The 10 Most Impactful CU Trends of 2023

Welcome back from your holiday break. If you are anything like yours truly, you ate a little too much, drank a little too much, and put off reigning in these vices a little too much. That being said, I’ve had plenty of time to ruminate on the key legal issues that will impact your credit union in the year to come. In coming up with this list, I’m assuming that we’re as likely to see a divided Congress pass meaningful legislation as Kari Lake is to admit she lost the Arizona Governor’s race. This means that if history is any guide, regulators will push their powers to the outer limits of what is reasonable and blame the courts for concluding they’ve gone too far. I’ve also tried to include some trends that you would not traditionally see on such a list. Here goes.

1. The CFPB Is Dead; Long Live the CFPB

The 800-pound gorilla in the room this year is the likelihood that the U.S. Supreme Court will review the ruling of the Court of Appeals for the Fifth Circuit in Consumer Financial Protection Bureau v. Community Financial Services Association of America, that the bureau’s funding mechanism violates the Constitution. The bureau is not funded by an annual congressional appropriation. The CFPB has clearly decided to damn the torpedoes and go full speed ahead while it awaits the Supreme Court’s next move. Predictions are always dangerous, especially when made by someone who thought the Indianapolis Colts could make it to the Superbowl, but I think critics of the Fifth Circuit ruling have been a bit too dismissive of the decision. The Supreme Court could use this appeal to further reduce the power of independent agencies and the authority of Congress to create them.

2. Your Member Claims a Venmo Transaction Is Unauthorized: Now What?

Under existing law, it is far from clear what protections, if any, are afforded to the consumer who claims to have been victimized by an unauthorized transaction facilitated on one of these platforms and whether the card issuer or payment platform should be responsible for the allegedly unauthorized transaction. That is why one of the cases I will be watching most closely over the coming year is Wilson v. Navy Federal Credit Union, Docket No. 1:22-cv-01176 (E.D. Va. Oct 18, 2022), in which Navy Federal is being sued for allegedly violating the EFTA by refusing to reimburse unauthorized transactions facilitated on the Zelle payments platforms. At the same time, the banks that run Zelle are issuing their own rules for apportioning cost in these situations. This is a big deal for any credit union that either utilizes a payment platform or will in the future.

3. Is Your Website ADA Compliant?

Remember a few years ago when credit unions around the country faced lawsuits alleging that their websites violated the Americans with Disabilities Act (ADA) because they were not designed to accommodate disabled individuals that needed help to use the websites? Most of these lawsuits were dismissed without getting to the issue of website accessibility because the plaintiffs lacked standing. Late last year, the Department of Justice announced that it was planning to promulgate regulations clarifying website accessibility requirements in the first half of this year. Now I know many of you crusty old-timers have heard similar pronouncements over the past two decades, but the department has publicly committed to starting the rulemaking process this April and Bloomberg news reported that the Justice Department signaled renewed interest in this area by issuing this guidance in March of last year.

4. The Year of the Accountant

2023 is The Year of the Rabbit. In credit union land, 2023 is also The Year of the Accountant. This is the year that all credit unions subject to GAAP accounting standards must adopt the Current Expected Credit Losses (CECL) standard under which they must anticipate losses earlier in the lending cycle and potentially put aside more funds. The NCUA got off to a good start by providing smaller credit unions with this tool they can use to help calculate how much they should be putting aside for loan losses. Nevertheless, the implementation of this new standard provides unique challenges for both credit unions and examiners who must hash out precisely where the line is between appropriate regulatory oversight and supportable management presumptions. Furthermore, if the economists are correct, assumptions about future losses will have to be made during an economic downturn. As if that’s not enough, credit unions face unique issues when it comes to making CECL predictions. For example, if a credit union’s SEGs are composed mainly of teachers and other public sector employees, are they less sensitive to macroeconomic trends? All of this to say that we all have a lot of learning to do, let’s stay civil and work out our differences calmly.

5. Unionization Questions

From Amazon to Starbucks, last year marked a movement toward unionization: Why would credit unions be exempt from this trend? This means that someone in your credit union should be familiar with the steps you can and should take in the event that your senior management receives notice of intent to form a union. This is an area of the law where a single misguided statement can result in loads of trouble.

6. Increased Employee Protections

Irrespective of whether you run a union shop, the Fair Labor Standards Act (FLSA) gives all employees the right to band together to bring issues of workplace concern to the attention of their employers. Many of the provisions in your workplace handbook have their roots in the rulings of the NLRB. Now that Democrats hold a 3-1 majority on the board, we are beginning to see the pendulum swing back toward greater employee protections. On a practical level, this means that your employees have more protections than you think they do, even if they are “at will.” For instance, the NLRB recently ruled that a company violated the concerted activity protections when it refused to reinstate a hot-headed employee who quit his job after not getting a promotion. A majority of the board divined that the company was actually punishing the employee for his past activity criticizing the company’s practices.

7. Crypto Is Dead; Long Live the Blockchain

I love the shock and horror that surrounded the implosion of FTX. After all, what could possibly go wrong when you hand a 30 year old more billions than his age; allow him to set-up shop in a frat house in the Bahamas, where his chief corporate officers are also his best friends; and engage in trading securities backed by nothing but hype and the financial advice of some of Hollywood’s most famous actors and Tom Brady. That being said, ignore the framework that makes cryptocurrencies possible at your peril. At its core, the blockchain allows lenders and borrowers and buyers and sellers to engage in arms-length transactions in which computer algorithms verify the legality of the transactions instead of pesky lawyers, bankers and the occasional regulator. This system will continue to grow, even if people realize that the vast majority of cryptocurrencies are at worst, Ponzi schemes (according to Jamie Dimon), and at best, modern day equivalents of penny stocks.

8. Black Knight: Friend or Foe?

In one of her last acts as the Chairwoman of the House Financial Services Committee, Congresswoman Maxine Waters sent a letter to the FTC urging it to closely scrutinize the antitrust implications of the proposed purchase of Black Knight, which has approximately 15% of the mortgage origination platform market by Intercontinental Exchange (ICE)  You may not have heard about ICE but it is a financial technology platform behemoth, which, among other things, owns the New York Stock Exchange and more importantly for our purposes, Encompass, a leading mortgage origination and servicing platform that has captured about 50% of the origination platform market. The consolidation of Black Knight and Encompass under one roof raises risks that mortgage origination services will become more expensive precisely when technology should be making it cheaper. And by the way, good luck negotiating changes to their vendor contracts.

9. It’s 10 O’clock, Do You Know Where Your Data Is?

On a related note, now that information is as important to the modern financial landscape as oil is to the automobile industry, as the number of companies that have access to more and more personal data continues to shrink, it makes it more and more difficult for all but the largest financial institutions to compete. Don’t take my word for it, read some of the terms you have to agree to in your core processor contracts and you’ll understand just how little control over the processing and storage of your member information you have.

Given the centrality of data and privacy concerns, this is one area where we may see substantial legislative movement, if not on the federal level, then on the state level. This means that your credit union should already have policies, procedures and contract terms in place with which it can answer these questions:

• Which employees and vendors have access to your credit union’s personally identifiable information (PII)?
• Why do they have access to PII and what steps must they take to protect it?
• How long do they need access to PII?
• How do you dispose of PII?

10. The NCUA’s Participation Proposal

A couple weeks ago, I proclaimed this to be last year’s most important proposed regulation and I haven’t changed my mind. Technology makes it easier for all credit unions to buy and sell loans, but the NCUA’s regulatory framework hasn’t kept up with the technology. Properly crafted regulations will provide much needed clarity and make it easier for all credit unions, irrespective of their size, to engage in the participation marketplace.

Henry Meier is the former General Counsel of the New York Credit Union Association, where he authored the popular New York State of Mind blog. He now provides legal advice to credit unions on a broad range of legal, regulatory and legislative issues. He can be reached at (518) 223-5126 or via email at henrymeieresq@outlook.com.