As Prepared for Delivery on April 26, 2022
Thank you very much; it’s a pleasure to join you all today. It hasn’t been that long since we all met – I last spoke to NACUSO in November. But I’m pleased to have the opportunity to join you again and update you on what’s happening at NCUA, and to talk about some key challenges facing the credit union industry.
That’s especially pertinent given the environment we find ourselves in today, because I think we can all agree that we’re contending with a great deal of uncertainty.
The good news is that we’ve certainly seen some very strong economic indicators. For example, we saw strong jobs growth in the March employment report, released earlier this month, with 431,000 jobs added, and we’re seeing signs of wage gains.
We still haven’t recovered all that was lost in the pandemic, and I’m especially concerned by the contraction in the small business sector, where a lot of enterprises that shut down in 2020 during the lockdown and economic contraction haven’t come back. But the employment trend lines are generally positive.
However, we also recognize there are some serious headwinds in the economy and in the global environment that we need to be attuned to. Obviously, the number that a lot of us are focused on -- and a lot of credit union members are focused on, as well – is the inflation rate, which can only be described as “punishing.”
The reported rate of inflation in March was 8.5% over the same period last year, and that’s causing a lot of pain when it comes to gas prices, food prices, and other staples. I wish I could promise that relief is just around the corner, but I don’t believe that’s the case right now. So we’ll need to need to keep a close eye on interest rate risk; the pressure it puts that rising prices put on credit union operations; and the potential for a economic slowdown in the near future.
And then we add to that the supply chain crisis; the growing national debt; and the war in Ukraine, and it’s clear that we face some serious challenges. My great hope is that these challenges will be manageable — but taken together, they do bear watching.
Against that backdrop, I should emphasize that credit unions have performed very well. In the fourth quarter of 2021, federally insured credit unions continued to show strong performance. Eighty-four percent of credit unions had positive net income in 2021, and we’re seeing solid growth in loan activity while delinquency rates remain manageable. Credit unions have added more than 7 million members since the start of the pandemic two years ago. Particularly with the economic challenges we’ve seen in the last two years, that’s a testament to the fact that the credit union model continues to be a strong option for consumers seeking quality financial services and affordable, reliable credit.
The question is, how do we maintain that strong performance and institutional stability in a very uncertain, precarious, and highly competitive environment? How do we keep the credit union sector strong and growing?
As a regulator, people ask me all the time: what should our institutions be doing in this uncertain environment? And I urge them, to, first, focus on the fundamentals – but at the same time, be prepared to embrace prudent innovation and creative collaboration to shore up those fundamentals.
When I think about credit union service organizations (CUSOs), that’s what I have in mind: innovation and collaboration. Through my two tenures on the NCUA board, I’ve seen how powerful CUSOs can be as a tool for credit union growth, collaboration, and innovation. And so I’ve looked for ways to give federally insured credit unions more flexibility in making use of those tools.
That’s certainly what we had in mind when the NCUA Board passed the most recent CUSO rule changes in October of last year, which expanded the types of loans that CUSOs could offer. This was something I had been working on for some time, going back to my chairmanship, because when I saw how rapidly the landscape was changing with regard to lending, I was concerned that credit unions were going to be left behind.
So we take, for example, auto lending. Just a decade ago, buying a car online was still relatively unusual – now it’s increasingly common, and more and more consumers never set foot in an auto dealership to purchase the next vehicle. My concern was that if the NCUA were to simply stand by idly while the marketplace undergoes this rapid evolution, credit unions were going to be left behind.
Expanded lending authorities through CUSOs is one clear way to address that dynamic and give credit unions the tools to scale and compete in the online marketplace. I believe that will be a particular benefit for smaller and mid-size credit unions — including our minority depository institutions, low-income designated institutions, and Community Development Financial Institutions — and will help them to say relevant in the marketplace for years to come. And of course, credit union members will also benefit, as more competition in the consumer loan market will lead to better consumer options and greater choice.
I’ve also made it clear that I don’t believe we should stop with these reforms. I’m open to going even further in expanding CUSOs lending authorities, and I look forward to working with my colleagues on the board to revisit this issue. However, I’m comfortable with the steps we’ve taken so far, because now we can see how it unfolds, and then that can become the template for further regulatory reforms related to CUSOs.
My hope is that credit union leaders will recognize that as a challenge and a responsibility. It’s up to you to make the most of these new tools, but to do so with great care and prudence, so as to protect your members, your institutions, and the safety and soundness of the larger credit union system.
For example, I know many of you are aware that I’ve been intensely focused on financial technology, or fintech providers, as the future of the financial services industry, and I’ve been thinking hard about the best ways to integrate these solutions with the credit union industry.
And I think that ultimately, allowing CUSOs to invest in fintechs without becoming CUSOs, with the appropriate safety and soundness guardrails in place, is going to make a lot of sense. We don’t want to see credit unions get left behind because of fintech. But I’m concerned that’s what’s happening right now since CUSOs cannot invest in fintechs unless they become a CUSO—something that isn’t workable for a lot of fintech companies.
These are going to be vitally important relationships to reach younger consumers and to convert them into credit union members. I believe we all recognize that while credit unions continue to perform well, it’s critically important for the industry’s future to bring more young members into the system.
These younger demographics are digital natives, having grown up in the world of smartphones, mobile apps, and other technological developments that for a lot of us older folks still seem like magic – but for younger users they’re second nature. So the industry needs to do everything it can do to reach those young consumers where they are, and to show them that credit unions have a lot to offer in terms of quality affordable financial products and services.
And wherever the NCUA can provide sensible regulatory reforms that will help with that effort, I hope we’ll try to do so. Encouraging and nurturing the collaborative spirit and symbiotic relationship between credit unions and CUSOs, while taking great care to ensure the safety and soundness of the credit union system, is an important part of that reform effort – and one I look forward to continuing to work on.
I will emphasize that CUSOs and fintech are not magic bullets, and there’s no one-size-fits-all solution – these are simply promising options for credit unions to explore to remain competitive in a very demanding marketplace. However, I do encourage credit unions to take advantage of these tools, because the industry needs to continue exploring and experimenting, within prudent boundaries and always with an eye toward meeting the needs of your members.
Fundamentally, the great value of CUSOs for credit unions is that they serve as a concrete demonstration of the reality that you don’t have to go it alone, that credit unions can collaborate to achieve together more than they might achieve otherwise. And I’ll reiterate, that is especially important for smaller and mid-sized credit unions that want to compete in a crowded marketplace.
That’s why organizations like NACUSO, and this networking conference, are so important. It’s critical that we have forums where industry leaders have the opportunity to come together to network, share ideas, and forge those connections to determine what collaborations are going to work best for individual institutions.
Many of you may have heard me speak before, and you may recall that I often talk about the importance of “resilience” in credit union operations and planning. I believe that collaboration and innovation, through CUSOs and other mechanisms, will need to be a critical part of our resilience strategies, so I’m urging credit unions to take advantage of these relationships wherever it makes sense. I know we’re limited on time today, so I’d like to end with that, and allow some time for you all to ask any questions or share any thoughts of your own. Thank you very much.