State Regulator Feeney Warns of Emerging Risks for Texas Credit Unions

AUSTIN, Texas – Texas Credit Union Commissioner Harold Feeney has mixed news for Texas’ 239 state-chartered credit unions. Representing a combined total of $19 billion in assets and 3.1 million members, Texas’ SCCUs are healthy and offer more convenience than ever to their members. “Prospects are bright. The challenge is to sustain for tomorrow,” Feeney told officials attending the Texas Credit Union League’s Government Affairs Conference Feb. 8. From the state regulatory agency’s standpoint, part of sustaining for tomorrow is identifying risks for credit unions today, said Feeney. Leading the list was reputation risk. “Some credit unions are putting their good reputation at risk by not complying with the record keeping and reporting requirements of the Bank Secrecy and the Money Laundering Control Acts,” Feeney said. “Compliance requires constant vigilance – particularly in obtaining identification from all new members – but non-compliance can be very costly.” Credit unions need adequate internal controls, a designee responsible for monitoring compliance and an employee training program, he said. Adoption of “know your customer” guidelines also decreases the likelihood of a financial institution becoming a victim. “Bank secrecy and anti-money laundering compliance will continue to be a big issue and probably will receive even more scrutiny in the future. Reporting is something we’ll have to live with for a long time,” said Feeney. Feeney stressed that the Texas Credit Union Department does not want to increase the regulatory burden on credit unions and is working with the National Credit Union Administration and the Financial Crimes Enforcement Network to avoid duplication of efforts. The use of credit scoring to determine whether an individual is eligible to join a credit union is another concern for the Department. Commissioner Feeney indicated that “more than one” credit union has used this practice. “Credit unions can’t impose membership eligibility requirements over and above what is allowed within the Texas Credit Union Act. It’s beyond the credit unions’ authority to do so,” he said. Stiff competition for auto loans has driven many credit unions to establish indirect lending arrangements with auto dealerships. But, in some cases, dealers won’t talk to credit unions unless they receive an incentive. A troublesome practice that has evolved is credit unions granting auto dealers permission to tack on mark-ups above credit unions’ normal auto loan rates.” What is at stake? “Members from the same credit union get two different rates on the same term – one at the dealership, one at the financial institution. It’s discriminatory; at best, it is bad press,” said Feeney. Another concern for state-chartered credit unions is federal preemption of state laws, which sometimes places state-chartered credit unions at a disadvantage with federally-chartered credit unions. “Legislators work hard to craft laws that make it conducive for businesses to provide services in the state. When overruled by federal law, you wonder why. State legislators should continue to have the right to effectively represent their constituents. A proposed rewrite of the Texas Finance Code during this legislative session will work to eliminate those things, like usury ceilings, that make state charters less attractive than federal charters.” Lastly, the commissioner noted that credit union member complaints to the Texas Credit Union Department more than doubled in 2004. “While the actual number of complaints is negligible, this is something legislators pay attention to,” Feeney said. The majority of complaints involved credit card charges, and most were quickly resolved, according to Feeney. -