Embracing Openness at the Right Time

The economy and regulatory world appear to be teetering on a precipice. In short, the economy cannot seem to figure out which way to go and an extremely hardline machine is ignoring the stop lights while driving the regulation passengers toward a potentially dangerous intersection.

Multiple times each week I have discussions with our numbers guy/economics and lending reporter Jim DuPlessis about what the numbers show versus what experts are saying. Many times, the two just don’t logically line up.

Three years after the pandemic was officially declared a thing and we started washing our groceries, the economic numbers, trends and historical indicators don’t seem to mean what they used to. As many of you number nerds (I say that lovingly) are aware, the inverted yield curve has been a reliable check mark of ingredients on the recession-predicting shopping list. Since 1955, the inverted yield curve has been a predicator for all of the recessions (nine of them) in the U.S.

The problem with this predictor is it inverted in 2019, near the end of 2021 and throughout 2022. Some (me) might say it’s been inversion happy.

The thing with predictors, like those who say the end of the world is nigh, is that eventually they’ll be right. It might be tomorrow or in five billion years.

Actions based on old prediction items seem to be driving so many business and economic decisions, especially since December and the beginning of January. Since the beginning of the year, more than 102,000 people just in the technology sector have been laid off. According to unemployment data, that’s almost 65% of all the tech layoffs that happened in 2022. Why so many layoffs? Simple answer: Profits for shareholders as workers demanded salaries to keep up with inflation. It has nothing to do with preparing for a recession. I’d toss in another reason for these reductions – recession fears make great headlines/drive clicks to websites.

“The Yield Curve is Scaring Everyone,” “Bond Yield Curve Inverts: Should Investors Be Worried?” and “Deepest Bond Yield Inversion Since Volcker Suggests Hard Landing” are all headlines from stories posted by media outlets in just the past two days. Two of those headlines are from very popular fringe media sources. I’ll see if you can guess which one comes from Bloomberg News.

Obviously, there are real-world reasons for needing to lay off employees. When the first mortgage market tanked in the middle of 2022, we saw PenFed and other credit unions trim hundreds of jobs in all because the market just couldn’t support the work. That’s unfortunate, but understandable.

To lay out the facts of today’s situation, according to recent data posted on March 10, yield curve inversion readings were -105 bps and -77 bps for the long- and short-term bonds, respectively. These numbers are now in record-low territory. All the while, we are experiencing record job growth. Normally these two things do not go together.

Is the end nigh? Is the economy’s record player skipping again? Or is this the longest runway to a recession in history?

To their credit, credit union economists have done a better job in the past few months not being so doom-and-gloom with their analysis of the numbers and, I believe, have realized that many of the historic predictors might not be predictors any longer.

Are You CFPBeing Serious?

It’s no secret that credit unions have not enjoyed becoming stepparents to the CFPB once Dodd and Frank got together and moved into the regulatory house with their newborn. That kid is now about 13 years old and there is a large group of people who want to erase it out of all the family photos.

Recently, the Supreme Court agreed to hear a 2017 case filed by a payday lending lobbying group, the Community Financial Services Association of America. The case crawled its way to the U.S. Court of Appeals for the Fifth Circuit in New Orleans, which ruled last October that the CFPB was unconstitutional in its structure and funding.

At the time we reported on this decision in October, many of our readers cheered the outcome, and CUNA and NAFCU officials applauded the ruling. And then … [insert dramatic music] … the Supreme Court got involved.

To NAFCU’s credit, their experts immediately saw the danger ahead on this road with the Supreme Court.

According to our reporting, Ann Petros, vice president of regulatory affairs, said NAFCU opposes a decision by the Supreme Court “that would upend the CFPB and could put the consumer financial services industry into chaos.”

“What we don’t want is the CFPB dismantled,” Petros said. “It should continue to operate.”

If the CFPB is deemed to be an unconstitutional creature, the actions it spawned might also be considered illegitimate. Petros said this could raise questions of the validity of a host of current lending rules, such as those governing mortgage originations or car lending.

Whether good or bad, credit unions have devoted considerable time and money building systems to comply with those rules.

“There would be a question if people could close loans,” Greg Mesack, NAFCU’s SVP of government affairs, said. “It could have a devastating impact on people buying homes, buying cars.”

Nadine Chabrier, a lawyer for the Center for Responsible Lending, said the Supreme Court would be reviewing a lawsuit that poses “an existential threat” to the CFPB and similarly funded agencies.

“If the Supreme Court accepts this deeply flawed argument against CFPB funding, it would set a dangerous precedent that would be used to challenge agencies with legally indistinguishable funding, including the Federal Reserve, FDIC, Medicare and Social Security,” Chabrier said.

Of note, a majority of the justices have previously stated their belief against too much regulation.

With the economy as it is and the Supreme Court potentially deciding our regulatory fate (a ruling is expected in early 2024), this is where I want to point out my thankfulness for openness that is happening in the credit union space. It’s a voluntary openness that we haven’t seen as much of on the journalism side of our world.

For years, CUNA has held weekly media calls to lay out what they are focused on for that particular week. Recently, NAFCU launched a similar and very open weekly media availability with their regulatory and advocacy experts. Just days ago, the NCUA held its first-ever media availability call with Chairman Todd Harper and other NCUA leaders. We were encouraged to ask Harper and others anything we wanted. And we did! I asked Harper about the Supreme Court/CFPB issue. Others on the call asked for needed clarification and context to the NCUA’s data. The NCUA will hold these media calls each quarter to coincide with the release of new quarterly credit union economic data.

My point here is that CUNA, NAFCU and the NCUA all voluntarily opening their doors to be regularly available to the media for questions, comments, clarification and context not only makes our jobs a little easier, but it provides our readers with better detailed information that you can use to help guide the big decisions you have to make for your credit union and staff.

Openness might seem like vulnerability to some and that’s something to address with a therapist. For CU Times, openness leads to honesty and that definitely helps all of us navigate this industry to a better place during crazy times.

Michael Ogden is editor-in-chief for CU Times. He can be reached at mogden@cutimes.com.