10 Trends That Will Impact Your CU Most in 2024

As credit unions prepare for the regulatory and legal challenges they will have to confront over the next year, it is striking how dominant a player the CFPB has become in the regulatory scheme of things. At least in the old days, when its primary purpose was implementing Dodd-Frank’s mandates, it followed the traditional regulatory process of proposing amendments, getting feedback on those amendments, rejecting comments with which it disagreed, and then giving time to financial institutions to implement these changes. In contrast, the past year has been marked by aggressive use of UDAAP powers, most notably when it comes to overdraft practices. Consequently, when I look at the biggest issues with which financial institutions will have to deal in the coming year, it is not surprising that the most important of them addresses the issue of how much power the Bureau and other regulators have and how they can exercise this power. With that somewhat long-winded lead-in, here is my second annual top 10 list of the trends that will most impact your credit union in the coming year.

1. The CFPB Is Dead. Long Live the CFPB

In last year’s top 10, I highlighted this lawsuit because it had the potential of the Supreme Court ruling that not only was the CFPB unconstitutional, but so was every regulation ever passed by the Bureau. Although it is most likely months before a decision in the case is issued, the argument was about as warmly received by the Justices as beef tacos at a vegetarian joint.

2. Something Fishy Is Going On Here … RIP Chevron?

No matter what the Justices ultimately rule regarding the CFPB’s funding mechanism, there is one case this term that could substantially reduce the power exercised not only by the CFPB but all federal agencies, including the NCUA. Ostensibly, Relentless, Inc. v. U.S. Department of Commerce is a dispute over whether the National Marine Fisheries Service may require fishing vessel owners to pay for federal observers that the Service requires be stationed on their boats. The real issue is to what extent the Court will use this case to do away Chevron doctrine, pursuant to which federal courts give agencies wide latitude to interpret statutes deemed to be ambiguous. As anyone who has read a congressional statute knows, this is an awfully big list. If the Supreme Court rules that courts have been too quick to defer to agency interpretations, the result will most likely be that regulators will have less flexibility to interpret regulations in a way that fits their policy agenda.

3. ECOA and the Courts

For a good example of the effect the demise of the Chevron doctrine could have, you need not look further than a case challenging the CFPB’s interpretation of the Equal Credit Opportunity Act (ECOA). Bureau of Consumer Fin. Prot. v. Townstone Fin., Inc., No. 20-CV-4176, 2023 WL 1766484, (N.D. Ill. Feb. 3, 2023) involves a CFPB lawsuit brought against a Chicago mortgage banker who filled his weekly radio show/advertisement with racially tinged comments. The CFPB sued the company because these comments had the effect of discouraging minorities from applying for mortgages with this company. But the district court dismissed the case. It ruled that a plain reading of the ECOA clearly demonstrates that the statute only applies to discrimination against mortgage applicants, not potential applicants. The court made this ruling even though Regulation B, which interprets the ECOA, applies to applicants and outlaws any acts that have the purpose or effect of discouraging minorities from applying for mortgages. The judge effectively ruled that this portion of Reg B was invalid because it interpreted a portion of the statute that didn’t need to be interpreted. The case is now being appealed, and it could have a big impact on mortgage law, especially if it ends up before the Supreme Court.

4. Overdraft on Life Support – Again

Even though the CFPB’s saber-rattling has already radically reduced overdraft fees, it appears the Bureau is far from done. After all, we live in the age of the “junk fee.” Among the list of issues on its fall 2023 action items, it indicated that it was going to revisit regulations that gave overdraft fee products certain exemptions from Regulation Z, stating, “the CFPB is considering developing proposed amendments to Regulation Z with respect to these special rules.”

At least the CFPB appears ready to use a traditional regulatory process. On the other hand, that could mean that its proposed changes are substantial enough that they can’t be accomplished by simply using its UDAAP authority.

5. To Arbitrate or Not to Arbitrate, That Is the Question

One potential option for your credit union to protect itself against the CFPB’s UDAAP rulings and the class action lawsuits they trigger is to adopt an arbitration clause in your account agreements. This is why one of the most closely watched regulatory debates in the coming year will be seeing whether the CFPB gives members the choice of opting out of arbitration clauses after a dispute arises.

In my ever-so humble opinion, this proposal is not about opting out of arbitration but protecting a class action industry that is able to make millions of dollars bringing lawsuits for alleged violations for which consumers receive less money than it costs to take the kids to the movies. In the year to come, we will first have to respond to any proposed regulations in this area and then wait a few more years for the outcome of the inevitable lawsuit.

6. FedNow Vs. RTP Network. Is This Betamax Vs. VHS? Who Will Win?

It took long enough, but in July, the FedNow real-time payment network went live, and we have a full-fledged payment rivalry on our hands. The Payment Dive recently reported that even though the Clearing House’s real-time payment network (RTP) has been operating since 2017, the entrance of FedNow into this space has led to more credit unions and banks joining the network. More than 200 banks and credit unions have joined the RTP network this year, with more than two-thirds joining since July. In comparison, FedNow has 320 participants so far. What’s more, it appears that the two networks aren’t interoperable at this point. To me, real-time payments can’t be adopted soon enough. Why would you bother with Zelle and Venmo if you don’t have to? Plus, if your credit union works with a lot of small businesses, they are going to be demanding you use this technology. In other words, you may have to pick sides pretty soon, just like Navy Federal did with its recent announcement that it signed up with the RTP network.

7. How Will Credit Unions Utilize Their Enhanced Eligible Obligations and Loan Participation Powers?

The single most important regulatory amendments made by the NCUA this year gave credit unions clear authority to enter into contracts with third-party lenders in general and cyber-lending platforms in particular. My hope is that every credit union will take the time to understand the authority they have been given by the NCUA and consider how it could utilize this authority to help grow its credit union. Specifically, as more and more lending and borrowing is being done at the speed of electrons via third-party platforms, the NCUA’s amendments send a clear signal to vendors and credit unions that the agency is willing to work with credit unions interested in using these new lending frameworks.

8. Meet the New Boss(es?)

In case you haven’t heard, there is a presidential election coming in November and incredibly tight races for control of the U.S. Senate and House of Representatives. No matter who wins, there will be a lot of new people with oversight of the credit union industry by the end of next year.

First, we already know that Tanya F. Otsuka, who has served as a council to the Senate Banks Committee, will be the next member of the NCUA Board when Congress gets around to confirming her. This will give Todd Harper a Democratic partner for the first time since he took over the chairmanship of the agency. He has already spoken loudly and clearly against overdraft fees and the need for the agency to commit more resources to evaluating credit union compliance with consumer protection laws.

In Congress, Patrick McHenry, the Republican Chairman of the House Financial Services Committee, announced he would be leaving at the end of his term. McHenry was a fair arbiter who didn’t take the banker’s bait when it came to demagoguing the industry. If the Republicans manage to hold onto the House majority, we will have a new face overseeing financial services regulations.

9. Do You Know Who Your Vendor’s Vendor Is?

Ransomware and data breach attacks are really big business and they are not going to end any time soon. Unfortunately, the recent attack on 60 credit unions is a fresh reminder of just how vulnerable companies are to cyber-attacks. In the absence of a serious federal effort led by a Congress that appreciates the urgency of the situation, expect additional regulatory actions in this area, such as additional vendor guidance and greater scrutiny of contract language detailing vendor obligations. Regardless of what the NCUA does, all credit unions should make an effort to know with whom their vendor subcontracts and what responsibilities are performed by the subcontractor. Depending on the importance of the task, you should also try to evaluate the cybersecurity protocols to which the subcontractors are subjected.

10. Are You Your Grandmother’s Keeper?

Recently, a credit union colleague sent me this article from CNBC. It reported on a case a 77-year-old widow brought against PNC after she was duped into sending several hundred thousand dollars to a fraudster. She survived the bank’s motion to dismiss by successfully arguing that the bank may have breached an implicit contractual obligation when it failed to question her about the suspicious transaction.

While scams attempting to take advantage of the elderly are nothing new, credit unions are dealing with a growing population of elderly members who are subject to sophisticated cyber scams, which would have been technologically impossible not too long ago. While dinosaurs like me will continue to argue that credit unions and banks, for that matter, should not be made responsible for protecting members from the consequences of their own bad judgment, on a practical level, as courts hear more and more cases about people being swindled into sending their life savings away in a wire transfer, they will be more and more receptive to arguments that make the financial institution responsible for the loss of these funds. Incidentally, according to the article: “Americans 60 (years) and older lost $3.1 billion to cyber fraud in 2022, an 84% increase from 2021, according to the FBI. Losses have jumped ninefold in just five years, from $342 million in 2017, FBI data shows. “

On that note, I hope everyone has a happy holiday season. See you next year.

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.