Winter 2011

SurprisingBeginnings:

3 CEOs share their credit union’s road to success

SurprisingBeginnings:

3 CEOs share their credit union’s road to success

ContentsWinner of the CUNA Marketing & BusinessDevelopment Council's 2007 Diamond Award.

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Texas Credit Union League

EDITORIALManaging Editor

Linda Webb-MañonContributing Writers

Alex SchitterBarri HamiltonKaren Houston

Kim JonesSusan Looney

Suzanne Yashewski

ADVERTISINGAdvertising Sales Director

& Account ExecutiveTracy Florida

BUSINESSChief Operations Officer

Bob GallmanSubscription Coordinator

Linda Webb-Mañon

HOW TO REACH US4455 LBJ Freeway, Suite 1100

Farmers Branch, TX 75244-5998e-mail: lwebb-manon@tcul.coop

Web site: www.tcul.coop

Main Office: (469) 385-6400(800) 442-5762, Ext. 6400

Editorial: (469) 385-6486Advertising Sales: (469) 385-6424

Advertising Design: (469) 385-6473Subscriptions: (469) 385-6486

Letters to the Editor: lwebb-manon@tcul.coop

LoneStar Perspectives is a quarterly publication of the Texas Credit Union League (TCUL) and is offered to TCUL–affiliated credit unions as a dues-supported service. If you are not an employee or volunteer of a League- affiliated credit union and would like to sub scribe to this publication, an annual subscription rate of $20 is available. LoneStar Perspectives is a trade-mark used herein under license. Copyright 2006 by Texas Credit Union League. All rights reserved.

WES Publishing310 East Interstate 30, Ste. B107

Garland, TX 75043469-429-9300

PublisherWilliam Strunk

Associate PublisherSaundra S. Brown

Graphic DesignerMarlina Rahman

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FEATURE

17 Growth Next Exit by Linda Webb-Mañon

DEPARTMENTS

2 President’s Message Build a Stronger Texas, by Dick Ensweiler

3 Chairman’s Forum Yesterday, Today & Tomorrow…, by Pamela Stephens

5 News CEOs Share Advice on Growth in an Uncertain Economy CU Grassroots will Make the Difference…, by Bill Cheney

10 Professional Development Be the Driver of Your Own Success, by Tonya Farmer Boost Sales Results with e-mail Marketing, by Shellye Schmorleitz

13 Regulatory & Compliance Hot Issues for 2011, by Steve Gibbs CU Repossessions – A Wake-up Call, by Mike Blalack 23 Philosophy in Action ‘Back in the Day’, by Dean Borland Putting ‘Unity’ in Community, by Alex Schitter 26 HR Corner Keeping Uemployment Tax Rate Down, by Susan Looney HR Q&A, by Kim Jones 29 Small Credit Unions Regulation and the Smaller CU…, by Dennis Dollar

31 Products & Services Poise Yourself for the Future…, by Chad Stanislav

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Build A Stronger Texas

For more than 75 years, Texas credit unions have made a dif-ference for Texas families. Your commitment and persever-ance have helped the more than seven million members in our lone star state achieve greater financial stability.

Your existence builds a stronger Texas.

In looking toward the future, it’s important that we keep our members in focus. We exist to serve our current members, and also future generations of Texans.

I’ve said this before, and I’ll say it again, now is not the time to be looking in the rear view mirror. To push our movement forward, we must focus on the future.

Your League board of directors is focused on the future. They are innovators; forward-thinkers. Under their direction, our strategic plan for the coming years was built on three broad principles:

SustainabilityCorporate greed and government bailouts have caused

many Texans to give their bank the boot. With locally owned credit unions, consumers have found financial insti-tutions that care more about people and less about profit.

Of course being a financial cooperative in itself is not enough to motivate Texans to join and become loyal credit union members.

More than seven million Texans hold accounts in our 550 plus credit unions, but we know that in order to sustain and grow our movement, we must continue to expand our membership, as well as increase our product and service penetration with existing members.

At the League, we are continuously researching new ways to help you be more effective in:

• growing your membership; • dealing with complex regulatory and

legislative issues;• reducing expenses, while maximizing operational

efficiencies;• keeping pace with the rapidly changing market

space, and• so much more.

AdaptabilityHow can we remain relevant as a financial institution

in a rapidly changing market space? Part of the answer lies in our ability to adapt and respond appropriately.

For example, we are all well aware of the demographic transformation that is happening in our state, and nation. And appealing to this market in a meaningful way is critical to our future success. Your League has developed programs like REAL Solutions and Juntos Avanzamos, or “Together we Advance,” to empower credit unions with the tools and resources they need to be successful in reaching the untapped markets that include Hispanics, minorities, young people, moderate income earners, and others.

CollaborationMy previous report focused on collaboration but

I would like to emphasize a point made in that report: collaboration is vital for business growth. This year, as well as in the years ahead, you will see your League expanding our collaborative efforts.

In closing I would like to say I firmly believe credit unions have the power to affect positive change in the lives of their members and community, and I can assure you your League is committed to leading the way.

PresidentMessageBy Dick Ensweiller

President/CEOTexas Credit Union League

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By Pamela StephensPresident and CEO

Security One FCU

If 2009 was the “official” end to the worst financial crisis in recent history and 2010 was all about returning to a more stable economy, then I propose that in 2011 we should set out to capitalize on the impact our movement can have on today’s consumers!

Was 2010 a good year for the movement as a whole? Of course not! We dealt with the increased cost of corporate stabilization and as of this writing we are awaiting a restructuring plan for Southwest Corporate FCU. Was it a good year to gather our strength and solidify our reputation as a viable financial alternative? There is no doubt the answer is yes.

As we move into 2011, I hope that we choose not to dwell on past problems. Rather, we should use the lessons learned and work toward shaping solutions that will improve our industry as a whole.

Credit Unions are the best solutions for consumers and we should not lose focus on that important fact. We must look past the challenges of today in order to plan for the future. As we move forward, the League continues to search for ways to help us make the future better.

These are exciting times and I look forward to what we will accomplish together.

Yesterday, Today and Tomorrow…

Chairman'sForum

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D espite current market conditions, credit unions – by remaining focused on their members and adhering to the cooperative principles that have made our movement what it is today – have overall remained healthy and well-capitalized. While many for-profit banks struggle to stay out of the red, credit unions continue to grow in membership and assets.

Below, two credit unions share their growth strategies:

Bill WadeCEOSuntide FCU

Question: What has been your credit union’s secret?Answer: We really don’t have a secret. I joined the credit union as CEO in the last quarter of 2007. My first goal was to go through everything (policies, procedures, etc.) and remove all the roadblocks to Suntide’s success.

Question: Market penetration, product development and membership diversification are just a few strategies companies often use to grow and expand. What strategies has Suntide deployed to secure growth? Answer: After removing the roadblocks, the next thing we did was to tell our loan offers to make every good loan they could - regardless of credit score.

We also found that our office was inconvenient to the families of our members, so we added two branches in areas where they lived. This brought in a lot of family member business. It took some time to get members used to the idea that Suntide was in the lending business, but once it got rolling, the loan demand started to build.

Then the economy fell on its face.We did worry somewhat, but fortunately the demand

we had built held up fairly well. Then others started getting out of the auto business to a great degree, and dealers started looking for financing for their customers. We welcomed the business, and since we had built the relationship with the dealers, they kept sending business our way.

I want to emphasize that we do not do indirect lending, so each new member must come in and join, then apply for the loan and be considered. But we find that building the

relationship with the member is very important in reducing future losses.

As we were focused on growing our loan portfolio, we also built a strong collections department, and of course a top-notch loan department of highly experienced lenders.

Question: Clearly a great deal of attention was placed on market penetration, but did the credit union also find it necessary to develop any new products to secure growth? Answer: We really have not added new products, as we feel we have not maximized the ones we already have.

Question: How are you managing responsible growth? Or more specifically, how do you balance meeting the needs of members and protecting the credit union’s bottom line?Answer: Our growth is managed by allowing share growth to match loan growth. In other words, we keep rates so that we only bring in as much in shares as we can lend out. Keeping our loan to share ratio as high as possible has ensured good earnings and net worth growth.

Each day I review loan growth, share growth, net worth, loan-to-share ratio, delinquency, and a few other metrics. Monthly I calculate the return on loans by risk tier after cost of funds and loan losses. I also graph the change in tiers and the entire loan portfolio to see we are not changing in an unforeseen direction. I also review the loan portfolio by collateral type so I can see if there are risks not found in the tier analysis.

Our members’ needs are being met very well, according to the ROM ratio which calculated the return to members, or financial value of membership. Since our loan demand is high, we pay above market rates on CDs to fund future lending, and through our loan philosophy we are meeting the needs of members who are coming to us for loans.

Question: What are tips you can offer other credit unions to help them secure growth in an uncertain economy?Answer:

a. Like a football team, when things get tough, stick to your basic game, loans and shares.b. Don’t listen to those who tell you to stop doing what is your strength.c. Focus on your member, not on the pundits. You’re running a credit union, not a

political campaign.

News

CEOs Share Advice on Growth in an Uncertain Economy

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d. Half of what you read will be wrong, if you don’t know which half, why react to it at all?e. What works for the billion dollar club likely will

not work for you. So don’t try it.

Key Stats for Suntide FCUNet Worth 9.78% Target 10%Total Assets 46.5M Growth 24.1% (12 months)Loans 40.1M Growth 35% (12 months)Delinquencies 0.94% Target 1 -2%Charge Offs 0.63% Target >1%ROAA 2.25%Loan to Share 98.7%Gross Income Growth 43% (12 Months)Net Income Growth 62% (12 Months)

Robert N. BuckPresident/CEORed River FCU

Question: What has been your credit union’s secret?Answer: We know that doing business based on doing what’s right is a good way to be successful. Our official operating philosophy is that “we will always do right by our member-owners.” As long as we remember how important that is, a lot of things will fall into place.

Question: Market penetration, product development and membership diversification are just a few strategies companies often use to grow and expand. What strategies has Red River deployed to secure growth?Answer: One strategy in our business plan is to develop products and services which are attractive to a very tech-savvy, mobile crowd. Not only does that help us target young adults and earn their business before their borrowing years, it positions us favorably even among much larger financial institutions. We know that to compete for business we have to be on the lookout for new and convenient ways to bring our products and services to our members.

Each time we offer a new product or service we turn to our members for input. We listen to compliments and complaints about how they perceive our offerings, and based on that feedback, modify what we do.

Question: How are you managing responsible growth? Or more specifically, how do you balance meeting the needs of members and protecting the credit union’s bottom line?

Answer: Our mission statement says that “we exist to serve the financial needs of our member-owners.” It’s not complicated if you put their needs first. We have done a lot to select, retain, and train employees to handle the influx of new members and support the delivery of new products and services. Furthermore, the management team and the board of directors have been careful to study each of the changes and expansions BEFORE implementation. We’ve taken a measured approach to change. And we have capitalized on whatever good publicity has been generated about us through membership surveys, employee surveys, and industry-specific surveys.

Question: What is the most important lesson you have learned in leading an organization through an economic recession?Answer: We have worked hard to read the signs of the recession and stay ahead of our member’s needs. They depend on us for stability in unstable times and it’s our obligation to provide them that regardless of the market. Being financially sound comes from decades of decisions, in both good and bad economic swings.

Question: What are tips you can offer other credit unions to help them secure growth in an uncertain economy?Answer:

a. Be ready to adapt based on your members’ needs. They will tell you how to survive and grow if you listen.b. Consider concentrating your efforts on a few key niches you can fill very well, postponing broader goals which may become a drain during downturns. Be patient.c. Keep your staff happy and they will keep your members happy. Make cuts elsewhere before you cut employee programs.d. Keep your message in front of consumers. Many people move their business because of financial uncertainty and you want them to think of you first. Now is definitely not the time to cut your advertising.e. Be conservative and prudent in your decision making, but don’t be afraid to grow. No matter the climate, there is a certain amount of risk associated with growing your business. Take well thought out, calculated chances and you’ll often be rewarded.

Key Stats for Red River FCUAssets: $527 Million Capital 9.2%Loan/Share 70% Delinquency .39% Members 62,000

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NewsBy Bill Cheney

President and CEOCredit Union National Association

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CU Grassroots Will Make the Difference in Washington's

Reshaped Political Landscape o you want that first meeting to be with lobbyists, or with the grassroots that helped get you elected?” That’s Mark Meckler, national coordinator for the Tea Party Patriots, as quoted in a Wall Street Journal story on his group’s efforts to set up early meetings with newly elected freshmen members of Congress.

The Tea Party’s outsized impact was a major story of this past election, of course. But even beyond the Tea Party, Meckler’s comment encapsulates the mindset of the 112th Congress gaveling into session this month. This year’s historic freshmen class holds a decidedly anti-Washington view. Even more than its predecessors, this Congress will be highly attuned to “the grassroots that helped get you elected.”

For the credit union movement—well known for its members’ grassroots passion and activism—this environment presents real opportunity. At CUNA, we’ve spent the weeks since the election evaluating the reshaped political landscape and are primed to move forward with a strategy that will achieve legislative results for credit unions. I believe CUNA and the leagues are aligned with a plan to win.

But success will hinge on the level of involvement of you, our grassroots.

Before elaborating, I want to emphasize that the credit union movement enters this legislative year well positioned following the 2010 elections. Despite the loss of longtime champion Rep. Paul Kanjorski (D-PA) and some other friends, credit unions fared very well overall.

CUNA and league support, as defined by donations from CULAC, extended to 358 House candidates and 31 Senate candidates, meaning we backed a pro-credit union candidate in 82 percent of the seats up in Congress. In the Senate, 27 of our candidates won and just four lost. In the House, more than 300 CULAC-backed candidates won election.

In all, 87 percent of the candidates that received CULAC support won. Those results are outstanding in a year of political upheaval and a tribute to the work of CUNA’s political affairs team, the state leagues and individual credit unions. We begin the legislative year with many friendly faces on Capitol Hill. Still, their support does not ensure they know enough about credit unions. Educating the more than 100 newcomers, even our friends, must be our early priority.

They need to know how we differ from banks, the many ways we improve the financial well-being of our members, how they can help us grow by enacting capital reform, and why a federal tax exemption for credit unions remains good public policy even as Congress seeks to raise revenue and narrow the federal deficit.

CUNA’s Governmental Affairs Conference in late February presents an opportunity just as Congress is gearing up to educate legislators about these credit union basics. I urge you to attend. With this Congress, especially, we need the GAC to be a powerful show of grassroots strength. We will do the same during year-round Hike the Hill visits in Washington.

But in this Congress, we must really ratchet up our political and grassroots activity at home. Here are several important actions you can take:

• MakeregularvisitstoyourmemberofCongress’districtoffice. I realize this is not new for credit unions, but in today’s political environment, it is more important than ever. Even in this social media age, constituent visits are still the most influential form of personal communication, and legislators are apt to spend more time with you during home district visits.

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• Respondwhencalledbyyourleaguetowriteoremail.While nothing tops in-person visits, lawmakers still take note of authentic, personal email and written communication. As one Republican senator commented: “People should understand mail matters more than most constituents’ think it does.”

• Participateinleague-organizedgrassrootsandpoliticalactivitiesat-home. This year we will be doing more at the district level, such as organizing town hall meetings comprised exclusively of people from credit unions and

bolstering our network of “key contacts” (those in our industry with a personal connections to lawmakers).

• Mobilize your members when needed. We’ve asked you to do so before on issues like debit interchange, and we’ve seen large numbers respond. But the results, frankly, have been uneven—strong in some areas, tepid to nonexistent in others. We need a strong outpouring across the board, especially as banks have become savvier about engaging their board members and employees.

• Consider engaging in direct member politicalcommunication. I know some credit unions feel hesitant to contact members with material urging support for a political candidate. But our research shows a large majority of members trust their credit union on such matters, and, of course, our support is not partisan - it is based solely on the candidate’s support for credit unions. We’ll have a session on this topic at our GAC where you can learn more.

At CUNA, we are your national advocates in Washington. We and the leagues are developing the strategy, but we cannot implement it solely on our own. No one can tell the credit union story to legislators better than you. In a Congress that is hyper-attuned to the grassroots, your involvement in our political programs is not only desirable, it is essential.

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YBe the Driver of Your Own Success

By Tonya FarmerVice President of

Training & EventsTexas Credit Union LeagueProfessionalDevelopment

our professional development is in your hands and though it may be a cliché, your educational journey is one that starts at childhood and ends only when you decide it should. The irony behind this statement, however, is just how little a choice you had in taking those steps to further your academic career as a child and how much freedom you have as an adult to continue or close the book on professional development.

Growing up, your parents more than likely enrolled you in a school system based on your proximity to the nearby facilities. Your classes were decided for you and even as you progressed through junior high and high school, the freedom you had in determining how to enrich your education was still limited by an overriding academic plan that mapped you out on the path to success. Even in college, freedoms were doled out in the selection of majors but required classes and specific tasks still had to be met.

About the only freedom afforded was in picking whichever books you wanted to read from the local or school library. And though professional development has been the subject of countless books lining the shelves of experts around the country, there is no guaranteed plan of success that applies to everyone, ensuring that choices are more important than ever.

In your life you can choose to learn about any subject you can imagine or you can choose to shut your books tight and place them on the shelf, perhaps for a later date or perhaps because you’re empowered with the knowledge you need.

It’s these freedoms and choices that have allowed TCUL the chance to provide several opportunities for credit unions on any asset level and in any location to continue their educational fulfillment when they choose.

Whether it's developing your frontline staff to instinctively know their members’ needs when they walk through the door of your institution, cultivating your online presence to better reach your younger members, fortifying your security efforts or countless other essential topics found within today’s financial environment, TCUL can direct you to experts ready to provide you with the knowledge you need.

But everyone learns differently, and just as those books on the shelf might apply better to one individual than another, there are a variety of educational options your credit union may consider from TCUL:

• StatewideConferences – every year, TCUL holds “The Big Five,” five conferences of different sizes and subject matter across the state that provide some of the most-renowned international names

and speakers on subjects for our attendees to learn from. From chapter leaders to marketing and business development professionals, one of TCUL’s acclaimed conferences is all but guaranteed to make its way to your corner of the state through the year.

• On-locationSeminarsandDemonstrations – as the economy changes, so too do the needs and concerns of the credit unions, enabling TCUL the chance to bring timely all-day presentations ranging from home equity lending reviews to security compliance into the offices of credit unions or local establishments looking to host the event.

• Electronic Webinars – locations for learning may not always be the most convenient and setting aside the requisite time needed for specific educational opportunities can be easier said than done. For these reasons, TCUL offers an impressive slate of webinars and webcasts throughout the year that participants may access from the comfort of their own offices, often at the times that work best for them.

The important thing to remember whether you’re cracking open an informational book, firing up your laptop for an afternoon lecture or settling in your seat for a presentation to hundreds is that only you determine the outcome of your educational journey. But as long as credit unions are striving to continue down that path of professional development, TCUL will be there for every step of the way.

No matter how the book ends, one conclusion needs to be reached, no matter the subject, lesson or author: be the driver of your own success.

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Boost Sales Results with e-mail Marketing

By Shellye SchmorleitzMarketing DirectorMetro Medical CUProfessionalDevelopment

tarting an email marketing program from scratch can be a daunting experience, even for the most seasoned marketing professional. According to a fun website called email-Marketing-Reports (www.email-marketing-reports.com), 247 billion emails are sent every day. That’s one email every 0.00000035 seconds. And in the time it takes to read you this sentence, some 20 million emails entered cyberspace. Kind of gives you a new appreciation for the size and scope of this advertising medium.

At Metro Medical CU in Dallas, we sent our first email blast in May and haven’t looked back. Promoting our loan products via email, while attaching links to our online loan application, has increased our number of new loans by about 20 percent, thanks in part to very attractive rates on all our loan products, and in part to the dramatic reduction in decision turnaround time.

It has been a learning process, but the lessons have been profitable! We discovered that, while it was tempting to use an email service, such as Constant Contact, with a little work, we could send the emails from our own server and save a lot of money.

Our next step was to set up a new email address just for email marketing purposes. An example might be,

news@yourcreditunion’sname.com, or info@yourcredit-union’sname.com.

Don’t use your marketing person or another staff ’s email address – you don’t want hundreds of bounce-back emails filling up their inbox!

Then it was time to compile our members’ email addresses. Since we collect that information when new members are enrolled, we were able to pull a report from our data processing system that lists email addresses. That report was then exported into an excel spreadsheet and condensed to include only members’ names, account numbers and email address. We use this report to merge email addresses to send marketing emails.

We set up a second email list for our staff, to send out an advance copy of marketing emails prior to sending them out to the membership. You always want your staff, from tellers on up to senior management, to get marketing emails FIRST. Don’t include account numbers on this list.

We then created a template for the emails for consistency, so our members would quickly recognize the message as one from their credit union. We use photography, color and graphics for visual interest. CUNA’s “Compliance and Marketing Guide” was really helpful in learning specifics on the do’s and don’ts of sending commercial emails. Many of NCUA’s requirements for traditional advertising, such as the placement of logos and disclosures, apply to email marketing as well.

Be sure to offer members a way to unsubscribe to your marketing email list. You can set it up through your credit union’s website, or simply put a sentence at the bottom of your email that reads, “To unsubscribe, please reply to this email and put the words ‘unsubscribe’ in the subject line.” Going this route means you’ll have to check your marketing email inbox more often, especially right after you send an email blast, but it might be less trouble than setting up another page on the website. When you receive an unsubscribe request, simply go into your excel spreadsheet and delete that address. Having the member’s name and account number in the spreadsheet makes it easier to locate.

Finally, mentally prepare yourself to make lots of corrections and updates to your email addresses. You will probably always get a few bounce-back emails, no matter how much you fine-tune your spreadsheet. E-mail marketing is a great addition to any marketing campaign and can increase your results without taking a bite out of your marketing budget!

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UHot Issues for 2011

By Steve GibbsAssistant Vice President

Shared Compliance ResourcesRegulatory&Compliance

nprecedented regulatory changes occurred during 2010, in 2011, there does not appear to be any abatement in the onslaught of new regulations, laws and statutes. Everything from lending to communications has seen supervisory interest.

Dodd–Frank Financial Regulatory Reform ActProbably the most significant regulatory enactment of

the last 30 years, Dodd-Frank left no stone unturned when it came to financial markets and the industry.

Several major areas of particular interest to credit unions will be introduced or impacted by this sweeping legislation:

Consumer Financial Protection Bureau (CFPB)Created to further protect the consumer from the

ever-increasingly complex world of finance and related institutions, this adds another layer to the already confusing maze of supervisory and regulatory functions. President Obama has already appointed consumer advocate Elizabeth Warren to run this area, one of the primary mandates of Dodd-Frank. Most credit unions have assumed that this new agency will have little effect on operations; however, we need to remember the far-reaching powers to be exercised by this group. Chiefly, the CFPB may take part in examinations for purposes of requesting and collecting information. This could possibly lengthen some examinations as well as create the need to research and produce more paperwork.

Although still in the fact-finding stage, this group will eventually have authority to make new regulations as well as interpreting and supplementing those already in existence. The Federal Reserve has turned over virtually all consumer-related regulations to the CFPB, which will be headquartered at the Federal Reserve. Other areas of review by the Federal Reserve and CFPB include:

Regulation Z

Whereas 2009 saw a redefinition of open-end lending, the Federal Reserve and CFPB will be reviewing closed-end lending in 2011. Other major areas to be subject to changes include (but not limited to):

• Further changes in the HMDA disclosure;• Residential mortgage loan origination standards;• Prohibition on steering incentives;• Classification of “qualified mortgages” relating

to securities;• Increased disclosure for ARMs;

• Definition and handling of “high-cost” mortgages;

• Appraisal activities; and• Mortgage servicing procedures.

Reg. CC – Expedited Funds Availability ActIn 2009 and 2010, we saw a simplification of the Act in

which the Federal Reserve localized (in most cases) checks and eliminated the “non-local” status. Compliance officers who recently rewrote the Funds Availability Policy should prepare to go “back to the drawing board” as there will be additional changes in 2011. Already known is the increase in up-front cash allowed to depositors for delayed checks. The original $100 afforded these depositors will be changed to $200, with the possibility of further increases based upon a national index. The Federal Reserve has also announced that the Regulation will be reviewed during the year for updates and potential changes.

In addition to Dodd-Frank, items impacting 2011 will include:Open vs. Closed-End Lending

Changes resulting from the Credit CARD Act opened controversy in whether credit unions would continue to offer open-end loans. Increased scrutiny by examiners, in the coming year, will force many credit unions to reexamine their lending policies and procedures as to which area is more reflective of that credit union’s overall business philosophy and strategic plan.

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Concentration RiskThe recent losses suffered within the industry due to poorly-

underwritten mortgages loans contained within mortgage-backed securities has reanimated a fear first raised by the failure of savings and loan associations during the 1980s: significant concentration of assets and related risk. Examiners will undoubtedly be looking for these areas of risk, whether they lie in mortgages, indirect lending, member business loans or any major grouping of asset types or underlying related characteristics (e.g., risk categories).

Secure and Fair Enforcement (SAFE) Mortgage Licensing Act

Intended to reduce mortgage lending abuses, the Act has been slow in materializing. Credit unions should already have a policy in place even though the registry of mortgage loan officers has yet to be made public. Industry speculation is that the national registry will be accessible within the first quarter of 2011, allowing institutions a six-month window in which to register appropriate mortgage lending professionals.

Fair Lending Risk AssessmentBanking agencies have already been checking this area for a

significant amount of time. Credit unions should prepare for this

review which takes into account lending policies and procedures, approvals, denials as well as the underlying reasons for such. An analysis of the various areas of risk should be prepared including mitigating factors.

Vendor Due DiligenceAlthough a significant subject since 2008, the next year will

not lessen the impact of this function. Regulators are increasingly evaluating management actions based upon the sophistication and complexity of due diligence policies and procedures. More emphasis will be concentrated on the depth and analysis included in the information maintained.

Social Media and Online NetworkingFacebook and Twitter have become a part of credit union

jargon and as such, have opened the door to new regulatory risks and requirements. Credit unions using these vehicles of social media will find the need to address them in specific policy as regulators become more aware of their potential impact on operations. Even credit unions that have not embraced these new modes of communication will need to consider their impact and address the resulting risks.

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Credit Union Repossessions - a Wake-up Call!

By Mike BlalackAttorney at Law

Blalack & Williams PCRegulatory&Compliance

n these difficult economic times, it is an unfortunate reality that more and more credit unions are finding it necessary to repossess vehicles from members who have defaulted on their loans. If asked, most collection managers would confidently state that “we’ve been repossessing and selling repossessed cars for years – sure we know what we are doing.”

Navy FCU probably felt the same way, but a settlement announced recently should cause every credit union to re-examine their internal policies and procedures for handling and processing repossessions.

The cause for this concern stems from the fact that Navy FCU has agreed to a multi-million dollar class action settlement in a federal court in Baltimore to settle and resolve a lawsuit in which it was alleged that the credit union’s repossession procedures and notices over the past four years had not been in compliance with applicable law. The focus of the lawsuit filed against Navy FCU over its repossession practices centered on the fact that the credit union was using an incorrect post-repossession notice letter as required under Section 9.614 of the UCC.

Specifically, in the class action lawsuit filed against the credit union, the Plaintiffs claimed that Navy FCU sent a post-repossession notice of sale letter which failed to properly disclose a number of important member rights required by the Uniform Commercial Code including:

1. The method of intended disposition;2. The member’s entitlement to an accounting of any

unpaid indebtedness;3. The member’s entitlement to know the charge, if

any, for any such accounting;4. The time and place of a public disposition or the

time after which any other disposition was to be made; and

5. The correct redemption deadline.As a result, it was therefore alleged that the credit

union had unlawfully collected or attempted to collect deficiency balances from members who had been issued defective post-repossession notices of sale.

With regard to this notice of sale which is required to be sent to a borrower following the repossession of collateral, a notification that lacks any of the required information set forth in Section 9.614 is insufficient as a matter of law under the UCC.

Under the UCC, among other remedies, Section 9.625 provides that if a credit union fails to comply with the Section 9.614 statutory requirements for notice prior to disposition of the collateral, the debtor may recover from

the credit union a penalty in an amount not less than the credit service charge plus 10 percent of the principal amount of the debt. In addition, as an added penalty in Texas, a credit union is also absolutely barred from collecting any deficiency balance if the credit union as the secured party fails to comply with the requirements of the UCC.

Beyond the Section 9.614 issues described above, Section 9.623 of the UCC provides that a borrower may redeem a vehicle any time before the secured party has disposed of the vehicle. It was also alleged that Navy FCU’s notice of sale further violated the UCC by improperly limiting the redemption deadline to a date certain and representing that the redemption period was limited to ten (10) days from the date of notification.

A large publicized settlement like the Navy FCU settlement is likely to cause increased scrutiny by consumer lawyers on all the repossession practices, procedures, notices and forms utilized by credit unions in connection with any repossessions they initiate. From a practical standpoint, most challenges to a credit union’s repossession practices and procedures will arise during deficiency balance collection efforts following the sale of repossessed collateral.

All Texas credit unions should take preventative action to avoid the potential liability associated with this seemingly routine operational area of credit union repossessions. Three such preventative measures would be: (1) to make certain that credit union staff knows the law applicable to credit union repossessions; (2) to make certain that credit union staff fully understands the multiple legal requirements which must be met to protect the credit union and to be in compliance throughout the entire repossession process, and (3) to make certain that the credit union’s repossession policies, practices and notices have been reviewed by competent counsel.

The experience of Navy FCU should underscore the fact that the penalty for non-compliance in this operational area of credit union repossessions can be significant. Too often credit unions are unwittingly lulled to sleep by assuring themselves that “this is the way we’ve always done it” and “we haven’t had a problem yet.” This class action settlement should serve as a wake up call for Texas credit unions to act preemptively to nail down this area of credit union operations. To be forewarned is to be forearmed!

BLALACK & WILLIAMS PC, 5550 LBJ Freeway, Suite 400, Dallas, Texas 75240-6217, Phone: (214) 630-1916, Toll Free: (800) 345-4059, www.blalackandwilliams.com.

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By Linda Webb-Mañon, I-CUDEVice President, Communications and Public RelationsTexas Credit Union League

W hen Bob Peterson left corporate America to serve in the capacity of CEO of the credit union he had been serving in a volunteer capacity for 35 years,

he did so without any reservations. "The decision to leave the consulting firm I had built

from the ground up was quite honestly driven by my commitment to the credit union and a strong belief in the cooperative business model," affirms Peterson.

Those who know, or know of Peterson, might be surprised to find out that he has been involved with One Source FCU since 1972, when it was El Paso Bell FCU. At the time, this up and coming professional was in sales and marketing at the credit union's sponsor-company, Mountain Bell. Peterson volunteered on various credit union committees before being elected to the board of directors in 1975. His service on the board spanned some 32 years.

While serving on the board, Peterson helped guide the credit union through many difficult challenges, including a charter change and "re-birth" as he likes to call it.

The history of One Source FCU is not unlike that of too many credit union beginnings. In 1937, 10 employees of the American Telephone and Telegraph Company decided they needed a credit union to help them better leverage

their wages. El Paso Bell Telephone FCU was born in the basement of a company building.

The relationship between the credit union and the sponsor-company was a blissful one. And for decades, the credit union prospered by focusing on the financial needs of the employees and family members of its single- sponsor company.

Back then, things were simpler. People were more conservative, financially speaking that is. Credit union operations were not so complex. In fact, according to Peterson, for the first 35 years of operation, El Paso Bell Telephone FCU observed a very simple model, pay 6 percent and lend at 12 percent.

But then in 1980, the unspeakable happened - the dismantling of what was then known as the Bell System.

"That change signaled the beginning of a downsizing of the traditional workforce in the El Paso area," recalls Peterson. "The board quickly realized that we could no longer rely on the existing membership base to grow and support the credit union's operation."

Of course the need to attract a more diverse membership base was not the only issue the credit union was grappling with at that time. The union between the credit union and sponsor-company was splintering, and without a company-provided office, the credit union had to find a new off-site location for its operations.

"It was a very stressful time for El Paso Bell FCU," notes Peterson. "But without hesitation we made a critical business decision to protect the future of our credit union."

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Surprising Beginnings:3 CEOs share their credit union’s road to success

Having settled into their new facilities, the credit union began its membership diversification, initially limiting its expansion to telecommunications and technology companies, but Peterson says soon other small companies approached the credit union seeking inclusion in their field of membership.

Over the next several years, the credit union remained focused on well-managed growth, and in 2004, its field of membership was expanded even further to include all underserved areas of El Paso. Of course recognizing that its name was no longer reflective of the members it served, the credit union took the necessary steps to change and rebrand itself as One Source FCU.

"For us, the name change signaled a renewed commitment to the entire community. Unfortunately, this change was not without pushback," acknowledges Peterson. "Many of our long-time members were displeased with the loss of our affiliation-by-name with what had been the Bell System. That company is an important part of our heritage, and we will continue to honor that. But for any organization it's essential to have a name people can identify with."

Although the credit union's name has changed, and its field of membership expanded to include much of El Paso and neighboring Las Cruces, New Mexico, Peterson says their mission remains unchanged - to be the financial institution that provides affordable, personalized financial services to enhance their members' lives.

In 2007, the credit union was faced with yet another challenge. Its CEO resigned. Left without an operational leader, the board of directors turned to Peterson.

"It really wasn't a difficult choice. I had a vested interest in the success of this credit union. For more than 30 years the membership had entrusted me to provide oversight of the organization, and with the departure of our CEO, we needed someone who could step in and hit the ground running. It seemed the right thing to do," Peterson remembers.

Anytime there is a change in leadership there are inherent challenges, but fortunately Peterson was already a familiar face around the credit union. He was also acclimated to the culture, and so the transition in leadership was a smooth one.

Additionally, as a business consultant that specialized in organizational design and strategic planning, Peterson has been able to draw on his experiences to help grow the credit union from a $2 million in assets credit union in 1972 to one of over $80 million in assets when he made the transition to president and CEO.

"My experience with One Source FCU has really validated for me the business principle that ‘if you stop changing, you stop,’" confirms Peterson.

Continue reading to learn about the surprising beginnings of Dallas-based InTouch CU and People’s Trust CU in Houston.

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BrightFutureAhead

A Sustainable Vision is a Key Strategy for

Long-Term SurvivalBy Kent LugrandPresident/CEOInTouch CU

T he last two years produced more than just a few economic challenges for InTouch CU (ITCU). Known as EDS CU since 1974 (chartered under the leadership

of Ross Perot to serve the employees and families of Electronic Data Systems), a public statement in 2008 would ultimately produce a new credit union name and changed longstanding relationship with EDS.

On May 13, 2008 Hewlett Packard (HP) announced it agreed to purchase EDS for $25 per share, making another single sponsor credit union part of the movement’s history. At the time EDS was a Fortune 500 company (#113) with over 50,000 employees worldwide and given its acquisition-divestiture history with General Motors, many considered the company’s independent future a certainty. But ITCU’s board and management team, convinced that the credit union industry is in a long-term state of consolidation, included a “sponsor acquisition strategy” as part of its long-term vision plan.

The plan’s foundation started with the conversion to a state charter in 2002. The Texas Credit Union Act allows state-chartered credit unions to typically enjoy a broader field of membership policy. Using the new charter to grow members from the surrounding community over the next six years reduced ITCU’s direct dependence and concentration on EDS from 50 percet to 15 percent of membership. The plan also included expanding the branch network outside of traditional EDS locales, conducting extensive research to change the credit union’s name, and defining our brand’s niche and what made ITCU unique. Of all the work accomplished, discovering our brand strengths became the most important.

Shakespeare said “To thine own self be true.” It was imperative that ITCU quantify those unique deliverables that made it successful from those “default choices” that were primarily due to unfettered EDS employee access and shared brand loyalty associated with the EDS name.

Surprisingly, this process revealed several “gold nuggets” of information that both confirmed and disproved assumptions about service and products, member loyalties and perceptions, and ITCU’s brand reputation. We realized that ITCU success outside of EDS must align with the success experienced serving

members inside of EDS. No single SEG credit union can afford to abandon its current members to gain new ones. So the baseline of our vision plan required sustainability, concentrating on those attributes we did well for the current membership and could easily duplicate to attract a similar subset of the potential members from the public who desired and could identify with our value proposition. Having identified what we do well, we financially validated the model’s profitability and set out on a new course with great confidence the vision would produce positive results.

That being said, a sustainable vision is like driving toward the horizon…it’s a great destination that can be seen but never reached. Just like the credit union movement, ITCU is at a major crossroad and continual strategic flexibility is no longer an option. Ed Deming said it best, “It is not necessary to change. Survival is not mandatory.”

How Coming Out of Our ‘Shell’ Brought the

Community CloserAngela McCathranPresident/CEOPeople’s Trust FCU (Houston)

I n 1935, a period of difficult economic times, 196 Shell employees banded together to create an institution that would promote the economic well-being of its members.

The institution offered lower cost loans and better savings rates and became known as Shell Employees FCU.

Shell Employees FCU enjoyed a long and prosperous relationship with its namesake, but in 2005 our vision was expanding and our roots were starting to take hold within the community beyond the shared common employer. We wanted to foster those roots and make them grow while simultaneously strengthening our ties with existing members. We needed a place from which to start where all newcomers would feel welcomed and all members would feel at home.

People’s Trust FCU was our effort to open our doors and services to anyone who lived, worked, or worshipped in the city of Houston. This was more than a name change. This was an opportunity to serve our entire community and grow the credit union.

This change gave us an opportunity to re-introduce ourselves to the city and set ourselves apart from traditional banks. So in 2007, we worked with our advertising agency and unveiled our wildly successful “Happy Un-Banking” campaign. Through a series of clever billboards and radio messages,

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GREAT DESTINATION

SUCCESS

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Houstonians learned that “Banks Hate Us” but “People Trust Us” because we offer competitive rates, friendlier service, and answer only to our sole shareholders, our members. Since the campaign began, we’ve gone from the 10th largest credit union in the area to number eight in three years.

We’ve also grown the old-fashioned way, by continually expanding and upgrading our services, both physical and virtual. Since the name change, we’ve made significant enhancements to our online banking system, HomeBranchTM including the addition of FinanceWorks, an online finance management tool that helps members track purchase patterns. We also replaced our traditional member call center with our Virtual Branch, a team of experts trained to handle all issues related to our products and services. In October alone, our Virtual Branch Experts responded to more than 4,800 calls and 3,000 emails while keeping the average hold time under two minutes. We also opened our newest branch in Houston’s Galleria area, the financial hub of the city making “Un-Banking” even more convenient for the tens of thousands of Houstonians that live, work, and shop nearby.

Celebrating our 75th anniversary this year, People’s Trust FCU has fared well by serving our members and becoming an integral part of the community. Today we are an institution with more than $428 million in assets and more than 39,000 members.

PhilosophyinAction

‘Back in the Day’Boards of Directors: Understanding the full scope of

responsibilities to the CU, and Members

ack in the day” life was simple for credit union directors. Credit unions often served the employees of a single sponsor and perhaps their family members. Members often spent their entire career working for the credit union’s sponsor. Credit union services were limited to share savings accounts and small loans. Rates were largely set by regulation. Loans were paid by payroll deduction and directors often knew borrowers personally. Host sponsor companies even paid for space, utilities, and sometimes the wages of credit union employees. Times have changed.

Today, credit union fields of membership are frequently defined by a variety of unrelated company sponsors (select employee groups) or geographic boundaries. Electronic direct deposit, often from companies that have no affiliation with the credit union, has replaced payroll deduction. Product and service regulation, while arguably oppressive, allows relatively broad latitude for credit unions to set their own prices and product features. And, technology has become a dominant driver of service delivery.

Today’s boards of directors are faced with leading organizations whose complexity has increased by orders of magnitude in just the past three decades. Unfortunately, board governance has not always evolved along with the pace change.

Credit union directors are responsible for the “general direction and control” of the affairs of the credit union. “Control” involves ensuring that established policies and directions are carried out. “General direction” relates to policy decisions defined by law, regulation, the credit union’s bylaws and charter, and the application of prudent business practices. But, due in no small part to events of the Great Recession, the definition of prudent business practices is being redefined by market necessity and regulation.

John Redding, president of the Institute for Strategic Learning, an Illinois-based consulting firm specializing in credit union strategic planning, suggests that there are four critical lessons to be learned from the economic crisis that began in 2007:

1. Credit unionsmustManageRiskBetter; identify risk earlier, consider a broader range of risks, and prepare for future scenarios.

2. Become More Focused and Efficient; better understand which expenditures are truly value-added and which are not.

3. MakeMoreDisciplinedBusinessDecisions: align decisions with strategic goals and business model,

assess capabilities and resources, and prepare for a learning curve.

4. StrengthenLeadershipPractices; boards and senior managers provide needed direction.

Redding’s observations constitute good advice for boards of directors and ultimately the credit union members they were elected to serve. After all, the board’s primary responsibility is to establish policy and monitor practice to ensure credit union financial prosperity which, in the long run, is in the best interests of members and the credit union industry as a whole. Unfortunately, business as usual may not be adequate for directors to meet today’s standards of fiduciary responsibility.

From a legal standpoint, credit union directors are responsible for:

• FiduciaryRelationship– The position of trust that the board has with

regard to the credit union members and their funds.

• StandardsofConduct– Duty of Diligence; the degree of care which

ordinary, prudent and diligent persons would exercise under similar circumstances.

– Duty of Loyalty; acting in good faith and placing the interests of the credit union above all personal interests.

– Duty of Obedience; the need for all board members to follow the statutes, rules and other legal limitations imposed on the organization.

• BusinessJudgmentRule:– Informed– In good faith– Based on an honest belief that the action is

best for the credit union (and its members).The “new reality” of financial prudence dictates that

business decisions have a business purpose that is untainted by personal agenda or conflicts of interest. Decisions must honor fiduciary obligations imposed by statute, rule, public policy and both civil and criminal law. Finally, directors must ask themselves whether the board’s decisions are influenced by previous failure to exercise oversight or supervision.

Ultimately, directors are responsible for the credit union in both good times and bad. As a director you need only to look in the mirror and ask, “What more can I do to fulfill my duties as a director and benefit the members who elected me to this honored position?”

By Dean BorlandAssistant Vice President

OnBalance

"B

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A

PhilosophyinAction

Putting the ‘Unity’ in Community

s the most recent U. S. Census campaign was getting underway, the Associated Press reported on the significant impact immigration has had on the minority birth rate in the U. S. Reportedly, minorities make up 49 percent of the U. S. children born as compared to 37 percent in 1990. Demographers projected that 2010 would in fact be the “tipping point” when the number of babies born to minority women would outnumber those born to white women. We’ll certainly be seeing in the very near future statistics that confirm (or dispel) this projection. Given the importance of this particular trend, a number of progressive thinking marketers have already set their sights on the growth potential and subsequent market impact of this vital demographic.

Gary Williams, president and CEO of Unity One CU in Fort Worth, is an admirable example of such a proactive leader who has strategically positioned his formerly single-sponsor credit union to expand its traditional focus and to commit to their underserved community in new, challenging yet energizing ways. Williams and his team did not enter into this commitment lightly or with any pre-conceived notions. Rather, they spent many lengthy days over more than two years of time planning and researching their hypotheses and subsequent service strategies.

Researching the explosive growth of the Hispanic population throughout Texas and in the “North Side” community of Fort Worth in particular, Williams and his team recognized they faced “the perfect situation where opportunity and need came together.” Check-cashing

outlets, payday lenders, and a host of pawnshops heavily populated the “North Side” neighborhood. There were few banking opportunities and absolutely no credit union options. Williams noted, “Here was an area that was crying out for the services we could provide.”

After two years of planning their Hispanic outreach program, Williams and his team recognized their limited scope of this unique culture and consequently spent an entire year immersing themselves in cultural training and appropriate strategies so as to demonstrate their commitment to their new community, a decision he feels was absolutely essential to the process. After all, they decided to build a new branch right in the middle of the largest Hispanic community in Fort Worth and they wanted the community to know this initiative was authentically designed to service their particular needs.

Williams proudly recalls the extent to which he and his staff went to underscore the service and integrity of Unity One CU. Not only did they design their branch to include architectural features reminiscent of Mexico (from which many residents had immigrated), they hired and trained bilingual staff, and they worked tremendously long hours to develop attractive payday alternative loans, check cashing programs and a new remittance program without being viewed as just another neighborhood payday lender, check cashing outlet or other fringe service provider.

While Williams and his team were cognizant of the Hispanic culture and potential language barriers, they knew their services were going to have to be far more reaching than a stack of bilingual brochures often found in larger financial institutions. Unity One CU was also concerned with providing comprehensive services to a lower income market, some with occasional documentation issues. Williams noted, “We accept the Matricula card and urge those without social security numbers to apply for an ITIN (individual tax identification number.).”

Additionally, Unity One CU was one of the first Texas credit unions to be designated as a “Juntos Avanzamos” credit union by TCUL. Meaning “Together we Advance,” the Juntos Avanzamos program signifies a credit union’s commitment and passion for Hispanic outreach efforts and offers specific products and services to help meet the needs of the Hispanic community.

At this writing, Unity One CU’s North Side branch has been successfully operating for more than five years. They serve more than 2,500 members with a deposit base of approximately $7 million and with approximately $2.7 million in loans outstanding. Nearly 50 percent

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of the members have checking accounts. Overall, Williams and his staff are pleased with, and proud of, their successful outreach endeavor.

Unity One CU has gained tremendous visibility and recognition throughout the North Side community. Williams proudly affirms, “We work with many community organizations, host events at our branch and support the local schools.” The entire staff has worked tirelessly to reach out to the local neighborhoods, to demonstrate Unity One CU’s commitment to their community and to encourage this credit union as a better financial alternative.

Williams adds “Most of the new members we have gained through word-of-mouth referrals.” He takes pleasure and pride in noting that the community truly does recognize the supportive bond Unity One CU provides and the fact that members encourage their family, friends and neighbors to join as well.

Williams and the entire staff at Unity One CU are the perfect illustration of the credit union motto, “people helping people.” Long before the Census statistics and the AP report foretold an underserved market’s emergence, a prudent and proactive team set about serving the need of a surrounding community so drastically underserved. Truly, they exemplify the “unity” in “community.”

By Alex SchitterCommunications SpecialistTexas Credit Union League

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nemployment insurance is a joint federal-state program that provides terminated workers with cash benefits during temporary unemployment. The program is financed through federal and state taxes on employers. The State of Texas bases the rate on experience and other factors such as a replenishment tax and deficit tax. Tax rates can vary from .72 percent to 8.6 percent, so controlling your unemployment tax rate can save you money.

According to the Texas Workforce Commission (TWC), people typically qualify for unemployment if they leave work through no fault of their own. Some examples include: • laid off due to lack of work; • they are still working but the employer reduced

the hours; • fired without work-related misconduct (examples

include violation of company policy, neglect or mismanagement of the position, failure to perform the work acceptably if capable of doing so); and

• quit their job for a good well-documented work-related or medical reason. (TWC may rule good cause if the work situation would cause a person who truly wants to keep the job to leave it.) One of the ways to help control the cost to your credit

union is being aware of the unemployment claims process from eligibility to attending a hearing. Having knowledge of this process can help lower an employer's tax burden by reducing its experience rating.

In addition, managers can also take steps to control the cost of experience by looking at their management practices. This would help to focus on lowering the company's experience rating by minimizing the number of claims charged to its account.

The following identifies some strategies that employers can use to minimize claims and reduce their insurance rating.1. Hire the right the first time. Take your time and

hire the right person. If you hire someone and end up terminating that person because they could not do the job, that person's claim will be won and go to your experience rating. They consider this the employer's fault, they did not make a good hire.

2. Have good management practices. It is important when responding to claims that good discipline and termination procedures are followed. Important areas

that managers need make sure occur to avoid losing claims include:• Discuss problems and issues with staff as they occur

and not only when they are terminated. Although in the state of Texas we can terminate without cause, when responding to unemployment claims it will be up to the employer to prove that the discharge resulted from a specific act of misconduct connected with the work and that the claimant either knew or should have known he could lose his job for such a reason.

The TWC is going to use the test of whether a "reasonable employee" could have expected to be fired for the reason in question. The employer has to show that either the employee did something that was so bad; he had to have known he would be fired without prior warning, or that the employee had somehow been placed on prior notice that he could lose his job if it occurred.

• Document discussions. Be specific, and include dates, what occurred, what the employee needs to do to improve and consequences of future misconduct.

• Be consistent. If your policy indicates that an employee will be terminated after they have been out of balance for $300 and you did not terminate until they hit the next $500, it will be seen as you were not clear in your expectations since you did not follow your own policy.

• Respond to employee complaints. Employees who voluntarily leave because they reasonably felt the environment was poor and attempted to make corrections may win a claim. When employees have complaints, listen, investigate, act, and document your actions.

3. Make sure you respond to claims and meet the response deadlines. An employer should respond to all unemployment claims. It is especially important to make sure that you challenge claims that are based on a separation that would cause a disqualification of claims. When responding to a claim, employers should state accurate facts of the reason for separation. Your responses should include any documentation to back up your response including counseling’s and copies of policies.

By Susan LooneyHR Vice President

Credit Union Employment Resources

U

Keeping Unemployment Tax Rates Down

HRCorner

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ealthcare reform and its many provisions, signed into law on March 23, 2010, will unfold over a period of several years. However, there are several provisions that have already gone into effect and some that are slated to go into effect later this year.

Below are commonly asked questions regarding healthcare reform that all credit unions should be aware of and its answers:

Q: What changes, in regard to healthcare reform, should I make sure are implemented in my credit union for 2011?

A: Below is a summary of some of the major health-care reform changes that went into effect in 2010 and those that will go into effect this year. Some of these changes may or may not apply to grandfathered health plans.

• Breaks fornursingmothers. Effective March 23, 2010, the FLSA was amended to require that employers provide reasonable break time and a private place (other than a bathroom) for an employee to express breast milk for her nursing child up to one year after the child’s birth. Employers with fewer than 50 employees are exempt from the break requirement if it would cause an undue hardship.

• Smallbusinesshealthcaretaxcredit. Begin-ning with the 2010 tax year, employers who have fewer than 25 full-time employees for the tax-able year and average annual wages of less than $50,000 per full-time employee that provide health coverage to employees are eligible for a tax credit of up to 35 percent of the employer’s premium expense. The employer must pay at least half of the cost of health coverage for each employee enrolled in the plan. In 2014, this tax credit will increase to 50 percent.

• Dependent coverage to age 26. Effective for plan years beginning on or after Sept. 23, 2010, health plans must make dependent coverage available until the child reaches the age of 26, regardless of student or marital status.

• Ban on lifetime limits. For plan years begin-ning on or after Sept. 23, 2010, health plans are prohibited from imposing lifetime dollar limits on the amount of “essential health benefits” an individual may receive.

• Ban on pre-existing condition exclusions forchildren. For plan years beginning on or after Sept. 23, 2010, group health plans are pro-hibited from imposing pre-existing condition exclusions for children under age 19.

• Preventive services. For plan years begin-ning on or after Sept. 23, 2010, recommend-ed preventive services and routine immuni-zations must be covered at 100 percent by heath plans when services are delivered by in-network providers.

• FSA requires prescription for OTC drugs. Effective Jan. 1, 2011, over-the-counter medi-cations may no longer be reimbursed using flexible spending accounts unless a participant obtains a prescription.

• Ban on bias toward highly compensatedemployees. Effective for plan years begin-ning on or after Sept. 23, 2010, new insured group health plans are prohibited from dis-criminating in favor of certain highly compensated employees.

• Earlyretirementreinsuranceprogram. Effec-tive June 1, 2010, the Early Retiree Reinsurance Program provides reimbursement to partici-pating employment-based plans for a portion of the cost of health benefits for early retirees.

• W-2 reporting of health coverage costs.Employers are required to report the cost of employer-sponsored health plans on W-2 forms. The reporting of the cost of employer-sponsored health plans is optional for W-2 forms issued for the 2011 tax year, but will be mandated after that.

If your credit union has a question or needs assis-tance with their HR needs, please contact Kim Jones or Susan Looney with CUER at (800) 442-5762, ext. 6432 or 6431. Also, visit us online at www.cuer.coop.

By Kimberly JonesHuman Resources Consultant

Credit Union Employment Resources

HHR Q&A

HRCorner

S urveys indicate that larger credit unions see one of the biggest challenges facing them today is regulatory compliance burden and costs. If larger credit unions feel this way, it is quite easy to believe that this challenge could be ten fold greater for smaller credit unions.

At a smaller credit union the same personnel are likely handling regulatory compliance that also process loans, balance cash and complete the quarterly call reports. There is no separate compliance department. The burden is huge and more demanding.

What is a smaller credit union to do?First, they should recognize that regulatory compliance

is essential in today’s environment. Smaller credit unions have not been exempted because they often grow into larger institutions. Congress and regulators want to make sure there is a consistency on compliance issues among financial institutions of all sizes.

But compliance does not have to be the death knell of a smaller credit union. Some say that rather than try to stay ahead of compliance, they will instead sit back and let their examiners write up their non-compliance. Then, the thinking goes, they will know what to do and fix it going forward. This is not a winning strategy. Fixing compliance issues after they become examination findings can destroy

credibility with the regulator and become very costly for smaller credit unions to go back into the past to re-create compliance actions that should have been taken months or years ago.

Smaller credit unions must choose to take the initiative on regulatory compliance. They cannot let it beat them and should let their examiners know that it is a priority to them. And they should get out front and be pro-active on regulatory issues rather than doing little and hoping the examiners decide to be kind to them.

While there is not space here to review all regulatory compliance issues, let’s look at three of the key regulations that will require initiative from smaller credit unions in 2011. For federal credit unions, the recent NCUA Board decision to retreat on the nine-year old RegFlex rule will put back into effect the 5 percent cap on fixed assets for all credit unions. Many smaller credit unions will have exceeded that cap during the last nine years because they were RegFlex eligible and the fixed asset cap had been removed for them based upon their strong capital ratio and CAMEL rating.

Every smaller credit union should immediately recalculate its fixed asset ratio as a percentage of assets in accordance with the NCUA rules. If the credit union’s ratio is over 5 percent, it should now request a waiver to authorize the current ratio to continue. Likewise, the credit union should, when submitting this waiver, ask NCUA

SmallCreditUnions

Regulation and the Smaller Credit Union: Taking the Initiative

By Dennis DollarPrincipal Partner

Dollar Associates, LLC

W I N T E R 2 0 1 1 H T C U L 2 9

the process for additional waivers if the credit union were to need equipment, furnishings or other capitalized assets in the foreseeable future.

A smaller credit union, with a higher fixed asset ratio due to a smaller asset base, cannot afford to wait until it has entered into a contract to find out that NCUA is denying it a waiver to make a purchase. This should be addressed, most preferably with its examiner, in advance of needed purchases. While the waiver requests may require regional approval, it is crucial to establish contact with examiners about the fixed asset position of federal credit unions now that RegFlex eligibility no longer exempts them from the 5 percent fixed asset requirement.

Secondly, the new overdraft rules by the Federal Reserve will impact any smaller credit unions that offer share draft accounts. Most credit unions, regardless of size, charge either overdraft fees or NSF fees on returned checks and debit/ATM transactions when there are insufficient funds to cover the pre-authorized transactions. In fact, with the batch type systems used by most, smaller credit unions, the likelihood of transactions that clear without sufficient funds to cover them is increased.

Credit unions will lose revenue if these new rules are not followed. Members will lose access to overdraft protection that is vital to many of them.

Every smaller credit union should review its overdraft policies to make sure they are compliant with the Federal Reserve’s new rules that went into effect this past summer. Either have the League, your attorney or one of the third-party overdraft service providers evaluate how you are handling overdrafts.

Finally, in closing, some good news…The newest NCUA field-of-membership rules open some community charter options for smaller communities that might be just right for smaller federal credit unions that would like to diversify and grow but could never make a case to serve a multi-county community. No smaller credit union interested in growth should rule out FOM expansion as the new rules open some excellent opportunities that were not available before.

So, the regulatory arena has both challenges and opportunities – but smaller credit unions cannot ignore it. By taking the initiative and getting out front on regulatory issues, smaller credit unions can survive the current crisis and position themselves for growth in the years to come.

Dennis Dollar is former Chairman of the National Credit Union Administration.

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ocial engineering is the act of manipulating a person to do something in your interest and not their own interest. Unfortunately, the dark art of social engineering continues to increase in occurrence and sophistication. There are of course proactive steps credit unions can take to protect against divulging member information and it all starts with training.

Training of credit union staff is the key to reducing potential threats related to social engineering. Tellers, call center personnel, loan officers and even top management are targets for gaining information. Train credit union staff on what social engineering is, in what forms it can be received by credit union personnel (phone, inquiry, email, text to an employee’s phone, mail), and how seemingly innocent information can be used for malicious purposes. Procedures are paramount on how to handle each possible scenario that could occur, with specific guidance on how to respond or which appropriate level of employee should be responding.

Reduce the amount of member information available to employees to the amount absolutely needed to perform their job function and duties. Computer access levels should be periodically reviewed and tested to determine if employees are restricted from information they do not need to perform their jobs. Also, encourage employees and members about disclosing too much information such as birthdays, kids’ names, place of birth, home address, when on vacation and when traveling for work on social networking sites (Facebook, Twitter, and LinkedIn).

Act to inform appropriate credit union personnel if a possible attempt to obtain information has occurred or is currently occurring. The security officer at the credit union should be notified and may be the point person to determine who should investigate the attempt, whether it should be the head of member services or the information technology department.

Individuals will use a variety of methods to obtain information. Perpetrators may use fear to obtain information such as posing as an angry member, senior executive, and law enforcement. Perpetrators may act like a third party vendor such as phone personnel, building maintenance, information technology vendor, or an examiner. If credit unions are to thwart any attempt, sound decisions by personnel are critical. The strength of the credit union’s social engineering security is their weakest trained employee.

Next generation of electronic means to obtain information is now. Attacks can happen as Pharming which

is planting bogus websites. These are websites that are similar to the real website but may be different in their top level domain (.org, .com, .edu, etc.). Another method is Phishing which is usually through email and could be website spoofing; whaling is where a high profile employee is targeted or spear phishing where specific person or group is targeted and lured in with small bits of information making it seemingly more convincing. Some of the more recent methods to obtain information from a person by phone are caller ID spoofing, and pre-texting to gather significant data or information.

The integrity of the credit union is at risk in every phone call, inquiry, or response by credit union personnel. Any information divulged by credit union personnel accidentally or purposefully will call in to question the credibility of the credit union, its reputation and ultimately the stability of the membership base.

The need to be a proactive credit union versus a reactive credit union is vital to protecting members. A proactive credit union conducts semi-annual training and testing results are positive. A reactive credit union has a lack of knowledge about their security posture or poorly documented security procedures coupled with no periodic testing.

A proactive credit union is one that applauds their employees for being proactive in their diligence to protect member. Proactive credit unions aren’t complacent with policy and procedures, and arm employees with the knowledge and guidelines to handle suspicious activity.

Everyone in the credit unions and your members are the gatekeepers for protecting member information. To learn how Financial & Technology Resources can help, visit www.curesources.coop.

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Poise Yourself for the FutureCritical steps to protect the credit union and its members

By Chad StanislavVice President of Financial &

Technology ResourcesCredit Union Resources, Inc.ProductsandServices

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