Sarah Snell Cooke As loan growth continues to blossom in the New Year, hopefully it will not be nipped in the bud by overzealous regulators or lack of leadership. Agility is as important in business as it is in volleyball; the ability to adapt to a changing environment is critical. NCUA Chief Economist John Worth acknowledged that, although the industry overall is showing growth, that excellent news is tempered by the fact that smaller credit unions—the bulk of credit unions—are not growing.

Loans increased 9.6% year to date as of November 2014, according to CUNA, which is great news. University of Iowa Community Credit Union grew more than 19%, and so it stand to reason credit unions exist at the opposite end of the spectrum. While the national median loan-to-share is about 58%, a handful of credit unions are more than 100% loaned out, which means there are credit unions at the other end of the spectrum as well.

However, membership decreased at 54% of credit unions in 2014, which means the credit unions that aren't growing membership are continually going back to pick petals from the same daisy. Eventually those members' borrowing capacities will be tapped and these credit unions may be beyond their opportunity to add new members. When membership growth has never been stronger in recent years, the decline is a strong indicator that something doesn't smell quite right.

Even those credit unions that are busy cultivating a strong loan harvest could feel the twinge of the frosty regulatory environment. The CFPB, for example, is looking at regulations for payday lenders, according to a report in The Wall Street Journal. This is new territory for any regulator, but it is bound by the law of unintended consequences to have an impact on credit unions. No one wants to see consumers taken advantage of, especially credit unions, but what the article suggests might be in the proposal runs counter to why payday loans came to be. So-called consumer advocates, the article reads, would like income verification, ability to repay and credit history incorporated into the approval process, burying the borrower in a pile of regulatory, uh, fertilizer that they were looking to avoid from the start.

These consumer advocates call the loans deceptive because borrowers roll them over multiple times and rack up fees. The consumer groups are blaming the product for borrowers using it. In what world does that make sense? Properly disclosing fees and how they work is important and maybe limiting the number of times the loan can be rolled over. But requiring a credit check and income verification will not only drive even the better payday lenders out of business, but also the desperate borrowers away from the product. And then where do they go—to Joisey cuz their cousin knows a guy? If a borrower could not get a better loan at a financial institution because of poor credit or the time the regs require, the borrower, under these type of regs, now won't get it from a payday lender either. So they end up worm food because they couldn't pay the guy.

Similarly, the CFPB applauded the Department of Defense's new rules to update the Military Lending Act. Part of the proposed updates would keep federal credit unions from making payday alternative loans to service members as currently permitted by the NCUA. Even the NCUA, whose lush field of regulations includes a payday loan alternative rule, was opposed to the DOD proposal and wrote in favor of exempting credit unions. The proposal could also cover deposit advance products, auto title loans, and installment loans, including open-ended lines of credit.

Some expect the CFPB to go after overdrafts in the near term, too. And apparently the CFPB is the aphid of the mortgage industry. The regulator's chest is boldly emblazoned with the scarlet W, as it earned the top spot for causing mortgage lenders worry in 2014 following the implementation of several new mortgage regs in January.

Credit unions with the leadership to handle or sidestep these regulatory landmines, manage employee and member expectations, and advocate for what they need and what's right will find they have raised a vibrant garden that produces bushel baskets full of members, loans and hope, for all of the stakeholders.

That is, if they aren't too viciously pruned and overfertilized by regulators.

Instant Insights /

Let 2015 Be the Year of Seed Sowing

Related Stories

Recommended For You