out to other demographics other neighborhoods in San Francisco that can benefit from a relationship with San Francisco FCU. This work on evolving its Hispanic outreach is only the beginning of San Francisco FCU s data-analytics strategy. Like many of its counterparts across the United States the credit union is focusing more and more on analytics and is right now getting its arms around the overwhelming number of potential data sources it can use to generate a more defined business intelligence plan. In addition to Coopera Stapp predicted the credit union will work with a variety of vendors including credit bureaus MCIF systems social media partners and its core processor to build out a blueprint for monitoring and modeling member behavior as well as to monitor the development of key consumer trends. We are already much more data intensive than we ve been in the past. The purpose of all the slice and dice is really to work with our members in a smarter way. Miriam De Dios is CEO of Coopera which partners with credit unions to help them grow by reaching and serving the Hispanic community. A native of Jalisco Mexico De Dios has significant experience in the financial services arena having worked with State Farm Insurance Companies and John Deere Credit. Witnessing her own parents struggles to navigate the U.S. financial system she is passionate about furthering Coopera s mission of connecting more Hispanics--both immigrant and U.S. born--with the financial mainstream. She believes credit unions are the answer. 13 M A Y 2 0 1 5 C U B U S I N E S S . C O M THE TAB LAW BY BRAD R. BERGMOOSER FREEBORN & PETERS LLP Case Law Review Maintain Clear Account Card Policies Why should your credit union develop and implement clear policies when it comes to completing and changing beneficiaries on account cards Examining one law case that is surprisingly relevant to what CUs witness on a daily basis could help save your credit union both time and money. Learn these valuable lessons now to avoid legal headaches down the road. stapled account card was invalid and turned the funds over to the administrator of the estate. The court ruled on two issues 1) Was the account card listing the new beneficiary valid and 2) If so to which of the three accounts did it apply The ruling which was that the new beneficiary was entitled to the funds and those funds including the checking account and CD but not the IRA are less relevant to this discussion than the fact that the entire situation could have been avoided. As the opinion discussed the credit union had policies in place. Those policies were not followed and the result was the time and expense needed for the court to resolve the dispute. Credit unions can take away several valuable lessons from what happened in Linscott Policies related to completing initial account cards and any changes are very important. Having policies in place can do more harm than good if they re not followed. Credit union account cards are complicated especially if the credit union doesn t take the available steps to make the policies associated with them clear. Make a decision and stick with it. T he creation of the CFPB and heightened scrutiny from the NCUA and state regulators has focused much attention on the regulations and guidelines of those administrative agencies. It s important for credit unions to remember however the lessons that can be learned from case law. Despite the ever increasing power being exerted by the executive branch of government it s the judiciary that has the final say in interpreting law. Keeping the courts in mind a recent case highlights why credit unions need to develop and implement clear policies on completing and changing beneficiaries on account cards. In Linscott v. Bader an appellate court was tasked with determining the recipient of funds in accounts held by a deceased member. The facts of the case are similar to those credit unions see on a daily basis. The member had three accounts checking CD and an IRA with a beneficiary listed on the account card. The issues leading up to litigation were triggered when the beneficiary died and the member attempted to add a new beneficiary. The credit union s account card was two sided. The member completed the front side and the new beneficiary added his information on the back side. Unfortunately the space for the member s signature was on the back page and it was left unsigned. (The credit union s policy required a signature.) With two cards each half-completed the credit union stapled them together and placed them in the file with the previous account cards. Following the member s death the credit union contacted the new beneficiary to inform him of some bills that would be paid out of funds in the accounts but ultimately decided the 14 C R E D I T U N I O N B U S I N E S S Institute Policies and Follow Them [T]he credit union s actions prior to and after the death of Sherwood suggest its account change policy may have been different than what the manager testified to or was simply not followed in this case. M A Y 2 0 1 5 C U B U S I N E S S . C O M THE LAW This quote came straight from the published opinion and contains two statements a credit union never wants to hear a judge say you didn t follow the rules and your employee didn t know what was going on. Polices related to adding or changing beneficiaries should be clear and concise. A credit union should review the format of the account card it s using and then create the process by pointing out which sections should be completed (and how) to add or change a beneficiary. This process has to account for how the credit union wants to handle different (or sub) accounts multiple beneficiaries and any signature requirements. Creating a policy is a good thing so long as it s followed. Management needs to ensure that staff adhere to the policies created. The process stays organized when the beneficiary is first added or changed. All account cards should be completed in the same manner and ensuring that they are will reduce instances where the intent of the member isn t shown. Additionally completing account cards in accordance with policy helps tremendously in deciding the appropriate actions to take when the member dies. a beneficiary without clear direction as to which accounts that beneficiary applies the credit union could place itself and its member s estate in the same situation as the court in Linscott. Is the member s beneficiary on all accounts or just the share account Or perhaps like in Linscott he or she is a beneficiary on some but not all of the accounts. Again the court spent a great deal of time that could have been avoided had the credit union implemented and used a clearer beneficiary designation. A credit union has two ways to attack this issue. It can take the approach that listing a beneficiary on an account card makes that individual (or individuals) beneficiary of all accounts. This should be done by inserting a statement next to the beneficiary designation that the beneficiary applies to all accounts. Alternatively if the format of the account card provides it can separately list a beneficiary for each account. Selecting this approach however could put the credit union right back to the problem in Linscott if the member doesn t fill in one of the beneficiary lines. Account Cards Sub-Accounts and Beneficiaries The Linscott case identifies two common problems with account beneficiaries completing the card and how to treat sub-accounts. A majority of the court s discussion centered on how and if the account card that changed beneficiaries was completed. A simple lesson here is that if the form is two pages don t use two half-completed forms to constitute the new account card. Although the court ruled that this process did create a valid new beneficiary the entire problem would have been avoided if the credit union used one completed form. Further have staff compare the sections of the completed card with those required per the policy to make sure needed items are filled in (like the signature line). Sub-accounts are somewhat unique to credit unions. They come from the idea that each member is an owner of the credit union represented by the par-value share in the main share account. The share account shows membership and additional accounts such as checking CDs or even loans are added as sub-accounts. One problem with this structure is the confusion it can cause when naming beneficiaries. For example if the account card tied to multiple sub-accounts lists 15 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M THE LAW Flip-Flopping Can Lead to Privacy Problems The Linscott case briefly touched on a very scary element involved in determining who receives funds after a member s death. Remember the credit union decided that the account card was not valid and gave the money to the administrator of the estate but only after an employee contacted the person listed as the new beneficiary and discussed information about the accounts. See the problem here The credit union by its own admission divulged private member information to a third party. If there is confusion over where funds in a deceased member s account should go the credit union shouldn t take any action until it has reviewed the account card and if needed the applicable policies. Since nothing should be done until the credit union is presented with a copy of the member s death certificate there is likely time for the credit union to undertake such a review. If a potential issue exists management must review the account card make a determination and stick with that decision. There is an alternative judicial approach called an interpleader action but that s best suited for a credit union to discuss with its attorney. Summary The court s opinion in the Linscott case was only a few pages but it is a very important reminder for credit unions. Dealing with deceased member accounts is an everyday issue that could end up costing a credit union a great deal of time and expense if not handled correctly. Unique issues will come up from time to time but a majority of potential problems can be avoided if the credit union creates maintains and follows a clear policy for adding and changing account beneficiaries. Brad R. Bergmooser is Senior Counsel at Freeborn & Peters LLP and a former Assistant General Counsel for Illinois Credit System. He is a member of the firm s Corporate Practice Group and Credit Union Industry Team and concentrates his practice on matters involving credit unions and other financial institutions. He can be reached at bbergmooser 16 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M Experience the Power of Plus. Let Advisors Plus give your credit union superpowers... minus the cape. Can t lift a bus with superhuman strength can optimize your debit portfolio. Can t leap a building in a single bound can integrate product delivery. Can t see through walls with X-ray vision can enhance your profitability. Our delighted clients turn to our team of superhero consultants to solve their business problems and power their growth. Business Strategy Marketing Strategy Marketing Growth Campaigns Predictive Analytics Credit Card Portfolio Analysis Debit Card Portfolio Analysis Personal & Small Business Checking Strategy Credit Card Start-up Programs Contact Center Optimization Operations Optimization Credit Card Risk & Collections Analysis Branch Sales Training Make Advisors Plus YOUR secret weapon. Call 727.299.2535 or visit us today at LENDING TAB SOLUTIONS BY LORRIE WOHLFEIL BUSINESS ANALYST AT LSCI What Type of Member Do You Have and What Type of Member Do You Want What if you could turn every individual who walked through your credit union door into a loyal member who would never consider using any other financial institution The opportunity is there regardless of the member s credit characteristics. All it takes is the right conversion strategies. C redit unions are wonderful of serving members. In fact we have aand What Type our members when the What Type at Member Do You Have reputation for helping of big banks and many others don t. In reality we are excellent at serving a specific type of member. Oftentimes the Member Do You Want members we serve don t help our shareholders (aka our members) at all. We have to change the culture at credit What if create value across individual and understand the following unions so we you could turn every the board who walked through your credit union door into a loyal member We need who would never consider using any other financial institution Themore moneyisto our shareholders. to serve our members who make us money so we can give back opportunity there regardless of the member s credit characteristics. All it takes is the right conversion The members who make us money are the ones who will refer their friends family and co-workers to us. strategies. The members who don t make us money (aka add value) can with the proper training and sales strategies. Credit unions are wonderful at serving members. In fact we have a reputation for helping our We have to make the membership the big something to both the members reality we are excellent at serving a the good word members when mean banks and many others don t. In and the credit union so they spread There are three types of members who join a credit union. Listed below are some ofhelp our shareholders (aka specific type of member. Oftentimes the members we serve don t their typical characteristics our Member A Credit characteristics Type of loan shopper Loan relationship at CU Often has a high credit score Shops around for the best rate Takes out a loan with the CU at a rate of 2 percent Deposits the minimum 5 or 25 share requirement Never steps foot into the credit union Will pay the loan off early One and done member Member B Has a very typical credit score Uses the credit union exclusively Has all loan business with the credit union regardless of rate Has a draft account ATM Visa card vacation club etc. Comes to the credit union regularly and knows staff by name Will borrow whenever needed Loyal to the credit union Member C Has a sub-prime credit score Has heard the credit union helps people who have had problems Tries to get a loan and is turned down Declined for a draft account because a system said s he didn t qualify or has the minimum requirement for membership Leaves unsatisfied and is told what s he already knew Goes to payday lender or other sub-prime company Could be loyal Deposit relationship Does s he know us Loan characteristics Loyalty factor 18 C R E D I T U N I O N In the past your SEG group most likely has had a lot to do with what type of member you have B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M or attract. This tendency however can very much be changed thanks to the community involvement and other qualifications for membership. LENDING SOLUTIONS TAB In the past your SEG group most likely has had a lot to do with what type of member you have or attract. This tendency however can very much be changed thanks to the community involvement and other qualifications for membership. One of the reasons credit unions have failed to gain momentum in the past is because they haven t figured out how to serve all their members in particular the ones who don t fit into the box due to policy or culture. With the proper policies products and training Member A and Member C can become as loyal as Member B. Member A s don t typically brag about the credit union. They may tell their friends about you but what will they say They know the credit union only for the low rate. This is the only word they have to spread. What would their story be if we changed our approach and shared the aforementioned Your loan yield which drives your earnings will thank you Converting your member A into a member who has the loyalty of member B is critical to your reputation loan growth and high-yield strategy. Let s take a look at member A. Lenders love member A. There is very little work required on their part and very little risk. No one is going to come back to them and ask them to justify why they made this particular loan. Decision makers like this. The problem is however credit unions can t stay in business serving only the member A s of the world. You need a strong spread between investments and loans. The spread between an A car loan and your investments is oftentimes less than two percent. Your decision makers need to understand this. How many member A s do you have Member A is very easy to diagnose from the onset. To diagnosis a member A and test our theory go back and look at your 20 auto loans from 90 days ago that received your lowest rate but weren t members at the time of the loan. How many of them have opened a draft account moved their money to you and are using your credit card These members will ultimately earn you less than 1 000 if you are lucky. At Lending Solutions Consulting Inc. we see this scenario on a repeated basis. The exciting part is there are almost always other opportunities that were missed. This is referred to as the loss leader sales approach. Take the 2.99 percent rate as an opportunity to get some of the good stuff. What if at the time of the membership we took the time to celebrate all the other wonderful services and products we offer Do we offer welcome calls to these new members if they came to us on a non-direct basis What if your sales strategy when you called these members was score preservation These members know their scores and are proud of them. What they may not know is how close they are to falling out of the platinum tier because of the capacity on one credit card. What if you could preserve and build their Now let s take a look at member B. capacity by paying off their unsecured revolving accounts and by We love B members because they are loyal and celebrate the giving them your Visa with a large limit 19 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M Now let s take a look at member C. The one word that should come to mind with member C is opportunity. The opportunity lies in helping someone rebuild his or her score and ultimately his or her self-worth. This is when the rewarding part of the job sets in. The job satisfaction in knowing you made a difference and took the time to really listen and strategize there s nothing better Member C can become your most loyal and your best referral candidate if you handle him or her the right way. Teach your employees that there s always a solution. How can you help this member rebuild his or her credit You should have an arsenal of loan products to help your new members who have struggled in the past all with low risk for your shareholders. These weapons include having the member borrow against his or her own money placing GPS on car loans and getting forced payment options locked down to name just a few. Most members with low FICO scores get told what they already know. They messed up by not paying their loans back on time and now are too much of a risk. Let s do something different than every other financial institution. Don t tell these members what they already know Instead ask the member about his or her job and if he or she likes it. Ask how he or she found out about you and what he or she knows about you already. Ask the member how he or she is getting to work. Get his or her story Everyone has a story this is what makes our jobs unique and promising. Show the member your rate sheet and where he or she is falling. Define what your goal is. We are in the business of helping our members rehabilitate their credit. Along the way they are going to have to pay more than some of the other members but still far less than what other sub-prime members are going to have to charge them. LENDING SOLUTIONS credit union in the community. Member B in all reality was most likely a former member A or former member C. This is what s exciting. You can make all of your members turn loyal and never consider using any other financial institution. They stay with you for the outstanding service and the convenience. They don t chase the rate because they understand what they get from you is the complete package. You don t want members who use you only for chasing the rate because you won t win or be the lowest every time. In conclusion we encourage you to go back and look for yourself. There is no better time to seize the moment than today. In 2014 credit union membership grew by 3.6 percent this was the most in 20 years. We believe we can do better. How many missed opportunities for higher-yielding cross-sells do you miss How many times do you turn new members with good jobs away who were looking for a second chance Always remember to ask yourself Did I bring value Does the relationship have value to the member Does it have value to the credit union When you ve achieved value you ve achieved a lifelong relationship. There s nothing better Lorrie Wohlfeil began her career at LSCI in August of 1995. As a business analyst Lorrie is primarily in charge of the Portfolio Analysis program an external audit dedicated to helping credit unions make stronger loan decisions and seek sales opportunities. Lorrie also works hand in hand with our onsite consultants and has attended numerous Rex Johnson University of Lending and specialty schools. Before starting the Portfolio Analysis program Lorrie designed the highly successful training program in place at Lending Solutions Inc. (LSI) and personally trained many of the loan underwriters at LSI. Lorrie also spent four years as an onsite consultant for LSI. During that time she not only educated credit unions on lending but also trained their staff to make superior lending decisions. Lorrie graduated from the University of Kansas with a degree in Business Communications. University of Lending May 11 - 15 Crystal Lake IL August 10 - 14 Crystal Lake IL 4th Quarter 2015 Las Vegas NV C M Y CM MY CY CMY K Management Institute for CEOs and Managers September 15 - 17 Phoenix AZ Collections Institute April 7 - 9 Chicago IL October 6 - 8 Phoenix AZ Indirect Institute May 4 - 6 San Antonio TX 20 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M BRANCH TAB BUSINESS BY MEREDITHTAB DEEN Millennials and the Branch Building Relationships with Your Most Important Customers It s make it or break it time with your credit union and who would have ever thought it would come down to the Millennial generation Discover who this generation is and why catering to them with the Three HTs matters so much to CUs and in particular CU branches. ifteen years ago if anyone had suggested the Millennial generation would represent an important yet challenging component of a credit union s (CU) success most CU managers would have shaken their heads in confusion. At the time the powerful Baby Boom generation was hitting its stride with Boomers climbing the corporate ladder and depositing money into their financial institutions at an impressive rate. Today post Great Recession many of those same Baby Boomers are either suffering from depleted savings and or reduced levels of employment or they are tightening their belts in preparation for retirement. At the same time Millennials are coming into their prime. For a number of reasons we will discuss in this article the (really large) Millennial generation has the potential to make or break the future of credit unions-- and it s not a simple matter of how many dollars and cents they have in their pockets. So who is this generation and why do they matter to CUs Technologically astute and deeply plugged in they are sometimes characterized as mavericks when compared to their Baby Boomer parents. In addition thanks at least in part to the Great Recession consumers in this age bracket are marrying having children and buying their first homes later than any previous generation. If this trend continues it will soon produce a flurry of opportunity for CUs when many Millennials reach their prime loan opportunity years. F Millennials and the Branch According to a recent survey Millennials are visiting branches less often but find them no less important. This survey by TD Bank (which we believe is also relevant to CUs) found that 49 A Storm of Opportunity Baby Boomers (born 1946 1964) comprise a large group approximately 75 million according to some estimates. The generation that follows them Generation X (born 1965 1981) is much smaller comprising approximately 44 million individuals and only 16 percent of the workforce. With the majority of Baby Boomers slated to retire in the next decade Millennials (born 1982 2000) will be the majority of working individuals well before Generation X workers begin retiring. 21 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M TAB BRANCH BUSINESS High Tech Millennials love all things digital. According to Deloitte s Eighth Annual Digital Democracy Survey (2014) 51 percent of Millennials are digital omnivores owning a laptop a tablet and a smartphone. Compare that with the percentage of Baby Boomers (22 percent) and it s obvious how important digital media is to this group. CUs should leverage this preference not only through digital communications as indicated above but also by giving Millennials digital relationship management options. For example to encourage Millennials to visit branches when they are ready to gather financial advice or explore new products CUs can leverage digital appointment-setting technology. With such a platform members can set advance appointments with loan officers and other financial specialists via the computing platform of their choice. They can also make appointments in the branch via technology-based vehicles such as tablets or kiosks. In both cases members should receive text High Touch Millennials are comfortable with frequent and or e-mail reminders of their appointment times based on communications. They grew up with Facebook and despite news their preferences. reports that they are abandoning it for Twitter and Instagram a majority of them use it. (According to a 2015 Statista report 72 percent of Millennials use Facebook often or very often.) E-mail is an even more ubiquitous communication with 92 percent of this generation using it often or very often. Text messaging falls in the middle at 74 percent. In other words Millennials are used to engaging in frequent digital communication and CUs need to address that preference. Although no one likes to be spammed CUs that send helpful relevant communications to Millennials on a regular basis will solidify relationships and retain top-of-mind awareness. Making these communications highly visual and personal (two approaches with which Millennials are especially comfortable) will also help increase their value. Ideas run the gamut from videos involving Millennial speakers such as Preparing to Be a Homeowner with a real-world case example to pictorial graphical depictions of important immediate questions such as Should You Be Saving for Retirement Now (Contrast this with a less-focused topic such as How Much Money Will You Need to Retire and you can see how targeting can help attract this audience.) percent of this generation rely on in-person visits to branches for making their financial decisions. Branch resources ranked even higher than the advice of family members (48 percent). FMSI sees a valuable opportunity here that CUs can leverage. Millennials aren t visiting branches to conduct lowvalue transactions such as deposits and withdrawals. However when the time comes to make important financial decisions that are far more profitable for CUs such as car loans or investing for the future Millennials look to branches for guidance. The question then becomes how do CUs ensure it is their branches that a Millennial visits and not someone else s The answer based on the published research we have examined could be classified as the Three HTs High Touch High Tech High Treatment 22 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M BRANCH BUSINESS forward Moving toward the future or a more advanced condition. High Treatment Even though Millennials are a less-visible branch segment as a group CUs cannot dismiss them on an individual basis. Rather credit unions should make it a priority to give these members friendly personalized treatment that will resonate long after they leave. Furthermore savvy CUs will create VIP outlets such as rewards programs that thank Millennial members for their loyalty inside and outside the branch. These avenues could include awarding prize points for non-branch activities that reduce branch overhead such as mobile deposits. As an added incentive CUs can enhance these programs with a special bonus if the member visits a branch and speaks with a representative about a product or service at least once during a month. As the statistics bear out Millennials are quickly becoming the largest segment of purchasers in all industries and they are undoubtedly the CU member of the future. However CUs cannot wait until this demographic emerges at its full potential to solidify their relationships with it. Meredith Deen is the Chief Operating Officer of FMSI. FMSI provides easy-to-use yet sophisticated business intelligence and performance management systems that facilitate efficient staff scheduling and systematic lobby management of the branch. She can be reached at meredithd For more information visit or call (877) 887-3022. 23 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M INFLUENCE TAB AT WORK BY ROBERT CIALDINI INFLUENCE AT WORK Influence The Ultimate Power Tool The success of every credit union hinges on one personal quality the ability to influence others. Learn how to arm your CU s toolbox with this ultimate power tool. These six proven universal persuasion principles will magically transform any maybe or no into a yes. n business today effective influence is essential. Want your ideas implemented You must influence others to act on them. Want more clients You must influence people to buy from you. Want more advancement or responsibility You must influence executives to see the value you offer. And to be an effective leader you must be able to influence others. In all respects being able to influence others is the ultimate power tool. So what makes people say yes to your requests Researchers have been studying influence for over 60 years. While it s nice to think that we are all logical beings who study facts and information to guide our thinking and decision-making process scientific research shows otherwise. Following are the six proven universal principles of persuasion that when used ethically can influence others to change their behavior. initiated in many ways. The key to effectively using reciprocity is to be the first to give to give unconditionally and to be sure that your gift is personalized and unexpected. I 2. Scarcity Have you ever noticed that people seem to want more of those things they can have less of That s the Scarcity Principle at work. Marketers know the power of this principle which is why their ads often contain such phrases as Limited Time Only or Limited Quantities Available. When true scarcity affects the value of information too. In other words information that is exclusive is more persuasive. So the next time you gain access to information that is not readily available and that supports an idea or initiative you would like the organization to adopt gather the key players and say I just got this information today. It won t be distributed until next week but I want to give you an early look at what it entails. Your listeners will lean forward and listen intently. The key to using scarcity successfully whether for a product service or information is to not just honestly tell people the benefits they ll 1. Reciprocity There s a powerful rule that says we should try to repay what others have done for us. If someone gives us a gift we feel compelled to give a gift in return. If someone extends us an invitation we should extend one to him or her. And if someone does us a favor we owe him or her a favor in return. By virtue of the Reciprocity Principle people feel obligated to the future repayment of items actions favors and gifts. You see reciprocity initiated in business every day even if you don t immediately recognize it. From suppliers sending relevant industry-specific information to clients to managers providing personalized guidance to co-workers helping each other meet a deadline reciprocity can be 24 C R E D I T U N I O N B U S I N E S S forward Moving toward the future or a more advanced condition. M A Y 2 0 1 5 C U B U S I N E S S . C O M INFLUENCE AT WORK TAB gain but also point out what s unique and what they stand to lose if they don t move in your direction. 3. Authority Research shows that people typically follow the lead of those they perceive as credible and knowledgeable experts. For example physical therapists are able to persuade more of their patients to comply with programs if they display their medical diplomas on their office walls. That s because people tend to defer to legitimate experts for information and guidance on what to do. Surprisingly people mistakenly assume that others recognize their experience. To ensure that they acknowledge yours first determine what your relevant background experience and expertise are for the specific person you are trying to influence. If you don t do this you will be sabotaging the power of your own message. For maximum impact arrange to have a third party communicate this relevant information. Another option is to direct the person you want to influence to something in writing that highlights your credentials (i.e. your LinkedIn profile your bio on your website etc.). The key to using authority successfully is to signal to others what makes you credible and knowledgeable before you make your influence attempt. 4. Consistency People feel compelled to be consistent with the prior behaviors or statements they have made. When someone makes an active commitment either by writing it down or speaking it out loud How would your customers rate their experience at your drive up Maximize Teller Productivity with a Currency Dispenser (or Recycler) Contact us at Proven Performance and Quality Phone 800-243-2624 Email dispensers Online 25 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M INFLUENCE AT WORK TAB it s even more likely that he or she will follow through with that commitment. You can activate the Consistency Principle by looking for or asking for small initial commitments. For example suppose you want an employee to submit reports in a timelier manner. Once you believe you ve won agreement ask him to send you a summary of that decision in writing. By doing so you ll have greatly increased the odds that he ll fulfill the commitment because people tend to live up to what they ve written down. The key to using consistency successfully is to look for voluntary active and public commitments ... and get them in writing. streamline your department s work processes but a member of your group is resisting. Rather than try to convince this group member yourself ask a couple of veteran employees who support the initiative to speak up for it at a team meeting. The veterans testimony stands a much better chance of convincing the group member than yet another speech from the boss. That is because social proof is often better exerted horizontally rather than vertically. The key to using social proof successfully is to have similar others share their positive story to your target audience. Exert Your Influence Today Influence is a very powerful tool. When you ethically implement these six scientifically validated principles of persuasion you ll be making small practical and often costless changes that can lead to big differences in your ability to change others behavior. In the end you ll not only achieve your objectives but you ll also guide the other party to the best decision for his or her needs. That s when true success transpires for everyone involved. INFLUENCE AT WORK (IAW ) was founded by Robert Cialdini Ph.D. Professor Emeritus of Psychology and Marketing and author of the New York Times bestseller Influence. Dr. Cialdini is a highly sought-after keynote presenter on the ethical business applications of the Science of Influence. Additionally IAW offers customized in-house Principles of Persuasion (POP) Workshops conducted by Cialdini Method Certified Trainers. For availability please call 480-9676070 or visit Follow us at robertcialdini. 5. Liking People prefer to say yes to those they know and like. But what makes someone like you Science tells us there are three important factors that contribute to likeability 1) we like people who like us (and tell us that they do) 2) we like people who are similar to us and 3) we like people who cooperate with us toward mutual goals. The key to using liking successfully is to be honest in your praise find genuine similarities uncover opportunities to work together toward common goals and get to know people more meaningfully before talking business. 6. Social Proof Humans are social creatures. And as such we rely heavily on the people around us for cues on how to think feel and act. In other words people look to the actions of others to determine their own ways of acting. This is why using testimonials from happy and satisfied customers is so effective in marketing campaigns. You can use the Social Proof Principle when attempting to get your ideas implemented. Imagine that you re trying to 26 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M COMPLIANCE TAB UPDATE BY MICHAEL CHRISTIANS TAB 4 Steps to TILA-RESPA Integrated Disclosure Rule Compliance Is your credit union ready for the final version of the TILA-RESPA Integrated Disclosure rule The various changes that are set to go into effect on August 1 could leave you scrambling to keep up. This four-stage implementation plan will prepare you to seamlessly put this new rule into practice at your CU. umber 1 on every credit union s mortgage compliance to-do list this summer is addressing the final TILA-RESPA Integrated Disclosure rule which goes into effect on August 1 2015. The rule aims to integrate the various disclosures required under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). It also attempts to simplify language the Consumer Financial Protection Bureau (CFPB) has characterized as confusing for would-be homebuyers. The final rule was published by the CFPB on November 20 2013 which allowed for a roughly 20-month implementation period. Let s take a look at the most significant changes imposed by the new rule. unlimited tolerance category will be subject to the zero tolerance category. Lastly the cure period was extended by 30 days. If a credit union violates the applicable tolerance levels after August 1 it will have 60 days following closing to cure a tolerance violation. N Closing Disclosure Timing Changes Today a credit union may provide a HUD-1 Settlement Statement at closing (or at the member s request on the business day before closing). As of August 1 staff must provide the new Closing Disclosure no later than three business days before closing. A revised Closing Disclosure that reflects a change to the loan s APR a change to the loan product or the addition of a prepayment penalty will require a new three-day waiting period prior to closing. Application Definition & Cure Period Changes The definition of a mortgage application changed under the Integrated Disclosure rule. Specifically it was pared down to include six (vs. seven) components. Once a credit union is in possession of those six pieces of information it must provide applicants with the new loan estimate disclosure within three business days. While the current tolerance levels your credit union is familiar with generally remain the same there is one significant change. Presently any settlement charges not specifically identified in the zero tolerance category or the 10 percent tolerance category are subject to the unlimited tolerance category. After August 1 any settlement charges not specifically identified in the 10 percent tolerance category or the 27 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M TAB COMPLIANCE UPDATE New Disclosure for Escrow Closing The Integrated Disclosure rule introduced a new disclosure that must be provided when an existing escrow account is closed. It must be delivered no later than three business days before the escrow account is closed in conjunction with the member s request and no later than 30 business days before the escrow account is closed if done at the direction of the lender. Understanding the nuances of the rule is (arguably) the easy part. Now it s time to implement the new rules at your cooperative. What Does a Good Implementation Plan Look Like A solid implementation plan will have four main steps determining impacted products and staff identifying necessary system and operations changes working with business partners and providing training to all affected departments. Credit union management should first determine which products departments and staff are likely to be impacted by the Integrated Disclosure rule. Originators loan processors closers and post-closing auditors are most likely to be affected by the new rules. However servicing personnel may be affected by the new escrow closing notice. Generally all closed-end consumer loans are subject to the new rules. There are a few exceptions. (See the Are We Off the Hook section below.) Next credit unions need to take a close look at the technology business processes and operations that will need to be adjusted to achieve compliance. If you haven t already contacted your software vendor(s) do so immediately. Don t be afraid to stay on top of them to make sure they will be ready in advance of the August 1 implementation date. Advanced readiness will be important to allow your cooperative time for training and testing. Existing policies and procedures will need to be updated. Keep in mind that your credit union will need to maintain policies procedures and expertise with regard to the existing forms (GFE preliminary TIL 28 C R E D I T U N I O N B U S I N E S S etc.) because they will continue to be utilized for exempt loan products. Some of the necessary system changes you may encounter include revising templates and data feeds in your loan origination system. You may also need to identify additional data elements that are necessary to correctly populate new forms. One example may be adding loan-to-value information for calculating when private mortgage insurance will be cancelled. The third step is to identify how the Integrated Disclosure rule will impact your key service providers and other business partners. For example settlement agents and brokers will have to be familiar with the new rules and how to comply. Remember the credit union will be ultimately responsible even for service provider mistakes so partner due diligence is critical. Training for impacted staff members and departments as well as any key service providers or business partners that may rely on you for education is the fourth step in an implementation M A Y 2 0 1 5 C U B U S I N E S S . C O M COMPLIANCE UPDATE TAB plan. To ensure your staff is adequately prepared to both utilize and explain the new disclosures you should plan to enter a testing environment with the new forms no later than June 15 2015. This will ensure adequate time for staff members to become familiar with the new forms and how to explain them to members. It will also provide your staff the opportunity to work with third-party service providers to make them aware of the operational changes required by your credit union to be in compliance with the new rule. HELOCs reverse mortgages and mortgages secured by a mobile home or dwelling that is not attached to real property are also specifically exempt from the Integrated Disclosure rule. Michael Christians is a compliance attorney for regulatory compliance firm PolicyWorks a national leader of credit union compliance solutions. He can be reached at michaelc Are We Off the Hook The integration of mortgage disclosures will not apply to all credit unions. Those that extend consumer credit less than 25 times per year are exempt from Regulation Z and thus are not required to follow the TILA-RESPA Integrated Disclosure rule. Similarly not all loans are impacted. If credit is extended to a member without a finance charge it is not subject to TILA. Rest easy your compliance is covered. If compliance concerns are keeping you awake at night let PolicyWorks help you rest easy. Our compliance professionals will review your compliance systems and recommend customized programs that help you get and stay in compliance. Call today. We ll make compliance easy for you. The services provided by PolicyWorks should not be construed as legal services legal advice or in any way establishing an attorney-client relationship. Making compliance easy for you. 866.518.0209 29 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M CEO TAB VELOCITY BY SCOTT MCCLYMONDS TAB CEO Spotlight Five Ways Golden 1 s CEO Donna Bland Achieves Alignment Innovation and Growth What can your credit union take away from the 20-year veteran and now CEO of Golden 1 CU Putting people first and making a difference in their lives are two of the important driving forces behind Donna Bland s illustrious career. See what other attributes have led to her success and uncover some ideas for applying them at your credit union. everal times a month I have the honor of discussing leadership and strategy with leading CEOs in the credit union industry. This month s conversation was with Donna Bland CEO of California s Golden 1 Credit Union a 9 billion organization that is fast approaching 10 billion. Donna has been Golden 1 s CEO for four years and has been with the company for 20 years. Her background as a CPA has enabled her to serve Golden 1 in different financial positions such as Controller and CFO. In those 20 years the CU has had tremendous success increasing its assets from 1.5 billion to its current size. The spirit in which Donna leads Golden 1 is reflected in two of her favorite quotes When you have exhausted all possibilities remember this you haven t. Thomas Edison If you want something you ve never had you must be willing to do something you ve never done. Thomas Jefferson In Donna I found a refreshing blend of Passion for family Golden 1 s members and employees and the CU industry Strategic thinking and execution solidly grounded in Golden 1 s mission vision and core values 30 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M S Donna Bland CEO of California s Golden 1 Credit Union Creativity focused on adapting to the changing needs of consumers while still adhering to the company s mission vision and core values. CEO VELOCITY TAB With my clients I often refer to what I call the 3 C s of capital culture and community to describe the purposes of a business earning profits creating an environment where employees can thrive and being a benefactor to its community. Donna displayed this same philosophy in every aspect of our conversation summarized by her statement CEOs need to be member advocates establish cultures where employees can thrive and reinvest back into their communities. The world would be better if we all recognized the importance of people. People have lives and they matter. At her essence Donna is a CEO who prioritizes her role as a steward as someone who can make a difference in the lives of many people. She harnesses her leadership skills to manage a nearly 10 billion credit union while positively impacting its members employees and communities ... just the way a business is supposed to work. In particular I was impressed with these five attributes in Donna 1. She has a passionate focus on Golden 1 s mission vision and core values. 2. She is a thoughtful communicator with an emphasis on adapting to the styles of board members and direct reports. 3. She has a deep concern for people and her role as a steward. 4. She is always closely watching anticipating and innovating around consumer demand. 5. She develops dynamic integrated strategy based on all of the above tightly monitored with metrics and she is adaptive to changing market conditions. Allow me to dissect these five attributes and then proceed to the details of our discussion. process of reconfirming Golden 1 s mission vision and strategic goals within the context of the CU s core values. Her main priority is to ensure those words come alive instead of just gathering dust in hallway picture frames. At Golden 1 the focus lies on reinforcing these key concepts repeatedly in both word and deed so employees clearly see by example that they are embraced at the highest level and can confidently live the brand themselves as well. According to Gallup s Study on the American Workforce this atmosphere is in stark contrast to what occurs in most American businesses where reportedly less than 50 percent of all managers and 40 percent of employees say they clearly understand their company s brand. Let s drive that point a little closer to home. In a survey I performed of CUs in the Cornerstone Credit Union League about half of respondents said they only slightly agree that employees can clearly articulate their brand and strategy. My point is what Donna is doing is not the across-theindustry norm. The best leaders know consistently living a brand drives employee engagement and performance quality of member experience and ultimately the success of their credit union. Here are some of the ways this passionate focus on brand mission vision and core values manifests itself 1. Developing strategies and corresponding metrics at both enterprise and division levels that reflect one common goal the mission of delivering financial solutions with value convenience and exceptional service 2. Hiring leaders based not just on skills and experience but also on their ability to embrace and reflect Golden Passionate Focus on Golden 1 s Mission Vision and Core Value Donna told me Everything we do is focused on our identity. When she became CEO Donna and her board went through the 31 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M CEO VELOCITY 1 s brand mission vision and core values Donna hires on the basis of how leaders take care of their employees and their ability to deliver exceptional service in a team environment. This helps ensure a candidate is not just a good fit for the job but is a good fit for the job specifically at Golden 1. 3. Creating purpose statements for each position that reflect a broad responsibility across the organization and connect each employee to Golden 1 s mission These statements go far beyond job descriptions and are part of annual performance reviews. They provide clarity accountability and greater employee engagement. desired outcomes. As an example some people may understand communication better visually and others verbally. The key is understanding each individual and adapting to his or her most effective communication style. This adaptability takes effort and flexibility on a leader s part but it helps other people execute and that s what matters. Deep Concern for People and Her Stewardship Role At times I have related my experience of realizing that as a leader I was primarily in the people development business and it is clear that Donna strongly embraces that concept. While she is an exceptional strategist and leader she realizes the end goal of those attributes must be to change lives. Donna believes wholeheartedly that what she and her Golden 1 team are doing makes a difference in the lives of their Thoughtful Two-Way Communication An interesting aspect of our discussion focused on the successful execution of strategy and how dependent it is on great communication. Donna paraphrased a Steve Jobs interview that conveyed how having a vision is important but if after that you don t wholeheartedly commit to exceptional execution then the great idea can be for naught. She related that one of the biggest challenges in executing strategy is what happens after the initial vision is developed. That brought back memories of when my employees and I agreed to the vision of improving how we managed relationships with the bank s most profitable customers on a daily basis. What they actually executed was a single mortgage campaign targeting part of our most profitable customers not a plan to manage those ongoing relationships. Somehow there was a communication breakdown between concept and execution and this is what Donna was referencing. The fact that instances like this one are common is reflected in my Cornerstone research where most CUs said they were better at creating strategy than executing it. The way Donna manages this division between conception and execution is to set up clear milestones for each strategy and to work with each person involved to ensure s he is clear on the 32 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M CEO VELOCITY TAB members. Just as importantly a primary responsibility she sees within her role as CEO is creating a culture where employees can thrive. She told me We (CEOs) can make or break the lives of our people. We are stewards and need to have cultures that allow them to thrive in work and in life. Watching Anticipating Innovating around Consumer Demand When we discussed changes in the industry and Golden 1 s strategy Donna referenced evolving consumer demand the need for 24 7 service and the necessity of creating an omnichannel experience where members can interact with Golden 1 whenever and however they choose. Consumer demands are changing often rapidly and what delivered member satisfaction yesterday won t necessarily be what delivers it today or tomorrow. Golden 1 performs continuous and extensive research to keep its finger on the pulse of consumers. Additionally minority opinions are not ignored. Donna knows and appreciates that a minority opinion today could become a majority point of view tomorrow. This mindset is different from what happens at most companies even large and successful ones. I remember entire product lines being rolled out without soliciting one ounce of consumer feedback. I have experienced many more times when market research was conducted but the results were not acted upon by leaders. Financial services firms are notorious for presuming to know their members and customers although the research that gave them that confidence has in fact grown quite stale. Golden 1 s approach to using ongoing market research to stay abreast of changing member needs and perceptions helps the CU adapt its strategy to meet those demands while maintaining faithfulness to its mission vision and core values. point three-year strategies are developed for the enterprise and each division with the singular goal of fulfilling the credit union s mission. As strategic goals are created and metrics are developed at both the enterprise and division levels execution is deployed with an eye toward ensuring what happens is what was actually envisioned. Considerably aiding execution is the fact that each position in Golden 1 has a written purpose tied to fulfilling the CU s mission. Giving employees a greater sense of purpose and clarity beyond a job description is one way Golden 1 creates higher employee engagement and strong execution. Like any exceptional company Golden 1 reassesses its performance against metrics and any new research or information on consumer demand and then the cycle repeats. Once again my Cornerstone research showed that using daily metrics to evaluate progress toward achieving strategic goals is not common among credit unions. The majority of CUs answered slightly agree or worse when asked if they measured daily actions against strategic goals. Scott McClymonds is a veteran leader in the financial services industry and an expert at creating and executing profitable strategies that make businesses grow. His company CEO Velocity is a strategic consulting firm that helps CEOs of financial services firms and small to mid-sized enterprises create greater customer loyalty profits and company value. You can reach Scott at 479.263.0774 scottm ceovelocity. com or scottmcclymonds. Dynamic Strategy Founded on Core Values and Tightly Measured Metrics With a rock-solid mission vision and core values as a foundation that is consistently reinforced Golden 1 s strategy is dynamic. Using ongoing research of consumer demand as a starting 33 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M CDFI AWARDS TAB AVAILABLE BY STACY S. AUGUSTINE CDFI A Fund-Filled Path to Better Serve the Underserved If better serving your moderate- to low-income members tops your credit union s agenda CDFI Fund Awards can help make that happen. And they re not just for community-chartered credit unions either. Learn how you can leverage such funding to enhance the financial well-being of your underserved community. 2.4 billion a leverage rate of 23.70 for each equity grant dollar added by the CDFI Fund. They also increased their total loans by more than 1.5 billion. Since its inception (1994) the CDFI Fund has awarded nearly 1.5 billion in financial and technical assistance to certified CDFIs across the country including 157 million in awards to 173 CDFI-certified credit unions. There are two primary CDFI Awards that credit unions can leverage 1. Technical Assistance Grants (TA Grants) Technical Assistance grants help new CDFIs or small credit unions build capacity. Need help increasing your ROA Need equipment or consulting to help build up your program TA grants are intended for just these types of purposes and can include personnel your credit union might require to build out its programs. 2. Financial Assistance Grants (FA Grants) Financial Assistance grants are deployed to already-strong credit unions to help them deploy even more loans to positively impact their field of membership. An FA application is essentially a business plan to ask for everything you need to increase lending to the underserved people or distressed community you are serving. Applicants need to show that the program is sustainable with financial projections. Lump-sum grant funds provided through the program are counted as income not assets helping the credit union s net worth. T oday credit unions comprise 26 percent of all Community Development Financial Institutions (CDFIs) that work in market niches underserved by traditional financial institutions. Very few CDFIs are banks while most are non-depository loan funds. This means there is real opportunity here for more credit unions to become CDFIs particularly since credit unions are so naturally aligned with the purpose of the certification. The goal of the CDFI program is to serve moderate- to lowincome people and distressed communities that are lacking access to capital. To that end the program provides a unique range of financial products and services in economically distressed target markets. There are five types of financial institutions that are eligible for certification provided they meet the CDFI Fund criteria 1. credit unions (don t have to be a community-chartered credit union) 2. banks 3. depository holding companies 4. loan funds 5. venture capital funds Credit unions are increasingly gaining this type of grant income to help fulfill their mission to their members. For example CUNA reports that from 2009 through 2013 61 credit unions received 102.7 million in CDFI Financial Assistance grants. During that timeframe these credit unions increased their total assets by 34 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M CDFI AWARDS AVAILABLE TAB Among other programs offered by the CDFI Fund there are also the Native American CDFI Assistance Program (NACA Program) and the Healthy Food Financing Initiative (HFFI) Financial Assistance Awards which are both more specialized. What can the CDFI Funds be used for Technical Assistance ( 125 000) Personnel (Salary) TA to cover salaries of the applicant s personnel that are paid currently or accrued by the applicant for work performed directly related to carrying out the purpose of the TA grant (including Financial Assistance ( 2 million) Financial Products FA expended as loans equity activities related to becoming certified as a CDFI) investments and similar financing activities (as subject to the applicable provisions of the Uniform determined by the CDFI Fund) including the purchase Federal Award Requirements. of loans originated by certified CDFIs and the provision Personnel (Fringe Benefits) TA to cover costs of the of loan guarantees. In the case of CDFI Intermediaries applicant s personnel employment (other than the such assistance is in the form of grants to CDFIs and employees salaries) in proportion to the salary charged or emerging CDFIs and deposits in Insured Credit Union to the TA grant to the extent that such payments are CDFIs emerging Insured Credit Union CDFIs and or made under formally established and consistently State-Insured Credit Union CDFIs. applied organizational policies subject to the applicable Financial Services FA expended for the provision provisions of the Uniform Federal Award Requirements. of checking and savings accounts certified checks Training TA used to pay the cost of training and automated teller machines services deposit taking education provided for employee development subject remittances safe deposit box services and other similar to the applicable provisions of the Uniform Federal services. Award Requirements. Loan Loss Reserves FA set aside in the form of cash Travel TA used to pay expenses for transportation reserves or through accounting-based accrual reserves lodging subsistence and related items incurred by to cover losses on loans accounts and notes receivable the applicant s personnel who are on travel status on made in the applicant s target market or for related business related to the TA grant subject to the applicable purposes that the CDFI Fund deems appropriate. provisions of the Uniform Federal Award Requirements. Capital Reserves FA set aside as reserves to support Professional Services TA used to pay for professional the applicant s ability to leverage other capital for and consultant services rendered by persons who are such purposes as increasing its net assets or serving members of a particular profession or who possess a the financing needs of its target market or for related special skill and are not officers or employees of the purposes that the CDFI Fund deems appropriate. recipient subject to the applicable provisions of the Development Services FA expended for activities that Uniform Federal Award Requirements. Payment for a promote community development and are integral to the consultant s services may not exceed the daily equivalent applicant s provision of financial products and financial of the current maximum rate paid to an Executive services. Such services shall prepare or assist current or Schedule Level IV Federal employee. potential borrowers or investees to utilize the financial Materials Supplies TA used to pay for tangible products or financial services of the applicant. personal property with a per-unit acquisition of less 35 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M than 5 000 subject to the applicable provisions of the Uniform Federal Award Requirements. Equipment and Other Capital Expenditures TA used to pay for tangible personal property having a useful life of more than one year and a per-unit acquisition cost of at least 5 000 subject to the applicable provisions of the Uniform Federal Award Requirements. Examples include office equipment furnishings and information technology equipment and systems. CDFI TAB AWARDS AVAILABLE In addition to the 2 million per year in financial assistance grant funds (more if you re doing a healthy food financing program) the CDFI designation can also open other doors such as a low-cost line of credit through the Federal Home Loan Bank s community development program and the CDFI Bond Guarantee Program. In the next section of our CDFI series we ll review how two credit unions have used their CDFI funds to benefit their members. You ll be amazed at what they did and how they did it which will hopefully spur you to consider a CDFI grant to help your moderate- to low-income members enhance their financial well-being and communities. CDFI grants can be powerful tools to help your credit union position itself as a trusted financial resource for new business. With over two decades of experience in policy development and governance Stacy S Augustine has served as the chief lobbyist and general counsel to the Northwest Credit Union Association where her diplomacy and strategy accomplished what is commonly acknowledged as the most progressive environment for state-chartered credit unions in the United States. Today through her role as President CEO of CU Strategic Planning she counts herself lucky to work with the best and brightest in U.S. and international credit union leadership. Stacy has also been honored with a number of awards over the years for excellence in advocacy communications and professional leadership including CUNA s Desjardins Award the Association Executive of the Year Award and several national American Society of Association Executive awards for excellence in communications and government relations. She brings the leadership recognized by these awards to grant writing and program implementation at CU Strategic Planning. In addition to her real-life experience working with credit unions and credit union associations Stacy received 36 C R E D I T U N I O N B U S I N E S S her Bachelor of Arts degree from Pacific Lutheran University and her Juris Doctorate from the University of Notre Dame Law School. Quick Facts The CDFI Fund has awarded nearly 1.5 billion in financial and technical assistance to certified CDFIs across the country including 157 million in awards to 173 CDFI-certified credit unions. Credit unions make up 243 of the 936 CDFIs (active at the end of 2014 through January 31 2015). Credit unions that receive awards lend more than their similarly sized counterparts over the three years following the award. CDFI s net worth ration is positively correlated with receiving an award. This means that CDFI Fund Awards go toward recapitalizing credit unions as well. The average credit union capital-to-asset ratio is 10.8 percent compared to 9.9 percent for CDFI credit unions. With CDFI certification credit unions are eligible for Financial Assistance or Technical Assistance Awards of up to 2 million per year Deposits from institutions participating in the Bank Enterprise Award Program Participation in the CDFI Fund Community Investment Impact System to measure and demonstrate impact Low-cost lines of credit to promote affordable housing lending through the Federal Home Loan Bank s community development program Other government programs as they become available such as the Community Development Capital Initiative (CDCI) that distributed 70 million in low-cost secondary capital to 48 credit unions in 2010 The CDFI Bond Guarantee Program potentially the largest source of secondary capital ever made available to eligible credit unions The Bureau of Indian Affairs loan guarantee program Regulatory forbearance including exemption from the NCUA s member business lending cap and exemption from Reg. Z s ability to repay rule M A Y 2 0 1 5 C U B U S I N E S S . C O M MORTGAGE TAB LENDING BY JIM DEITCH CEO TERAVERDE TAB Beating Banks at Mortgage Lending Five Ways to Take Market Share from Banks Credit unions are slowly but surely upping their piece of the market share pie but they still have a way to go to catch up with banks. These five tips can help your CU close the gap on the competition. Background According to MBA bank market share fell from 71 percent in 2008 to 55 percent in 2014. Credit union share has increased from four percent to five percent leaving much room to take share. Independent mortgage bankers share increased from 25 percent to 40 percent but independent mortgage bankers cannot compete with many credit union products. The business of mortgage banking has fundamentally changed as banks shy away from any loan they perceive as risky. Credit unions have a fundamental advantage in that they can weigh a member s overall situation carefully and assist members who are good credit risks. For example banks routinely turn down borrowers with the following characteristics Buyer has home to sell back-end ratio too high even with guaranteed sale Self-employed business LOC due within one year back-end ratio too high Self-employed tax returns complex and needs global cash flow underwriting Non-warrantable condo Jumbo fixed rate and hybrid ARM needs with LTV 70 percent Construction-to-perm or rehab loans Income variable due to bonuses trend is down two-year average results in high DTI Trailing spouse income not verifiable Recently graduated doctor attorney etc. income mobility disqualifies due to DTI Credit unions can take the time to evaluate members with these characteristics and often make the loan. Refinancings and in particular Home Affordable Refinance Program loans have run their course as the long-term decline in interest rates has likely ended. This means a majority of borrowers will be seeking to purchase as opposed to refinance a house. There are five ways for a credit union to earn market share from banks 1. Lending personnel should visit Realtors and builders and promote the benefits of credit union membership and in particular how it helps member borrowers. Bring case studies of how the credit union has helped a qualified member buy a home when banks turned him or her down. Examples and case studies often trigger a referral from a builder or Realtor. When the credit union proves it can help the Realtor or builder gains confidence and refers more customers. 2. Point out the credit union advantage of offering portfolio loans jumbo loans no mortgage insurance loans and other products to qualified member borrowers. Credit union management and lenders often underappreciate the credit union s ability to grant a loan to a member when an inflexible bank will not do so. 37 M A Y 2 0 1 5 C U B U S I N E S S . C O M C R E D I T U N I O N B U S I N E S S TAB MORTGAGE LENDING forward Moving toward the future or a more advanced condition. To attract those groups of borrowers previously mentioned as most likely to be turned down by banks make sure to point out that credit union membership is open to a broad range of individuals. This fact is something that many nonmembers may not understand. The mortgage transaction is a perfect introduction to member benefits. 3. Optimize back office processes to provide superior member services. Bank turnaround times often run 45 to 60 days. A credit union can make decisions more quickly especially for portfolio loans Reduce loan processing time by streamlining loan workflow. Use existing member data to reduce the document demands on the member. Reduce underwriting turn times. Consider recruiting loan officers and operations personnel from banks. 4. Many bank employees are frustrated and fed up with bank bureaucracy especially in larger banks. Recruit highquality but frustrated talent to your team. Loan officers often bring good Realtor and builder relationships to the credit union. 5. Banks have been literally beaten over the heads by bank regulators. A benefit for the credit union is compliance knowledge which is very evident in these employees. As a result former bank employees will respond well to a credit union s culture of compliance that is free of the multiple layers of bureaucracy imposed by banks that are fearful of regulator criticism. 6. Credit unions are valued counterparties to Freddie Mac and Fannie Mae. If a credit union is not a direct seller to the GSEs there has not been a better time to become one. Add direct to GSE to the credit union s existing product mix and the combination can be unbeatable. The credit union can retain the servicing to ensure excellent member care. Credit unions can substantially expand mortgage market share and membership by pursuing a strong residential lending strategy NOW James M. Deitch was a cofounder and Managing Director of the American Home Bank division of First National Bank of Chester County. He was the Chief Operating Officer of First National Bank of Chester County and was a member of the boards of directors of First Chester County Corporation and First National Bank of Chester County. Prior to the merger with First National Bank of Chester County on December 31 2008 Mr. Deitch served as Chairman and CEO of American Home Bank N.A. Under Deitch s leadership American Home Bank received multiple recognitions for its growth and expansion including being named as one of the fastest growing private companies in the United States by Inc. Magazine and being recognized as one of the fastest growing banks by both American Banker and the Central Pennsylvania Business Journal. 38 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M TAB ATM BUSINESS BY BEN ALLEN TAB Why Credit Unions Are Fleeing the ATM Business What s up with the mass turnover of credit union ATMs to third-party managers Regulation and compliance along with maintenance are the main drivers behind the exodus. Should your CU outsource its automated teller machines See why some credit unions that have done so think you should. n the past decade hundreds of credit unions have decided to get out of the ATM business. They turned over operation of their ATMs whether they have two or three or dozens of them to third-party management. The ATMs still have the credit unions names on them and members don t really notice any particular difference. But behind the scenes ownership and the operating arrangement have changed. Why is it that so many credit unions have made this change with many more thinking about it right now What is driving their decisions are the burdens of ongoing ATM maintenance and regulatory and compliance concerns and the costs associated with each of those aspects. Maintaining upgrading and stocking ATMs can be a big job especially if machines are older and require more maintenance. It s bad enough for credit unions to have ATM mechanical issues during business hours but when the machines break down in the evenings or on weekends it becomes particularly burdensome to the staff. Compliance is an ongoing concern to ensure the machines are in line with all current government and industry requirements. The recent need to make all machines compliant with the Americans with Disabilities Act was a challenge for many credit unions and often it was the trigger for their decision to outsource the management of their ATMs. The looming requirements for EMV upgrades will similarly challenge credit unions. I Why Make the Change The biggest benefit gained by the credit unions that outsource is a sense of relief that the day-to-day maintenance stocking and other ATM responsibilities are now in the hands of a third party. That yields cost savings because the credit unions staffs are freed up to focus more on member service rather than dealing with ATMs. There is also a future savings since the credit union no longer needs to upgrade or replace ATMs to keep up with regulatory and compliance issues. Those are the responsibilities of the management company. Altier Credit Union of Arizona 39 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M TAB BUSINESS ATM From a member service standpoint if the outsourcing company does its work properly the ATMs will be monitored much more closely than the credit union could have done on its own. That scrutiny minimizes downtime and improves member service as well. Credit Unions Experiences A perfect example is Statewide Federal Credit Union in Mississippi which operated its own ATMs for 25 years and finally decided that the hassles of maintenance updates and compliance just weren t worth it anymore. The last time Statewide FCU replaced its ATMs in order to stay compliant with the requirements of the Americans with Disabilities Act (ADA) the credit union took a chance on buying less-costly refurbished machines. It soon regretted that move. We had lots of problems with those machines General Manager Paul Armstrong says. Service people were out every week. Something was always breaking on them. Weary of the weekly routine of complaints from members and tellers that machines were either broken down or malfunctioning by not dispensing money or a receipt Statewide FCU opted to outsource its ATM management. As part of the deal it got all new ATMs newer and faster machines that improved member service. Outsourcing Armstrong says has eased what had become a major burden of ATM ownership for Statewide FCU. As he explains We expect to save about 5 000 to 6 000 a year plus the savings in employee time and aggravation not to mention member happiness. Now employees don t have to spend a lot of time with the ATM and can do something productive. For Carolina Foothills Federal Credit Union in South Carolina it was the need to change out ATMs for ADA compliance that triggered its decision to outsource. The multiyear agreement began saving money for the credit union right away says President Scott Weaver in addition to offering relief from current and future compliance issues. This is saving us money in several ways. With our outsourcing company handling regulatory changes that represents future costs that we know we won t have to incur. As far as operationally it is a significant savings for them to 40 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M Carolina Foothills Credit Union of South Carolina own and operate the machines. Even though we were earning revenue from the ATMs they were always a net expense for us Weaver says. The issue for Altier Credit Union in Arizona was the time spent by employees managing operations at eight distant offsite ATMs. As David Skilton Senior Vice President and Chief Financial Officer explains the ATMs weren t high-volume machines but they seemed to have high-volume problems and because we were dealing with multiple vendors it often meant we had to go out multiple times. Altier outsourced the management of those offsite machines and saw immediate benefits in employees time. Skilton notes that the staff can focus more on member service and not ATM management. The credit union does maintain its own onpremises ATMs but staff members no longer have to go out to remote sites. Compliance Issues Ahead ADA compliance provided a significant push for credit unions who were considering outsourcing but there are still more compliance issues ahead that are likely to factor into a decision on whether to get out of the ATM business. One of those is the elimination by Microsoft of support for Windows XP last year. Hence software upgrades and security patches are no longer being offered for the older operating system. Credit unions may not be PCI compliant unless their ATMs are upgraded to Windows 7 or unless they take some ATM BUSINESS other action to assure security under Windows XP. The issues and costs involved here vary considerably depending on the age of the ATM. The next major compliance concern is EMV with a deadline of October 2016. The EMV upgrade process is intertwined with Windows 7 upgrades because most ATMs cannot support EMV if they are running Windows 7. Many credit unions are upgrading the EMV hardware on ATMs at the same time they are upgrading to Windows 7. However there will still be significant costs associated with EMV compliance when ATM manufacturers upgrade their specific ATM software and when EFT processors certify the manufacturer s software. Ben Allen is President of Dolphin Debit the full-service ATM management company that works with hundreds of credit unions. Statewide Federal Credit Union of Mississippi 27617_Dolphin_Debit_Ad_C_CUBMagazine_PROD.pdf 1 2 12 15 4 06 PM I ve never felt so up-to-date and compliant. Thank you Dolphin Debit Drive-Up ATM Community Resource CU Outsourcing ATM network management to Dolphin Debit eliminates the capital costs associated with ATM ownership while reducing operating expenses by as much as 30%. Save time and money with Dolphin Debit. Continue the conversation at save 2015 Dolphin Debit 41 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M CU CONTENT BY LAURA ENOCK TAB What Can Print Do in a Digital Age Six Reasons to Include Print Ads in Your Campaigns Is your credit union relying solely on digital advertising If so you could be missing out on a golden opportunity to expand your market. Learn why traditional advertisements including print ads are still relevant today when it comes to securing CUs a better return on investment. igital marketing is fantastic. It s low-cost narrowly targeted and carefully integrated with your ordering system. With digital marketing your members can go from prospect to purchase without putting down their cellphones. Yet online marketing systems are just one weapon in the advertisement arsenal. Just like it s a bad idea to ignore the power of digital advertising it s an equally poor decision to rely on it exclusively. There s still a place for billboards radio spots and yes even print advertisements. Reports of print advertising s demise have been greatly exaggerated. Such ads offer a unique set of advantages to a comprehensive marketing strategy that shouldn t be ignored. Whether you use direct mailers newspaper or magazine ads or leaflets there are ways to expand your market reach. When you re formulating a comprehensive marketing strategy don t forget about the benefits print advertising can offer. The expanded reach bolstered credibility and constant reminders will help boost your name recognition and secure you a better ROI. Here are six benefits of using print advertisement. 1.) Print is tangible. An Internet ad goes away as soon as the user closes the tab. That one exposure is the only chance your ad has to convert an impression to a sale. Even if consumers think about the advertisement later and decide it s a solid investment they may 42 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M D not be able to find their way back to the page where they saw the digital ad or a different one may have rotated into that place even if they do find their way back to it. Print has no such limitations. An ad in a magazine will be there every time the consumer goes back to reading. It will be there when he or she shows other people an article in that magazine. It may keep reaching potential clientele for months. A mailer may have a shorter shelf life but it will at least have a second life in a mail sorter. A print piece s lifespan as a physical object enables it to reach an audience you had no idea existed. 2.) Print is credible. The proliferation of scams on the Internet should aggravate no one so much as the online marketer. Because of those many fraudulent activities the default stance of an Internet consumer is one of skepticism. In the digital Wild West no one is CU CONTENT TAB accountable for the claims he or she makes. The result A whole lot of hype exaggeration and straight-up crime. That same reluctance to believe does not pertain to printed materials. Particularly for older adults direct mail has an unshakeable ring of truth. Savvy consumers may know they re getting marketing materials but they generally also know they aren t being ripped off by a hoax. Having print advertisements postcards or other mailings lends your business the trustworthiness that comes with a physical location. 3.) Print demands attention. Heat mapping studies have shown that digital material is far more likely to be skimmed. Years of information overload have created a much more passive mode of reading. Eyes tend to linger on the top part of an online article and then briefly glance past the left-hand column stopping on the first part of each new paragraph. Your incredible online content might not be making the kind of impression you hope if it s not being read thoroughly. Print media is read more carefully. In fact one recent study found that people read print material 20 to 30 percent more slowly than they read digital screens. That s more time spent with your content absorbing your message. 4.) Print is engaging. In the current digital landscape surfing is a good description of how most people view web content. They idly click around flipping through dozens of articles reading none carefully. Because they re not looking for anything in particular it s easy to make web surfing an entirely passive process. This passivity makes it hard for people to make decisions even in response to well-written digital copy. Reading on the other hand requires handling something. It requires picking up something tangible and manipulating it to find content. No one reading a newspaper ad has ever flipped to the next page to play Angry Birds. They are there to read not just to kill time. This engagement puts people in the mindset of making decisions positioning them as far more likely to respond to an ad. 5.) Print is effective. Despite the image you have in your mind of mail being tossed and print ads being skipped over print advertising generates a remarkable response rate. A recent New York Times survey shows that 79 percent of participants responded to a print ad in some way clipping a coupon visiting a website or making a purchase. Stated another way more than three-quarters of households say they read and react to direct mailers. It s not just reach that matters either. It s who s reached. Thirty-nine percent of consumers say they try a new business in response to print advertising. Digital content is great at building and maintaining a relationship with existing members but for finding new leads print is a valuable asset. 6.) Print can serve as a bridge. With QR technology becoming increasingly available print media can serve as a bridge to higher-converting digital ads. By printing a QR barcode on your print advertisements you can combine digital and print into a unified advertising campaign. This ability allows you to combine the advanced statistics and strong conversion rates of digital advertising with the permanence and credibility of print. The best marketing strategies combine a wide variety of media using consistent branding materials to build a unified image. These broad-spectrum campaigns work best when each media amplifies the other. Properly incorporated print media can play a valuable role in modern advertising. SOURCES http index.php 10-print-marketing-statistics-know http trade-publishers 5-advantages-print-advertising http advantages-print-advertisements-17857.html http sites thesba 2012 06 28 print-is-dead-not-so-fast Did You Know CUcontent is launching a Business Content service in April. Learn more at business. Laura Enock is Founder and Publisher of a credit union-specific content service. Join hundreds of credit unions getting FREE monthly content Email her at laura or visit 44 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 5 C U B U S I N E S S . C O M LIMITED TIME OFFER Introductory Rebate