The Year that Was ... 2012: Print Preview
A week after super storm Sandy slammed into the East Coast, New Jersey Gov. Chris Christie looked ahead to preparations for a nor’easter that was due to dump snow and rain on the already reeling Northeast.
“I’m waiting for the locusts and pestilence next,” said Christie.
Luckily, the nor’easter downed some more trees but was milquetoast compared to Sandy.
Make no mistake about it, 2012 was a year of some welcome industry trends. About half of the nation’s credit unions continued to add to members one year after Bank Transfer Day. The industry claimed an all time high in mortgage origination market share. The automobile industry posted a very strong sales year, and, with that, credit unions are poised to continue growing their auto lending portfolios. And it seemed like every credit union, even small ones, became convinced that mobile banking is an essential member service.
But the year also witnessed calamities, missteps and stumbles–natural, financial, regulatory and self-inflicted.
Sandy blasted its way ashore on Oct. 29, wreaking devastation through the New York tri-state area and leaving millions of homeowners and businesses in the dark for days–some for weeks.
Early estimates said Sandy caused as much as $15 billion in insured losses–possibly making the storm the third costliest in U.S. history. The governors of New Jersey and New York asked for close to $80 billion in federal aid.
Of the 2,000 credit unions located in Sandy's path, 838 were unable to operate, in varying degrees, during the difficult days following the super storm. And it took nearly a full week before most of those credit unions were be back in business to serve their members.
Although New Jersey was the hardest hit state, there were widespread power outages across New Jersey, New York, Connecticut and parts of eastern Pennsylvania. In the aftermath, mobile phone service was spotty and many roads were blocked because of massive flooding, fires, downed trees and downed power lines. Up to 8.5 million homes and business across the Northeast lost power. According to The New York Times, 93 people in the tri-state area lost their lives due to the storm.
For many days after Sandy struck, cash once again became king. Stores that were open were often running on their own generators. But with phone lines, cell towers and telecom networks out of commission, most could not accept credit or debit cards. The smartphone with the mobile app was just a three-ounce hunk of plastic; less valuable than a bag of corn chips.
President Obama, who took a break from campaigning , traveled to New Jersey to assess the damage, comfort victims and pledge federal aid. Gov. Christie was at his side during the entire trip and offered effusive praise of the president and federal relief efforts.
A week later, a major footnote to Obama’s presidential legacy may have been achieved: the Jersey Boys Detente. Hitching a riding aboard Air Force One, Bruce Springsteen was urged by the president to call Gov. Christie. He did and offered his friendship. This after years of public and private snubs by The Boss.
The other disaster that bloomed in New Jersey was political. Any sad sack Democrat who had planned to run against the Republican governor next year was surely distraught.
Of course, this year everything turned political. Several Republican leaders took issue with Gov. Christie for lauding the president. Some said it may have cost Mitt Romney the election.
Since the Obama coalition firmly held together on Nov. 6, delivering a solid 332 electoral vote victory, it is unlikely that Gov. Christie’s hug had much of an impact. Romney ended up with 47% of the popular vote. (Forty-seven percent. Savor the irony.)
In the congressional races, CUNA and NAFCU, racked up near-perfect records of throwing campaign support behind election day winners.
In her victory speech on Nov. 6, Senator-elect Elizabeth Warren (D-Mass.) thanked a list of campaign supporters that included credit unions. She defeated incumbent Republican Sen. Scott Brown, receiving 54% of votes cast.
“Credit unions … yes … love my credit unions,” Warren said.
Dan Egan, president of the Massachusetts Credit Union League, said Warren was extremely gracious in mentioning credit union support and said the league is looking forward to the opportunity to work with her. The league endorsed Warren, drawing criticism from some in the industry thanks to her association with the Consumer Financial Protection Bureau.
So where was the disaster? It was a disastrous end to Romney’s decade-long dream to become president. It was a disaster for Republicans’ ambition to build a majority in the Senate. Sheldon Adelson flushed away millions of his own money. And Karl Rove squandered many millions of other people’s money. Not to mention that primetime meltdown.
Before the election, credit union consultant Marvin Umholtz blasted the Massachusetts League’s July endorsement of Warren for U.S. Senate. He said that nobody who supported the Dodd-Frank Act should receive any credit union support.
After the election, Umholtz was not plagued by sober introspection.
“The election of Elizabeth Warren to the U.S. Senate added to the voting strength of the anti-business, bank-bashing left-most wing of the Democratic Party. That does not bode well for credit unions, community banks or any other mainstream financial services provider.”
He added, “At best, Sen.-elect Warren’s dangerously misguided regulatory interventionism will be a constant annoyance. And at worst she will play an instrumental role in the federal government’s stifling takeover of the financial services marketplace.”
Whether Warren is a clear and present danger remains to be seen. But there are several dark clouds on the horizon for the republic in addition to the pending fiscal cliff. Donald Trump still has a Twitter account. And Rep. Michele Bachmann (R-Min.) was re-elected.
Even before election night was over, pundits labeled it a “status-quo” election. But by early December, it seemed like the status quo had significantly shifted. A group of House tea party Republicans lost their committee assignments. Sen. Jim DeMint (R-S.C.) will soon leave the building. And House Speaker John Boehner (R-Ohio) publicly said he would consider raising tax rates on the affluent.
A calamity of the business lending kind befell Telesis Community Credit Union.
The NCUA announced on April 2 that it had contracted with the $1.3 billion Premier America Credit Union to manage the assets of the $318 million Telesis during Telesis’s conservatorship. Both credit unions are based in Chatsworth, Calif. The NCUA was named conservator of Telesis after the California Department of Financial Institutions took over the credit union March 23.
The California regulator liquidated Telesis June 1 and appointed the NCUA liquidating agent. Premier America purchased and assumed Telesis’ members, deposits, core facilities and consumer loans. The NCUA retained Telesis’ CUSO shares.
For years, Telesis has been on the NCUA’s list of troubled credit unions because of large losses incurred on business loan participations extended outside of California to commercial real estate developments that went sour. Member business lending CUSO Business Partners LLC, founded by Telesis, was sold to new credit union owners in November.
NCUA Chairman Debbie Matz had said that while loan participations are a valuable tool for credit unions to diversify loan portfolios, improve earnings and manage balance sheets, they do have the potential to create systemic risk.
But that didn’t stop her and the NCUA of offering a regulatory proposal that would limit loan participations to a certain percentage of a credit union’s net worth.
In what some saw as a not-so-veiled slap at state regulators, the board said, “FISCUs have consistently reported higher rates of delinquencies and charge-offs on loan participations–which is one reason why the proposal would extend loan participation protections to federally insured state-chartered credit unions.”
“This statement is disturbing,” wrote Credit Union Times Editor-in-Chief Sarah Snell Cooke. “It comes across as the NCUA saying state regulators are not doing their jobs so the NCUA will do it. Following on the heels of North Carolina state CAMEL disclosure and dual exams, I’m detecting a theme.”
And the state vs. federal theme played out again a few weeks later.
The NCUA floated a proposed rule that would require all CUSOs to file financial reports directly with the agency. The regulator also proposed making additional parts of the CUSO rule applicable to federally insured state-chartered credit unions.
In June, the NCUA board delayed the release of its final CUSO rule after questions of its legality arose. Guy Messick, partner at credit union law firm Messick & Lauer, said the NCUA doesn’t have legal vendor authority to regulate credit union service organizations. Others agreed and later in the year, the NCUA put the proposed rule on the back burner.
It was a special moment, and doesn’t speak well of the agency’s reg writers, when outside attorneys are the voice of prudent reason.
This was not the only NCUA misstep in 2012. It stepped into one cow pie after the other throughout the year.
In a highly unusual move of going public, Commodore Perry Federal Credit Union of Oak Harbor, Ohio, told Credit Union Times in September that it had filed an exam appeal with the NCUA Supervisory Review Committee. The credit union alleged that an NCUA examiner harassed employees and retaliated against the credit union after it complained.
The $32 million Commodore Perry FCU elevated its exam appeal after it was denied by Regional Director Herb Yolles in August. Thomas Renz, the credit union’s president and chief development officer, and CEO Mike Barr said the male examiner harassed and bullied employees, particularly female employees.
Credit Union Times identified the examiner as Roger A. Clark through information obtained from the NCUA.
Barr and Renz originally submitted an appeal to Yolles in June, stating that they had the documentation to prove the examiner’s findings were inaccurate. They received a letter that denied the appeal.
So, on Sept. 9, Barr and Renz submitted a 365-page appeal to the Supervisory Review Committee that included documentation they said proves the exam findings were inaccurate.
After an appeal hearing on Nov. 7, Renz, said he expected a decision from the NCUA’s Supervisory Review Committee in December.
On another front, the NCUA again stepped into a states’ rights imbroglio with both feet. The agency proposed a rule that would allow it to declare state-chartered federally insured credit unions in “troubled condition.” That caused some state-chartered credit unions and their regulators to cry foul.
The rule, introduced at the NCUA’s July 24 board meeting, would define a state-chartered federally insured natural person or corporate credit union as troubled if either the state or federal regulator assigns it a CAMEL or CRIS code of 4 or 5 in either the financial risk or risk management categories.
NASCUS President/CEO Mary Martha Fortney said her organization was very concerned about the preemptive nature of the proposed rule.
“Through successive preemptive rule making, NCUA continues to dilute the dual chartering system with little regard for the consequences and implications on the state credit union system. That NCUA proposes to further diminish the role of state agencies in the supervision of FISCUs is troublesome from a broad perspective,” Fortney said.
NCUA Chairman Debbie Matz said, as stewards of the share insurance fund, the regulator needs increased supervision for any credit unions it feels deserves a CAMEL 4 rating.
And once again the floated regulation was consigned to limbo as the agency backed off and offered no move to advance it.
The stench lingered from the NCUA’s insistence on separate state and federal examinations of all North Carolina state-chartered credit unions. Matz said the exams were prompted by the release of state CAMEL ratings by State Employees’ Credit Union of Raleigh, N.C.
About a year after the CAMEL release, SECU CEO Jim Blaine and Matz met up face to face this September at the NASCUS Summit in Denver. During the question and answer session, Blaine asked Matz why she was unwilling to meet with North Carolina league officials and the state credit union regulator to iron out the issues.
Not only did Matz not answer the question, she also said, “I’m not going to acknowledge your question with any comments or a response.”
In late November, the NCUA experienced another Emily Litella “never mind” moment, this time on volunteer reporting requirements.
The NCUA scrapped a proposal that would require credit unions to report the original appointment or election date of directors, a move that observers thought might create bad publicity for those with long-tenured board members. The agency said that during the public comment period, the NCUA realized the industry had concerns about the necessity of the proposed change. And it promptly cleaned off the bottom of its shoes.
In December, Tim Segerson, NCUA deputy director of examination and insurance, said the agency’s proposed rules on emergency liquidity, CUSOs and loan participations were not likely to be finalized until late 2013, if at all next year.
Segerson said that the NCUA had slowed its rulemaking pace to ensure rules are effective, and it has a full appreciation for the cost of implementation.
“We’re going to move very slowly on our rules and if they are finalized in 2013, I can’t guarantee when, but I will tell you we have a lot of homework to do before we will come out with final rules on those,” he said.
Segerson also said he thinks many CFPB rules won’t be finalized until late 2013, with the exception of the final remittance rule, which he said is a few months out.
The CFPB has said it will delay until later in 2013 regulations on additional new mortgage disclosures, on a consumers’ liability for debt payment after foreclosure, and the creditor’s policy for accepting partial payment.
The CFPB said it expects the proposed effective date of the remittance rule will be “sometime during the spring of 2013,” rather than the original Feb. 7, 2013 effective date.
The original rule, industry experts said, would cause many credit unions to stop offering international remittances because the rule exempted from reporting requirements those shops that fewer than 100 remittances a year. Industry executives and trade groups have consistently said that number is far too few.