Banking During and After COVID-19

Before COVID-19, the banking industry was experiencing an unprecedented period of growth and prosperity. Despite increasing consumer expectations and increased competition from non-traditional financial institutions, most banks and credit unions were stronger than at any period since the financial crisis of 2008.

In a matter of only a few weeks, the world of banking has experienced a level of disruption that will change everything that had been the norm in financial services. There has not only been a major change in the way financial institutions conduct business but in the way, employees do their work and the way consumers manage their finances.

Banks and credit unions must use this time of disruption to consider reinventing themselves from the inside out. It is a time when we need to better understand the way consumers expect their financial institution to support their financial needs. This includes the way banks and credit unions use data, AI, technology and human resources to impact marketing, innovation and the digital delivery of products and services.

Some organizations may retrench and try to save costs because of the financial stress that results from the massive shutdowns caused by COVID-19. Other organizations will go beyond looking for efficiencies to create completely new business models that will impact all components of performance. Right now, there is an opportunity to reevaluate how technology, insight, and analytics can accelerate the future growth and competitiveness of financial institutions globally. To move forward will require a new perspective from most C-suites regarding priorities and deployment of resources.

To better understand the impact of COVID-19 on financial services, we interviewed three senior executives on the Banking Transformed podcast. Each executive discussed where banking was before the coronavirus crisis and the impact recent events will have on the future of marketing, innovation and digital delivery. Our guests for our “Banking Responds to COVID-19” series were:

• Rohit Mahna – SVP of Financial Services, Salesforce
• Jeremy Balkin – Director of Innovation, HSBC
• Jamie Warder – Head of Digital, KeyBank

A portion of each interview is provided below. The complete interview is available on The Financial Brand website or can be downloaded on your favorite podcast app.

Read More:

• How Will Coronavirus Outbreak Impact The Banking Ecosystem?
• How Banking Providers Can Help Consumers in the Coronavirus Economy
• Coronavirus Crisis: The Future of Cash, Checks, Credit Cards & Crypto
• Coronavirus Forcing Financial Institutions to Revamp Contact Centers

By Jim Marous, Co-Publisher of The Financial Brand, Owner/CEO of the Digital Banking Report and host of the Banking Transformed podcast.

New Vehicle Sales Slam on the Brakes

ARLINGTON, Va.—Total vehicle sales plummeted to 11.4-million units in March from February's rate of 16.7 million annualized units. Monthly sales levels were down 34.1% versus March 2019.

“The global effects of coronavirus on the auto market are here, including disrupted supply chains, idle factories, and closed showrooms resulting in the lowest monthly sales number since June 2010,” said NAFCU Chief Economist and Vice President of Research Curt Long. “As most shelter-in-place orders were instituted in March, April's numbers are likely to be even lower.

“NAFCU expects vehicle sales to continue to fall in Q2 as the effects of social distancing take hold, with some rebound in the latter part of Q3, though as with any virus-related forecasts, there is a high degree of uncertainty,” Long added.

Cars,  Trucks Back Down

Car and light trucks sales both fell dramatically during the month to 2.9 million annualized units and 8.5 million annualized units, respectively.

Light trucks continue to dominate share, although sales were down 30.9% versus March 2019, amid the crisis. Auto sales fared worse with a 42.1% declined compared to the same time in 2020, Long said.

Billions Loaned Out in Single Day, CUs Struggling to Get Clarity: First Full Week of PPP Begins Today

WASHINGTON–Credit unions and other financial institutions spent the weekend sorting through a chaotic first day on Friday of the Paycheck Protection Program and are expecting more of the same today. 

Over the weekend news, media reports and small business owners used words such as “chaos,” “confusion,” “plagued with problems” and “frustration” to describe the Paycheck Protection Program (PPP), which was hurriedly put together following the passage of the $2-trillion CARES Act. 

The program offers loans of up to $10 million to companies that employ fewer than 500 people. Those loans are forgiven as long as the businesses meet certain conditions, such as using the majority of the funds to pay worker salaries for the eight weeks following the loan closing. 

Several vendors have already announced PPP platforms, more information on which appears below.

As CUToday.info reported here, CUNA, NAFCU, the Defense CU Council and others were all pressing the SBA for additional guidance and clarity as last week came to a close, including changing one rule that is preventing credit unions from being recipients of funds to cover their own payroll costs. CUs can only participate as lenders if they are SBA certified. 

Varying Reports on Loan Volume

According to the Treasury Department, $4.3-billion in loans (1.1% of the $359 billion available) were made to businesses on Friday to cover their payrolls, even though three of the biggest banks in the country—Citi, JPMorgan Chase and Wells Fargo—initially said they weren’t taking applications until the federal government provides more guidance on the Small Business Administration (SBA) program.

However, late on Friday Bank of America tweeted it had processed $6-billion in applications on day one.

Read complete Story HERE

F&A Federal Credit Unions decisive actions in the face of the COVID-19 pandemic.

We were talking with one of our clients, F&A Federal Credit Union in Monterrey Park California, the other day and were struck by their early, decisive actions in the face of the COVID-19 pandemic. (F&A was chartered in 1936 to provide financial services to employees of the Los Angeles County Forestry, Fire and Agricultural Departments.) 

We soon learned that the decisiveness in responsive to the coronavirus situation was the result of a combination of a well-thought-out pandemic response plan and the courage to act when some might have argued that it was too early to do so. F&A FCU’s actions were made possible by a strong governance culture of trust between the credit union’s board and CEO Tim Green and his management team, all of which enabled Tim to make some tough, early calls. 

Tim told us that by late January he was concerned enough about the likelihood that the virus would impact the United States that he decided to implement the credit union’s pandemic response plan. 

As Melia Keller, VP/marketing notes, “Tim a visionary on this … the need to prepare for a quarantine. It was really hard to fathom. We ordered laptops and set them up to work remotely, came up with a communication plan, prepared for kids being at home, employees working remotely and identified people of higher risk and started them working from home right away.” And, the board was supportive of it all.

In February, F&A FCU developed and prepared call center scripts and emergency member communications, Melia told us, “We had a communication plan in place, with scripting for outbound messaging. It all emphasized caring for the member. That has really differentiated us. We approached everything from a perspective of compassion and humanity.”

Lastly, and perhaps most importantly, the credit union focused on ways to make things better for its members and its employees. It developed programs to meet the members’ needs, including loan deferment through enhanced skip a pay, the waiving of loan late fees, and a short-term 0% APR loan of $5,000 for any member impacted by COVID-19—regardless of credit score and knowing some loans may not be repaid. Employees are empowered to help where they can, and for one desperate member, this meant F&A FCU even provided a couple of rolls of toilet paper at the drive-through window.  

For employees, Tim initiated a short-term 30% raise and offered 40 additional hours of paid time off to use as needed. For employees working in the branches (one is drive-through only, the other has limited teller hours), the credit union caters lunch, so they don’t have to go out. They even gave each staff member two rolls of that precious toilet paper from the credit union’s supplies!

According to Tim, the goal was similar to the goal of its firefighter members: to make things better. “Everything was pre-planned, except the toilet paper and the decision on the 30% temporary pay adjustment,” he said.

Tim felt confident that he could make that command decision and that the board would support it—and indeed it has. Tim noted to us that COVID-19 “has crystalized our values without us having to talk about it. We are the ones who are there for you.” 

It struck us that the F&A FCU leadership—board and staff – were running “into the fire” of the COVID-19 pandemic, ready and able to help its members, just as its own firefighter members are ready, willing and able those in need. The CU’s preparation, shared dedication to service and, perhaps most importantly, culture of trust (even though Tim is a relatively new CEO) have been invaluable for F&A FCU members. 

by Caitlin Curran HatchSenior consultant

Caitlin Hatch serves as a senior consultant with CUES strategic provider Quantum Governance and has worked with credit unions for the past eight years, focusing on governance and strategic planning. Prior to that, she served for 25 years as general counsel and corporate secretary for the largest anthracite coal company in the United States.

Paycheck Protection Program More questions have emerged, including whether CUs can apply to receive funds.

WASHINGTON—Details continue to emerge related to the recently announced Paycheck Protection Program, although as CUToday.info reports, even more questions have emerged, including whether CUs can apply to receive funds. 

The most recent change is an announcement by the Treasury Department that it has doubled the interest rate to 1% from 0.5% on the emergency loan program. Treasury Secretary Steve Mnuchin said the last-minute change was made in response to concerns raised by smaller financial institutions, which had complained the 0.5% rate would create “unacceptable losses for lenders," according to the Wall Street Journal. Some financial institutions have said they will not be ready today to offer the program, but Mnuchin said it will become effective anyway. 

“You will get the money. You will get it the same day,” Mnuchin said during a press conference. “You use this to pay your workers. Please bring your workers back. This is a very important program.”

The program, part of the $2-trillion CARES Act, is to be administered by the Small Business Administration and is designed to help keep people employed by making loans to small businesses to cover payroll. A credit union must be an approved SBA lender to participate. 

The program will charge the 1% interest rate, and the loans will be forgiven as long as the companies keep their employees on their payrolls for two months.

Under the program, lenders would make available as much as $350 billion in government-guaranteed loans to cover eight weeks of payroll and other expenses.

How Program Works

Business owners can begin applying Friday, followed by independent contractors and people who self-employed on April 10, according to the SBA. The government says it will forgive the loans if they keep their workforce largely intact and use the loans for eligible expenses such as rent and utilities, the agency added.

“The Trump administration is anticipating that the nation’s vast network of federally insured banks, credit union, and farm credit system institutions will handle the loans, senior administration officials said Tuesday,” the Wall Street Journal reported. “Most of the applications are likely to be filed online, they said, and the money could be dispensed in as little as one day.”

According to the SBA, the loans will be due in two years, with payments deferred for six months. Interest accrues during the deferral period. The amount of loan forgiveness is reduced if the borrowers reduce their payrolls by more than 25% during the eight-week period covered by the loan, the Journal said.

“But questions remain unanswered about exactly how the program will work, lenders say,” the Journal noted. “Unknown is how quickly the system will be able to meet the expected high demand for the new loans.”

‘Skeptics’ Doubt Feasibility

Several “skeptics,” told the Wall Street Journal they have doubts over the SBA’s ability to handle the massive increase in interest, both from a technology and manpower perspective.

One small bank in Oklahoma reported it fielded 50 applications for the loans in just one hour.

“The administration officials said that the Payroll Protection loans will be far simpler to approve than conventional SBA loans and expects to qualify many other banks and other federally insured depository institutions,” the Journal said. “The form is only two pages long and essentially only requires the borrowers to estimate their average monthly payroll, number of jobs and other expenses. Borrowers are also required to pledge that the funds will be used to retain workers and other essential bills like mortgages and leases.”

Additional Details

The Journal report added the SBA won’t have to approve the loan, the officials said. Rather the agency would simply check to make sure that the borrower hasn’t already applied and received a loan by working through another bank.

There are approximately 30-million small businesses in the United States.

CUToday.info 

Slim Credit Union Loan Growth in 2020

Credit unions will see their slowest loan growth since the Great Recession this year as the pandemic-induced recession batters car sales and keeps many members who have lost income sheltering in their current homes from venturing out to buy new ones, according to a CUNA Mutual Group report released Thursday.

The Madison, Wis., group’s monthly Credit Union Trends report covered data for January, which looks quaintly rosy. However, commentary by the group’s chief economist Steven Rick painted a darker picture of the toll the recession will take on members and their credit unions.

Rick predicted credit union loans will grow 3% this year, as the economy goes from a 5% annualized drop in the real gross domestic product in the first quarter to a 20% plunge in the current second quarter, followed by a 10% gain for the second half.

Mortgage lending will remain strong, primarily due to the historically low rates keeping the refinancing surge alive, and more homeowners tapping equity to meet cash needs. Home prices and purchases, however, will drop when they meet the reality of unemployment rates that Rick said he expects to hit 6.5% this year and fall to 5% in 2021.

That projection preceded Thursday morning’s report from the U.S. Commerce Department that Americans filed 6.6 million first-time unemployment claims last week, up from the record 3.3 million filed in the previous week.

CUNA economist Jordan van Rijn said Thursday the new claims imply the rate will peak somewhere in the 8% to 12% range this year, which means it could surpass the peak jobless rate of 10% in October 2009, four months after the official end of the Great Recession.

Curt Long, the chief economist for NAFCU, said the combined 10 million claims are the equivalent of more than 6% of the nation’s labor force.

“It will be critical to provide assistance not only to those workers but to their employers, in order to ensure strong labor demand once the worst of the health crisis is past,” Long said.

Even before the additional 6.6 million claims were reported, Rick said the jobless rate will take a heavy toll among members, and choke off borrowing for both cars and, eventually, homes.

While the federal government will be providing $500 billion in economic stimulus through relief checks of $1,200 per adult, credit unions will see their savings rise 14% this year “as some credit union members will not immediately spend the relief money.”

Fewer will be buying new cars. Last year dealers sold 17 million new cars and light trucks; this year Rick predicted they’ll sell 10 million. “The current economic crisis will ensure that this summer will be the weakest in new-auto lending for credit unions in history,” he said.

“Expect home prices to fall in 2020 as the unemployment rate surges to over 6% this summer, from the 3.6% unemployment rate in February,” he said. “Housing demand will dry up due to the uncertainty gripping the nation. Home foreclosures will also surge as many Americans who lose their job in the next few weeks will not find employment in the future.”

Rick said his forecast of 10% GDP growth in the third and fourth quarters assumes the virus peaks by July.

“As economic activity resumes during the second half of 2020, we expect unemployment to fall slightly but remain elevated at 6% before falling further to 5% in 2021 as the recovery extends throughout the economy.”

He forecasted credit union loan balances rising 5% in 2021, 7% in 2022 and 8% in 2023.

CUTimes By Jim DuPlessis | April 02, 2020 at 05:16 PM

NCUA: Urgent Needs Grants Available to Help Credit Unions Affected by COVID-19

ALEXANDRIA, Va. (March 23, 2020) – Federally insured, low-income designated credit unions that experience unexpected costs as a result of COVID-19 can request urgent needs grants(opens new window) from the National Credit Union Administration.

“The NCUA recognizes that the COVID-19 outbreak will affect all federally insured credit unions and their members to varying degrees,” NCUA Chairman Rodney E. Hood said. “If you are a low-income credit union that needs assistance during this difficult time, I encourage you to apply for these grants to ensure you can continue to meet the financial needs of your members and communities.”

The NCUA’s Office of Credit Union Resources and Expansion can provide grants up to $7,500 to low-income credit unions for:
Hardware, software, or other equipment to help them provide financial products and services from remote locations;
Consulting services to develop programs and partnerships to assist those affected by COVID-19, such as small businesses or schools; and
Developing marketing materials to assure members their insured deposits are safe.

Eligible credit unions also may apply for loans supported by the Community Development Revolving Loan Fund.

Eligible credit unions may apply for grants or loans through the NCUA’s CyberGrants portal(opens new window).

Credit unions with questions should contact the Office of Credit Union Resources and Expansion by email at CUREApps@ncua.gov.



NCUA is the independent federal agency created by the U.S. Congress to regulate, charter and supervise federal credit unions. With the backing of the full faith and credit of the United States, NCUA operates and manages the National Credit Union Share Insurance Fund, insuring the deposits of account holders in all federal credit unions and the overwhelming majority of state-chartered credit unions. At MyCreditUnion.gov(opens new window), NCUA also educates the public on consumer protection and financial literacy issues.

"Protecting credit unions and the consumers who own them through effective regulation"
Rodney E. Hood

Treasury/SBA issue information on $349B available for business lending

CUNA 

The coronavirus disease (COVID-19) relief legislation signed into law last week recognizes credit unions as part of several vital economic recovery programs, notably the $349 billion Paycheck Protection Program (PPP). Through the program, the Small Business Administration (SBA) will make available funds for small businesses to secure up to eight weeks of payroll costs including benefits, as well as to pay interest on mortgages, rent and utilities.

CUNA continues to engage with the SBA and Treasury on strong specific guidance on the PPP.

“Treasury and the Small Business Administration expect to have this program up and running by April 3rd so that businesses can go to a participating SBA 7(a) lender, bank, or credit union, apply for a loan, and be approved on the same day,” said Treasury Secretary Steven Mnuchin. “The loans will be forgiven as long as the funds are used to keep employees on the payroll and for certain other expenses.”

All existing SBA-certified lenders will be given delegated authority to speedily process PPP loans. All federally insured depository institutions are eligible to participate, and according to the Treasury, “a broad set of additional lenders can begin making loans as soon as they are approved and enrolled in the program.

New lenders will need to submit their application to DelegatedAuthority@sba.gov to apply with the SBA.

Starting April 3, small businesses and sole proprietorships can apply. Funds are provided in the form of loans that will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities, and due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll.

Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees. Loan forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease, according to the Treasury.

The Treasury has also created a one-page list of information for lenders, answering questions such as:

• Who is eligible to lend?
• Are the loan guaranteed by SBA?
• Are there guarantee fees?
• What underwriting is required?
• How will lenders be compensated?
• Who can be an agent?
• How will agents be compensated?
• Can these loans be sold on the secondary market?

The Treasury has also issued information for borrowers, as well as the application for borrowers.

CUNA staff attorneys, outside counsel and NCUA staff have analyzed credit unions’ eligibility as PPP borrowers, and agree that credit unions and other businesses “primarily engaged in the business of lending” are not eligible PPP borrowers. CUNA has joined other cooperatives in asking the SBA to allow cooperatives to participate in the program.

CUNA is working with SBA and NCUA to see if the SBA is willing to explore rule changes to make credit unions eligible for PPP through a change in SBA rules, as many credit unions could use access to these funds to provide economic relief and offset costs related to the pandemic. 

The Small Business Owner’s Guide to the CARES Act

The programs and initiatives in the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was just passed by Congress are intended to assist business owners with whatever needs they have right now. When implemented, there will be many new resources available for small businesses, as well as certain non-profits and other employers. This guide provides information about the major programs and initiatives that will soon be available from the Small Business Administration (SBA) to address these needs, as well as some additional tax provisions that are outside the scope of SBA.   

For the complete guide select the downloadable .pdf  link: 

https://members.ncofcu.org/resources/2020/F2CF1DD78E6D6C8C8C3BF58C6D1DDB2B.small-business-owner-s-guide-to-the-cares-act-final-%20(1).pdf

The NCUA will conduct examinations offsite until further

The NCUA will conduct examinations offsite until further notice and will not require credit unions to provide information for those exams unless it is approved by the agency’s executive director, NCUA Chairman Rodney Hood said Monday.

In a letter to credit unions, Hood said financial institutions must be permitted to assist members and staff during the coronavirus crisis and should not be distracted by requests for information by the agency.

“Our top priority is the safety of agency staff, credit union employees and members,” Hood said in the letter. “During this time, the NCUA will limit the burden imposed on credit unions so that they can focus on providing uninterrupted service to their members.”

In outlining the steps the agency is taking, Hood wrote that “credit unions are not required to provide documentation or make staff available for discussions with examiners at this time unless approved by the Office of Executive Director.”

He said field staff will concentrate on credit unions that are experiencing significant financial or operational problems. It includes credit unions that have asked for assistance and those that the agency determines to need assistance.

Examiners will contact every credit union periodically, starting Monday, Hood said. Those discussions will help guide the agency’s monitoring effort, he added.

Hood said while the agency may be conducting examinations offsite, the NCUA generally will not issue examination reports to credit unions until further notice.

Credit union trade groups had asked for a suspension of routine exams.

In a letter to Hood, CUNA President/CEO Jim Nussle asked that all routine onsite exams be suspended for at least 120 days.

He also called for the agency to suspend the requirement for Call Reports to be submitted.

In his letter, NAFCU President/CEO B. Dan Berger asked the agency to suspend all examination activity to the fall.