January gets its name from the Roman god Janus who, because he had eyes on both the front and back of his head, could look both forward and back. In the finest tradition of prognosticators everywhere, this list is my best guess of the most practical questions credit unions will face in the year ahead.
- What will happen to interest rates?
Since the start of the Great Recession, NCUA has been particularly shrill in warning against Interest Rate Risk. I have been critical of the NCUA’s obsession with this issue since it’s a lot like telling mountain climbers to watch their step. It goes without saying that credit unions have to be mindful of interest rates, but there has been no real evidence of an impending spike. While I still think NCUA’s Chicken Little approach does more harm than good, this is the first year in almost a decade that the interest rate environment poses challenges as you look over the horizon.
Most importantly, with the economy consistently growing (even if much of this growth isn’t trickling down to the American worker/consumer) the Federal Reserve will most likely raise interest rates by the middle of this year. Remember the last time investors thought the Fed was going to impact interest rates when Chairman Bernanke suggested in June of 2013 that the Fed was going to scale back its bond buying binge? Between June and September the average rate of a 30 year fixed rate mortgage rose from 3.6 to 4.6, costing the average home buyer more than $200 a month. However, there are several reasons to think that this type of spike won’t happen again, at least not for a sustained period. For one thing, the Fed has signaled for several months now that it plans to raise interest rates, so investors have presumably already considered this in their purchases. In addition, there is still plenty of room for the economy to grow without inflation becoming a predominant concern. Finally, unlike the mid-seventies, the economy isn’t getting squeezed by high gas and oil prices.
- Are you ready for the new closing timeline?
The single dumbest Dodd-Frank mandate takes effect this August. With certain limited exceptions, homebuyers will have to receive closing disclosures at least three business days before a loan is consummated. The CFPB is dead serious about this proposal, which means that it’s time to have a come-to-Jesus meeting with your attorneys. Gone are the days when the attorney could hand out the necessary disclosures at the closing table. Don’t assume that your attorneys know about this change, or expect anyone to take the new timeline all that seriously. Unless you plan now for strict compliance with the three-day disclosure rule, brace yourself for conversations with justifiably irate purchasers who really don’t care that you won’t let them close on their new house because you are complying with CFPB regulations. Every time I think about this provision, I seriously wonder if anyone in the CFPB has ever bought a house. That being said, the regulation is going to take effect and I would use the next several months to get everyone on the same page.
- Should you take the EMV plunge?
Starting in October, Visa and MasterCard will be shifting liability for unauthorized debit and credit transactions from card issuers to merchants whenever an issuer uses EMV debit and credit cards and the merchant does not. October isn’t it is far away as it sounds. I attended a conference on this subject not too long ago and you should assume that it will take several months to convert to EMV cards, especially since there may very well be a last second rush.
There is no requirement that you make the switch and there are good arguments on both sides. For example, right now as the issuer you already bear most costs related to unauthorized debit and credit transactions. If you don’t have a problem with in-person data theft, making the switch to EMV may not be worth it. In addition, EMV technology is more than two decades old and by no means represents a failsafe means to protect against breaches. You could also stagger your conversions by, for example, converting your credit cards to EMV first.
Conversely, don’t think that hackers aren’t going to go after the most vulnerable institutions just because they are small. For what it’s worth, my guess is that in a post-Sony world, all institutions are going to be expected to adopt baseline technology protections regardless of size.
- How are you dealing with that disgruntled employee?
In my daily blog (a shameless plug), I highlighted a recent decision by the NLRB which gives employees a presumptive right to use company email to complain about workplace conditions provided they are emailing on personal time, such as their lunch hour. (Purple Commc’ns, Inc. & Commc’ns Workers of Am., Afl-Cio, 361 NLRB No. 126 (Dec. 11, 2014).
This decision affects your workplace whether or not you are unionized. It means, for example, that you have to change your policy with regard to the use of email in the workplace. It also means that you have to think twice before terminating the employee who has used company email to complain about his workplace with fellow employees. These employees may actually be engaging in protected concerted activities rather than simply badmouthing their employer.
- How binding is regulatory “guidance?”
It’s a Friday afternoon, and as you sift through your in-box you come across guidance from NCUA or maybe from FINCEN. You already have implemented and invested in complying with a host of regulations, so you ask yourself “how seriously should I take this guidance? Is it as binding on my credit union as a regulation finalized by the CFPB or the NCUA?” You are not the only one who has been asking these questions. By the end of this term, the Supreme Court will decide several cases dealing with several aspects of the Administrative Procedures Act. One case worth paying particular attention to is Perez v. Mortgage Bankers Association, No. 13-1041, 134 S. Ct. 2820 (2014). This case involves the use of an administrative opinion by the Department of Labor to rule that mortgage loan originators are non- exempt employees who should get overtime. The case is important to you even if you don’t do mortgages because the Court will decide at what point an agency’s administrative interpretation has effectively become a rule that can only be changed through the regulatory process by issuing a proposed regulation replete with a comment period.
- Are you ready for your Sony examination?
I don’t know what it says about the American public that it didn’t realize cyber hacking represented a direct and substantial threat to the United States and its corporations until North Korea pointed this out to us. To be fair, a November 3rd “statement”” from the FFEIC makes clear regulators have grown increasingly concerned about the cyber vulnerabilities of all institutions regardless of their size. The thing is that now that the American public has a firsthand example of just how dangerous these attacks can be, expect your examiners to be much more vigilant about scrutinizing the steps your credit union takes to guard against data theft and hacks.
- How much will events outside of the U.S. shape the U.S. economy?
There is plenty going on in the world that could put a wrench in our nation’s economic recovery. The most immediate such curve ball is coming from Greece. On January 26, the Greeks will be holding parliamentary elections after they were unable to choose a President. The Greeks have been suffering through a Depression for several years now, even as they continue to raise taxes and cut spending in return for a European lifeline. Opinion polls suggest that they may choose to put a left leaning party, Syriza, in charge. This party has pledged to put a break on the austerity measures and, in a worse-case scenario, its election could cause a modern day international bank run. Remember that our Founding Fathers were smart enough to back up our national debt with the full faith and credit of the U.S. Treasury, but no similar commitment has yet been made by the E.U. in general, or Germany in particular. This is why other European countries with debt problems such as Italy and Spain already are seeing their borrowing costs skyrocket. At the very least, all this uncertainty is likely to keep downward pressure on bond yields and further slow Europe’s climb out of the economic slog it has been in since 2008.