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L
NESTAR
Perspectives
The Official Publication of Texas Credit Union League
Fall 2006
the beneficial impact of
coming together for a
brighter tomorrow
Tireless & Outstanding: Annual Award Recipients | Small Credit Unions: Focused on the future
TEXAS CREDIT UNION LEAGUE
Contents
EDITORIAL
Managing Editor
Linda Webb-Mañon
Associate Editor
Allison Castle
Contributing Writers
Allison Griffin
Lucinda Rocha
ADVERTISING
Advertising Sales Director
Rick Grady
Account Executive
Tom Hodge
BUSINESS
Chief Operations Officer
Bob Gallman
Communications Administrator
Mikki Stokes
Subscription Coordinator
Sue Epperson
14
HOW TO REACH US
Mail
4455 LBJ Freeway, Suite 1000
Farmers Branch, TX 75244-5998
e-mail: lwebb-manon@tcul.coop
Web site: www.tcul.coop <http://www.tcul.coop>
FEATURES
16 The U.S. Cooperative Sector
A 2006 Snapshot
By Paul Hazen
Main Office: (469) 385-6414
(800) 442-5762, Ext. 6414
Editorial: (469) 385-6486
Advertising Sales: (469) 385-6485
Advertising Design: (469) 385-6473
Subscriptions: (469) 385-6483
Letters to the Editor: lwebb-manon@tcul.coop
20 Tireless & Outstanding
The Annual Professional of the Year &
Small Credit Union Achiever’s
Award Recipients Profile
By Linda Webb-Mañon
LoneStar Perspectives is a quarterly publication of the
Texas Credit Union League (TCUL) and is offered to
TCUL–affiliated credit unions as a dues-supported service.
If you are not an employee or volunteer of a Leagueaffiliated credit union and would like to subscribe to this
publication, an annual subscription rate of $20 is available.
LoneStar Perspectives is a trademark used herein under
license. Copyright 2006 by Texas Credit Union League.
All rights reserved.
D CUSTOM
DEPARTMENTS
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6
Kristen Bohn
Kelly Ryan Murphy
Brian Smith
ACCOUNT SERVICES DIRECTOR
News:
ALM Trends & Strategies, by Deborah Rightmire
Faulty Marketing Threatens Safe Deposit Integrity, by David P. McGuinn
Mortgage Business Model Options for CUs, by Terry Mendenhall
Are They Registered, by Allison Castle
ART DIRECTORS
Lindsay Thomas
Products and Services
Risk Management, by Jason W. Allred
Obtaining the Most Beneficial and Cost Effective Results, by Doug Foister
5 Performance Questions of Your Card Portfolio, by Scott Wagner
DIRECTOR of CUSTOM PUBLISHING
BUSINESS DEVELOPMENT DIRECTOR
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11
Philosophy in Action
The Value of Volunteers, by Linda Webb-Mañon
Making the Grade, by Jill Pharr
Shaneen Romero
PRODUCTION MANAGER
Missy Saunders
DIGITAL IMAGING SPECIALIST
Chris Mulder
HOW TO REACH US
4311 Oaklawn Avenue,
First Floor, Dallas, Texas 75219
www.magazine-partners.com
214.939.3636
LONESTAR PERSPECTIVES IS DESIGNED BY D CUSTOM,
4311 OAK LAWN AVENUE, DALLAS, TEXAS, 75219.
COPYRIGHT 2006 BY LONESTAR PERSPECTIVES.
ALL RIGHTS RESERVED.
24 Professional Development
25
Sales is Service, Service is Sales, by Kylie Giancotti
Hero of the Day Program, by Andrea G. Chewning
Commitment is the Key, by Michael York
28 Small Credit Unions
Focused on the Future, by Linda Webb-Mañon
30 Regulatory
Affirmative Action Update, by Paul Montoya
The Muti-factor, by Barri Hamilton
FA L L 2 0 0 6 ★ T C U L
1
Products and Services
By Jason W. Allred
IT Consulting Supervisor for
Financial & Technology Resources
Risk Management
Increased vulnerabilities means greater
pressure on CUs to mitigate risks, achieve
information security compliance
he National Credit Union Administration (NCUA)
published a letter to credit unions entitled 06-CU-10
in June that alerts the credit union community of
some significant changes in the way that examiners
will be auditing credit union technologies. The letter briefly
explains that previous exam questionnaires E-Commerce I
(EC-1), E-Commerce II (EC-2), and EDP Review (EDPR)
are replaced with a new set of guidelines under which credit
union technologies will be evaluated for compliance.
The new information systems audit objectives are broken
out into a spreadsheet enclosure that accompanies letter 06CU-10; furthermore, this sheet is broken out into 22 separate pages with anywhere from 10 to 60 compliance objectives per page in a questionnaire format. What this means
for state and federally chartered credit unions is that there
will be a more detailed and in-depth review of all information systems at the credit union.
This also means more preparatory work on behalf of the
credit union to adequately cover the more detailed, and
some new, compliance objectives listed in the new compliance questionnaire. The remainder of this article focuses on
summarizing the content of the 06-CU-10 enclosure so that
credit unions will have an abbreviated understanding of
what to expect with regard to compliance with this new regulatory piece.
Several pages of the spreadsheet enclosure to 06-CU-10
focus attention on the required documentation required for
a regulatory examination in the information systems and
technology arena, while the remaining sections of the questionnaire zone in on security compliance objectives associated with the various forms of technologies that are implemented on a credit union’s network that examiners will
evaluate:
T
Authentication – Descriptive compliance elements detailing the
compliant use of encryption, biometrics, monitoring, reporting,
and other authentication related concepts;
Business Continuity – Inventory of compliance objectives related
to a credit union’s development of disaster recovery and business
continuity initiatives, backup and recovery processes, backup
power sources, and incident response protocol;
Firewalls– Compliance items related to the implementation of firewall
based policies and operation, audit, and third party vendor involvement;
Intrusion Prevention / Detection Systems - Compliance directives
2 T C U L ★ FA L L 2 0 0 6
set forth to measure operation, logging, change management, and
testing of such systems;
Networking – Measurable compliance controls related to network
access controls, network architecture and design, network monitoring, software deployment, and change management;
Penetration Testing – Includes measuring compliance with penetration testing agreement elements, testing attributes, and reporting;
Remote Access– Seeks to measure the means of remote access technologies used and compliant configurations congruent with best
security practices;
Routers – Gauges compliant configuration of routing hardware dependent upon whether each router is maintained by the credit union
or a third party vendor;
Servers – Focuses on identifying complaint configuration of network
servers by measuring the presence of administrative and security
controls;
Vendor Oversight – Includes measuring the complaint practices of
credit unions in the realm of general and contract review criteria;
Virus Protection– Encompasses identifying the details of a compliant
deployment of an antivirus solution in addition to protective elements to protect credit union networks from pop-ups, spam, and
spyware;
Web Site Review – Covers compliance objectives associated with
general website management, security elements for externally
hosted websites, and website design and control, and
Wireless Local Area Networks– Entails measuring general complaint
security practices regarding the deployment of wireless networking
components, along with the monitoring, validation, and management of the same.
In the wake of these new and more technically complex
compliance standards, every credit union is going to be pressured to adhere to these in order to mitigate risk and achieve
information security compliance with this new letter. The
good news is that there is a solution for your credit union in
that Financial and Technology Resources has the knowledge
and experience to assist your credit union in pursuing compliance with these objectives. This team of consulting professionals can conduct a full scale information security risk
assessment and develop a set of custom information security guidelines to satisfy this new letter to credit unions. Call
(800) 442-5762, Ext. 6819 and ask for more details into
how Financial and Technology Resources can help your
credit union achieve compliance with this letter. ★
By Doug Foister,
Director of Research for
Credit Union Resources, Inc.
Measure Twice
Cut Once
Obtaining the most beneficial and
cost-effective results
t’s a old adage among furniture-makers that, in order to
avoid significant losses of time and money, the careful
craftsman should measure twice, cut once. This bit of
pithy advice applies to credit unions that use research
to know their market. The admonition is to conduct the research carefully, using sound principles, in order to obtain
the most beneficial and cost-effective results.
The analogy between furniture making and credit union
research doesn’t end here, however. There are other similarities between creating a fine piece of furniture and conducting accurate and meaningful research. So, let’s use the basic
steps of furniture-making as a point of departure for exploring how Credit Union Resources, Inc. conducts professional research to help credit unions better understand
their market.
Drawing up plans. The first step in any furniture-making
project is to draw up detailed plans for measuring, cutting,
and assembling the components of the piece. The corresponding first step in credit union research is the Research
Design. This is a statement of the main objectives of the research, followed by a description of what methods will be
used to achieve the objectives.
Tools. The seasoned furniture-maker uses a variety of sharp
saws, precision drills, and well-honed chisels and planes to
fashion raw wood into beautiful and functional objects.
Likewise, Credit Union Resources selects from a repertoire
of proven tools to gain market insight. Among the tools used
most often are membership surveys, non-member surveys,
and focus groups.
I
MEMBERSHIP SURVEYS
These customized surveys are mailed to a random sample
of approximately 2,000 members and typically achieve a response rate of about 30 percent. Membership surveys provide invaluable information on areas such as market share,
members’ likelihood of using new services, and perceptions
of service quality. Membership surveys determine, in a scientifically valid manner, the financial wants and needs of a
credit union’s membership. Often, these surveys play a pivotal role in a credit union’s long-range planning process.
NON-MEMBER SURVEYS
This type of survey is conducted among individuals who
are eligible to join a particular credit union but have not done
so. A non-member survey assesses awareness and current
perceptions of the credit union, the products and services
non-members currently use or would like to use, and the motivating factors to encourage these individuals to join the
credit union.
FOCUS GROUPS
Focus groups are small group discussions (eight to 10 participants) moderated by a trained member of the Credit
Union Resources’ staff. These groups are used to probe complex attitudes and behavior patterns. Among other things,
we would use focus groups to evaluate advertising concepts,
to determine older members’ preferences in a seniors’ program, or to provide the information needed for a new branding campaign.
Making sawdust! In furniture making, this is where it happens. The furniture-maker saws wood; fits joints, glues,
clamps, and sands. In credit union research, the comparable
stage is that of information analysis.
For membership surveys and non-member surveys, analyzing information begins with an examination of overall frequencies. Next, we would compare overall findings to national averages, as well as to our proprietary database of Texas
membership survey findings. Finally, we would cross-tabulate overall responses by demographic variables such as age,
income, and residential zip code.
In focus group research, information analysis consists of reviewing audio tapes, analyzing notes, and transcribing quotes.
Finishing. This is a crucial stage in furniture making. Coats
of lacquer, tung oil, or beeswax are applied and the piece is
hand-rubbed to a rich luster. The writing of a final report
may be likened to the finishing stage. It’s the final step in the
research process, where the results are prepared and presented for use by our clients.
As we’ve seen, crafting well-made furniture is a lot like producing top—quality credit union research. Unfortunately, an
abundance of poorly made, mass-produced, disposable-grade
furniture predominates the market today - replete with laminate as opposed to real wood and fastened with staples rather
than dovetail joints. And the low quality and lack of a more
customized approach can be found in credit union research.
That’s why it’s vital to choose your researcher carefully. The results of doing so will pay big dividends. And don’t forget:
Measure twice/cut once! ★
FA L L 2 0 0 6 ★ T C U L
3
Products and Services
5
By Scott Wagner
Executive Vice President of TNB Card Services
Preformance
Questions
Tips for a Profitable Card Portfolio
loyalty through credit card programs, but many
struggle with underperforming programs. Here
are five important questions to ask if your card program is not meeting your expectations.
1. What is our credit line utilization rate?
Utilization of 28 percent to 30 percent is optimal.
Above 33 percent, a credit line increase is probably
needed. Below 28 percent, cardholders are likely using
competitor’s cards. Effective credit line utilization enhances
revenue without significantly increasing risk. Your objective: increase the share of income from low-risk cardholders
while managing higher-risk users.
One TNB Card Services client that emphasized this saw
tremendous gains. It raised credit lines about 33 percent, resulting in a 60 percent increase in average outstanding balances, better credit line utilization, and 460 new cardholder
accounts, while reducing overall portfolio risk.
1
2
Risk-based pricing:
Makes cards available to a broader member base.
Delivers increased profitability and transaction volume.
Enables better portfolio and risk management.
Retains the best cardholders and improves your
competitive position.
3. Do we use neural network fraud technology?
Fighting fraud by tracking cardholder behavior through
neural networks is highly recommended for all card programs (credit, as well as debit PIN and signature).
Neural networks learn how the cardholder makes purchases, recognizing and evaluating patterns and deviations.
This enables them to gauge future purchases against the
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T C U L ★ FA L L 2 0 0 6
cardholders’ real-time profile. Neural networks such as
FalconTM and FRIS work around the clock to ensure fraud
controls are enforced.
4
2. Do we use risk-based pricing?
Risk-based pricing is imperative for portfolio growth. It
gives credit unions greater management flexibility and helps
them compete for new cardholders with major issuers.
Risk-based pricing assigns different APRs to members
based on their credit rating or FICO score. Tiered pricing
and aggressive rates can attract members with better FICO
scores, giving lower-scoring members a higher rate, reflecting the risk they represent.
3
ILLUSTRATION BY RAY BUBEL
C
REDIT UNIONS CAN BUILD REVENUE AND MEMBER
4. What is our card program growth plan?
A good business plan analyzes your portfolio, card products, and membership penetration goals. It establishes
measurable, realistic goals (such as card growth, activation,
usage, and outstanding balances), with specific action plans
and measurement tools for managing execution. For the
goal of increasing Platinum cardholders, for instance, the
action plan may call for cross-selling Platinum cards to 50
percent of members obtaining a home loan.
On average, 18 percent of members are cardholders. If your
credit union falls below that average, you need to increase card
penetration. Once you understand your targets, you can design programs to reach them through in-branch efforts, direct mail, online promotion, or by fine-tuning the product.
In-branch promotions are a low-cost way to boost card accounts and awareness. Offering incentives to the staff for
opening card accounts can be very effective, as can cross-selling. One TNB client cross-sells by offering a quarter-percent
discount on auto loans to current cardholding members or
card applicants. In six months, the credit union generated
530 new credit card accounts, a 5 percent increase.
Direct mail can drive usage and attract new cardholders.
Pre-screened offers can target new cardholders with a low
rate or Platinum upgrade. For existing cardholders, direct
mail can increase usage and grow outstanding balances.
Online promotion is another option. How visible is the
card on your website? Can your members apply for it online, or at
least easily find a phone number to call for more information?
The card product itself is key. Is it appealing to your members?
Do you offer a Platinum card? Competitive rates and fees? Major
issuers bombard your members with offers, so you must offer a
competitively priced card product.
5
5. Is our credit card portfolio profitable?
Profitability reflects how well your card program’s performance
has been managed. Gauging profitability means accurate measurement of a variety of related expenses, assessed against the program’s revenue.
Profitability should be measured against return on assets, as well
as account activity, outstanding balances, credit line utilization,
and risk statistics. Evaluating your performance over time and
comparing your program to industry averages reveals strengths
and weaknesses and aids in development of tactical improvement
plans.
A credit card portfolio can be your highest-yielding program.
This is especially true if you analyze your answers to these key questions. If you aren’t sure where to start, give your card processing
partner a call. Your card processor should have the skills, technical
expertise and perspective to help you develop a successful plan.★
FA L L 2 0 0 6 ★ T C U L
5
News
By Deborah Rightmire,
TCUL Vice President of ALM
&
ALM Trends Strategies for 2006
Expect total investment balances
and liquidity to continue to rise for
the remainder of the year
E
CONOMIC INDICATORS SUGGEST THAT EARNINGS MAY
continue as an issue in 2006. Credit union balance
sheets have shifted according to Dr. Charles Idol.
This assessment comes as he compiles statistics for all
federally insured credit unions using peer data collected at
the end of the first quarter of 2006.
On the liabilities side of the balance sheet, total shares
grew 1.4 percent with 80 percent of this deposit growth in
share certificates. Overall share certificate mixes increased
putting additional pressure on the credit union’s cost of
funds for the remainder of the year.
There were shifts on the asset side of the balance sheet as
well. Total loans grew by 1 percent. Growth in real estate
loans continued at 2.1 percent. However, business loans
became the fastest growing segment, rising 5.6 percent
during the first quarter. Auto loans grew .3 percent and, as
in 2005, all auto growth was in indirect lending.
Investment balances rose nearly 7 percent because deposit growth exceeded loan growth in the first quarter.
This compares with a 4 percent increase in investments
during the same period last year. With the expected slowdown in the economy, rising loan rates, and higher energy
costs, expect total investment balances and liquidity to
continue to rise for the remainder of the year.
As credit unions react to these changes, earnings after
net charge offs at federally insured credit unions declined
to 80 bp at the end of the first quarter verses 86 bp during
the same period last year; 90 bp for all of 2005. Net ROA
was even lower at Texas credit unions as earnings fell to 65
bp, compared with 76 bp during the first quarter of 2005
and 80 bp at year-end.
Loan quality improved for all federally chartered credit
unions. Overall delinquency was .59 percent at March
2006 verses .73 percent at year-end 2005. Net charge offs
were 48 bp at the end of the first quarter compared with
54 bp for 2005. Though loan quality improved, the increase in deposits coupled with lower earnings caused the
equity ratio to decline from 11.07 percent at December
2005 to 10.99 percent by March 2006.
As the review of mid-year Call Report data begins at
Texas Credit Union League’s (TCUL) Asset/Liability
Management Resource, trends present in the first quarter
continue through June. Overall deposit growth remains
slow and higher dividend costs are evident as shifts from
6 T C U L ★ FA L L 2 0 0 6
money market accounts and regular shares into higher
cost certificates continue. Deposit growth does seem
more aggressive at large credit unions. Smaller credit
unions, with higher levels of liquidity, are slower to increase rates on core deposits – shares and share drafts.
Because of this, members chose higher yielding certificates to maximize yield.
Most credit unions have increased deposit rates as a response to the changing economic conditions. Fewer have
aggressively raised loan rates. With average loan portfolios
repricing at 18 months or more and indirect loan balances
continuing to rise, overall credit union spread has declined
through mid-year. Despite small increases in 2006 loan
and investment yields, many credit unions find they are
unable to support the more rapidly rising deposit costs
causing gross spreads, operating ROAs, and capital contributions to decline.
The Federal Open Markets Committee chose not to
raise the Fed Funds rate at their meeting held in early
August. This indicates that the market may be nearing the
peak of the interest rate cycle. ★
Strategies for the
remainder of 2006 include:
OExtend duration of investments into the three to four-year range.
Chose bullet investments rather than callable investments to
ensure that income remains stable when market rates decline.
OResist the temptation to increase dividend rates on regular
shares and money market accounts to control movement of
core deposits into share certificates.
OReduce duration of member share certificates by pricing one- to
two-year share certificates more aggressively than longer-term
maturities.
OPrice auto loans high enough to ensure profitability at a level
similar to the 50 to 60 bp net ROAs available on investments.
OUse industry-accepted criteria when developing credit score
levels for A through E paper. Set appropriate credit spreads for
all grades of paper.
OConsider enhancing real estate lending products. With 30-year
mortgage rates moving above 6.5 percent, the rate risk inherent
with fixed-rate mortgages declines and their profitability more
closely resembles that of auto lending.
By Contact David P. McGuinn,
President of Safe Deposit Specialists
Faulty Marketing Threatens
Safe Deposit Integrity
How to avoid situations that
could be construed as deception
I
F YOUR FINANCIAL INSTITUTION PROVIDES SAFE DEposit box services, BE-
WARE of faulty marketing practices that
might create confusion, erode consumer
confidence, and even evoke accusations of false
advertising.
Logo Confusion
Almost anyone who has a bank or credit union account recognizes the Federal Deposit Insurance
Corporation (FDIC) or the National Credit Union
Administration’s (NCUA) logo as the government’s
safety net that insures all deposits, up to $100,000, in the
unlikely event of an institution’s failure. Depositors
breathe easier knowing this protection is in place. One of
the most widespread consumer misconceptions about safe
deposit is the erroneous belief that a safe deposit box and
its contents are also extended FDIC or NCUA protection.
Consumer Surveys
If you survey your existing clientele and your own staff,
you might find that this misunderstanding exists with six
out of 10 consumers and employees. This confusion can
and must be avoided. Financial institutions should be
scrupulous about when and where these insurance signs,
statements and logos are displayed.
First, safe deposit box renters should always be educated
about safe deposit boxes. They should not only understand the obvious benefits of box use, but they should also
be made to understand box and vault limitations. Second,
renters should be apprised that safe deposit boxes are considered a rental storage space by government agencies. Box
contents never fall under insured deposit regulations.
Review Six Areas
To avoid situations that could be construed as deception, here are six basic marketing and training practices
that must be implemented:
Renter’s key envelopes should never bear the FDIC or
NCUA logo. This implies protection that does not exist.
Also, no financial institution’s name, logo, address, telephone number, or the renter’s names or box number
should appear on key envelopes.
Service fee brochures, which are routinely given to de-
positors by all financial institutions,
require a written disclosure be provided that
lists all service charges, fees and other miscellaneous charges. If this brochure contains information about safe deposit rental rates, lost key
or box drilling charges, this could create a significant problem later because this brochure
must display a logo or statement about
FDIC or NCUA insurance. Box renters
could rightfully assume that this information means that everything printed in this
brochure has $100,000 of coverage.
Other marketing issues include statement stuffers, drivein envelopes, newspaper ads, television commercials and
the “On Hold” telephone message that consumers hear
when they call a financial institution. These areas should
be reviewed carefully. If they mention your safe deposit
area and also refer to FDIC or NCUA, corrections should
be made immediately.
Web sites—If box rental rates and charges appear on
your site, or just the statement that safe deposit service is
offered, this could create problems because FDIC or
NCUA logos are always printed at the bottom. To correct
this situation and all others listed above, a disclaimer
should be added in at least eight point, bold type that
states: “FDIC or NCUA Does Not Insure Safe Deposit
Contents.”
“No Insurance” signs and disclosures are also being used
nationwide. Displaying carefully worded lobby signs, that
clearly state; “No Insurance is Provided on Safe Deposit
Box Contents” is strongly recommended as it provides
consumers with correct information and could protect
your institution if a disaster occurs.
Employee training is the most critical area. Employees
having frequent contact with consumers must receive very
thorough and continuous training.
Conclusion
After reviewing these items, how did your current safe
deposit marketing and employee training program stackup? It’s important to review and update your safe deposit
procedures now and save yourself the embarrassment of
these “Integrity Issues” later. For more information, please
visit www.sdspec.com. ★
FA L L 2 0 0 6 ★ T C U L
7
News
By Terry Mendenhall
of Terry Mendenhall Consulting
Navigating the maze requires the right
combination of market knowledge, professional staff, and systems support
C
REDIT UNIONS AND OTHER DEPOSITORY INSTITUTIONS
operating in the residential mortgage business have
three basic business models to consider in their strategic planning and management decisions. Choosing
the right model will influence profitability and success of the operation for years to come. In addition, since
the mortgage business is a narrow margin business, volumes are a great influence to profitability.
Successful mortgage lenders should be committed to
volume growth and profitability. As volumes change, lenders
can modify their business model to accommodate the flow
of business and control profitability. Residential lenders with
high volumes, correct pricing, and the right business model
are usually very profitable. Achieving high volumes requires
the right combination of market knowledge, professional
staff, and systems support. Outsourcing of specific
functions is possible in each business model.
Please refer to the illustration for details on
each business model.
The first option for a residential
mortgage operation is to originate and
hold loans within the portfolio, on the balance sheet of the institution. However,
when considering this option, credit
unions have to look at the mortgage loan
asset and its relationship to funding liabilities on the balance sheet. There is a serious
interest rate term gap between assets and liabilities.
Historically, the vast majority of mortgages originated are
long-term fully amortizing fixed rate mortgages, mostly
with 30-year terms. Some of the loans are 15-year fixed
rate. There are sophisticated cash-flow models available for
mortgages at any point in an economic or interest ratecycle that calculates duration and average life of fixed rate
mortgages, since most long-term mortgages prepay early
through either the sale of the home or refinance. In addition, portfolio lenders can consider investing in long-term
loans with shorter re-pricing periods (ARM’s and Balloons)
of one, three, and five years.
The risks of this first model are interest rate risk and
credit risk, but also prepayment risk, capital risk and operational risk are introduced. Even when a funding source that
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T C U L ★ FA L L 2 0 0 6
matches the asset can be obtained, the loan can prepay
early and upset the balance. Operational risk is introduced
by the complexity of the operation that originates and services these specialized assets.
In addition to the net interest income on the loan, the
lender earns an origination fee and other fees, customary
on this type of loan, when the loan is closed. In addition, if
escrows for property taxes and hazard insurance are part of
the loan payment, the credit union earns interest on those
funds on deposit until payments for the taxes and insurance are made. Expenses related to the costs of origination
and servicing personnel, as well as credit losses and capital
costs must be established.
The next mortgage-business model option is what many
call the “mortgage broker” model. The lender establishes a
brokerage arrangement with one, or more, large mortgage
servicers to originate and sell loans based on the servicer’s
wholesale brokerage or correspondent program. The large
entity issues product guidelines and required
rates and fees on a daily basis. The credit
union originates the loan, which is then sold
to the servicer after closing. During the origination period, the loan is price-locked onto the servicer’s system, approved for purchase. Once
the loan is sold, the servicing is released to
the purchaser, and the customer makes the
payments to the new owner of the loan (the servicer).
In many ways, the brokerage model is the
simplest model to operate and the place to
start in the mortgage business. There are complexities to this model, especially as volumes
build. That fact means operational risk. However, this
model allows the credit union to focus on one function,
the origination of mortgages. The credit union does have
to manage a minor amount of interest rate risk from the
time loan pricing is locked with a customer loan application to the time it is locked on the servicer’s wholesale delivery system.
Income is all associated with the origination of the loan,
so there is no ongoing annuity, as with net interest income
of a portfolio investment asset. Origination and other fees
are collected, and the credit union keeps any spread from
the difference between the interest rate on the loan and the
bank’s cost of short term funding from the date of closing
until the date the loan is delivered and funded by the investor/servicer.
ILLUSTRATION BY RICK NEASE
Mortgage Business
Model Options for CUs
A real downside to this model for credit
union is that banks, or other financial entities competing with credit unions, own
many of the large servicers. The third option for a mortgage business model is to
operate as a mortgage banker. In this
model, loans are originated, sold, and the
servicing retained by the lender for the life
of the loans. The bank retains the customer relationship for the life of the loan.
The loans are sold to entities that have no
interest in retail banking business relationships with customers. Fannie Mae, Freddie
Mac, Ginnie Mae, Federal Home Loan
Banks, and other specialized secondary
mortgage market investors are generally
not interested in consumer relationships.
This business is highly complex and requires significant volumes, expert systems,
and effective cost management to be successful. It also requires specially skilled and
professional people to manage and execute
it correctly. The risks and rewards can be
substantial, and are much greater than in
the first two business models. There is substantial operational risk in this highly complex operation.
The mortgage business is challenging,
but picking the right business model is a
real key to success. Once that business
model is selected, it can be modified over
time, based on markets and success. ★
FA L L 2 0 0 6 ★ T C U L
9
News
By Allison Castle,
TCUL Communications Director for Advocacy
Are They Registered?
New State Agency Helps Keep Residential Builders/Remodelers in Check
C
REDIT UNIONS WHO FUND NEW HOME LOANS OR
remodeling projects should take note: A new state
agency you might not even know exists could save
your credit union time and money.
The Texas Residential Construction Commission
(TRCC), established by the Texas Legislature in 2003, provides homeowners and builders/remodelers an opportunity
to resolve disputes through a neutral dispute resolution
process. Additionally, the TRCC registers every new home
construction and homebuilders, as well as indoor remodeling projects costing more than $20,000, and projects that
increase the square footage of a home.
Good News for Lenders
The TRCC is an excellent resource for credit unions and
their members.
“We think it’s a good idea for credit unions to make sure a
builder or remodeler is registered with the TRCC before they
fund a loan,” says Patrick Fortner, TRCC Director of
Communications and Legislative Affairs. “We see it as a way
to help protect their investment and their members’ interests.”
According to Fortner, more and more lending institutions across the state are requiring proof of registration before issuing loans.
A simple search on the TRCC web site at www.texasrcc.com,
will find builders and remodelers who are registered with
the commission.
Standards, Warranties and Accountability
Since June 1, 2005, mandatory warranties and performance standards established by the commission apply to all
new homes and qualified remodeling projects that builders
and remodelers are required to honor. Prior to the commission’s creation, builders were not required to offer a written
warranty. Rather, if they chose to not offer a written warranty,
the only warranty that covered the home was an implied warranty of “good and workmanlike construction.” Now there
are definite written standards that must be followed.
Whether you buy a house in Dallas or Dalhart, those
homes are covered by the same warranty and it is the
builder’s job to meet those warranty obligations. Some
builders and remodelers may offer warranties in excess of
those required by the state.
If your credit union issued a loan for a new home or remodeling project on or after June 1, 2005, the new guidelines apply. Including:
•Warranty of habitability: 10 years
•Major structural components: 10 years
•Plumbing, electrical, heating, air-conditioning
and ventilation delivery systems: two years
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•All other components of a home: one year
SOURCE: TRCC, WARRANTIES AND PERFORMANCE STANDARDS
According to TRCC, one of the biggest non-construction
complaints is job abandonment.
When the TRCC receives a complaint about an unregistered builder, the case can be turned over to the state
Attorney General’s office. The TRCC currently does not
have the power to take them to court.
Dispute Resolution
The TRCC dispute resolution process is officially coined
the State-sponsored Inspection and Dispute Resolution
Process (SIRP). According to TRCC, SIRP provides a neutral
process where the commission assigns third-party inspectors
to evaluate a home’s alleged defects and provide a written report of any findings. Homeowners are able to avoid costly,
time-consuming lawsuits through an impartial process.
The third party inspector evaluates the home and its alleged defects based upon the warranty. If the house was
built prior to 2005, the inspector evaluates the alleged defects based upon either the written warranty (if one was issued) or based on the implied warranty of “good and workmanlike construction.” The TRCC can evaluate defects if
they were discovered after Sept. 1, 2003 (the date the
TRCC was officially established).
Example: If homebuyers Mr. and Mrs. Jones have a list of
15 problems with their new house that the builder has refused to fix, they can contact the TRCC, and file a SIRP request. The commission can then send a third party inspector
to complete an unbiased, professional review of the alleged
defects based on their written warranty, or implied warranty.
Mr. and Mrs. Jones would initially be responsible for paying the third party inspector fee of $250. (The party who requests the inspector pays the fee.) However, if the inspector
confirms even one of the alleged defects, the commission
will refund the Jones’ their money and the builder would be
required to reimburse the commission.
Fortner says that in nearly 93 percent of the cases, the
homeowners get their money back.
Protect Your Investment and
Educate Your Members
A person’s home is usually the biggest investment they will
make. For credit unions, a home loan is sometimes the biggest
loan your institution issues. Now, for the first time in Texas an
agency oversees builders/remodelers and ultimately provides
greater consumer protection.
To log a complaint about a builder or remodeler, call
(877) 651-TRCC, or visit the above web site. SIRP forms
are available under “SIRP/Complaints.” ★
By Jill Pharr,
Executive Director of the
Texas Credit Union Foundation
Philosophy in Action
Making
The Grade
Texas CUs educate teens
on money matters
D
ID YOU KNOW THAT ONLY 26 PERCENT OF 13-
to-21 year olds reported their parents actively
taught them about money? Or that in 2001,
more young adults filed for bankruptcy than graduated from college?
These facts demonstrate the serious need for high school
students to learn about personal financial management
prior to graduating from high school. Last year, the Texas
Legislature recognized this need by passing two bills (SB
851 and HB 492) requiring financial education in Texas
high schools as a requirement for graduation. The Texas
Credit Union Foundation (TCUF), through the
Community Investment Fund, is sponsoring the statewide
pilot, established by SB 851 that tests the effectiveness of incorporating the financial education curricula into the classroom. To familiarize educators with the curriculum some
25 school districts participated in a teacher-training day in
June, facilitated by TCUF.
Additionally, HB 492 mandates that Texas public high
schools and charter schools now incorporate financial education into economics courses as required by the Texas
Education Agency.
To support Texas credit unions that work with their local
schools and communities to provide much-needed financial
education, TCUF offers free train the trainer sessions utilizing the National Endowment for Financial Education’s
High School Financial Planning Program (NEFE HSFPP).
“We are training both credit union volunteers and teachers on this curriculum, which is among the approved materials for the financial education requirement,” says TCUF’s
Associate Director Courtney Nickles, who also chairs the
Texas Jumpstart Coalition for Financial Education.
Nickles proudly boasts that the Foundation trained well
over 200 people in the first half of 2006—clearly indicating
an increased interest in financial education.
Nickles points out that the NEFE trainings are part of
the TCUF Financial Education Outreach program, and
are provided free of charge for all participants. All NEFE
materials including student guides are free as well, including shipping.
“We want credit unions and school districts to know
that there should never be a cost barrier to bringing this
outstanding curriculum into schools. NEFE has a firm
commitment that it will never charge for these materials.
Likewise, the Foundation is able to provide these trainings
free thanks to the great support of credit unions around
the state.”
The demand for Financial Education exists in cities all
across the country, including Del Rio, Texas. Local students
and teachers, as well as the parents, are hungry for financial
education and Border Federal Credit Union wanted to deliver. That’s when they turned to TCUF for help and were
introduced to the NEFE program.
Alida Helgerman, marketing and public relations manager for Border FCU, says NEFE has not only prepared
credit union staff with the skills necessary to go into the
classroom and teach financial education, but has opened
doors at their high school.
“Financial literacy for young adults is my passion, and
my mission in reaching out to young people is to plant a
seed of eagerness to learn,” says Helgerman. “NEFE is
wonderful tool. It has a diversity of topics that can be
taught to young adults and these topics are not only educational, but also fun. The NEFE manual is full of valuable
information and I strongly encourage credit unions to take
advantage of the free NEFE workshops presented by
TCUF,” Helgerman adds.
By reaching young people early on, Nickles says credit
unions can help them avoid the pitfalls of developing poor
money habits.
“What can be more rewarding than to know you’ve
made such a tremendous impact on a young person’s life?”
Nickles asks.
If you have yet to take advantage of TCUF’s free train the
trainer sessions, please be aware that there are only two train
the trainer sessions remaining for 2006:
Nov. 3, Corpus Christi
Nov. 7, Austin
Registration information is posted on the Foundation’s
website at www.tcuf.coop. ★
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11
By Linda Webb-Mañon,
TCUL Communications Director
Philosophy in Action
The Value of
Volunteers
Sharing one man’s passion and
belief in the credit union system
Turner has given Security Service Federal Credit
Union (San Antonio) would be a daunting task. This
86-year old has given some 50 years of service to the
organization. Although Turner is no longer a voting member on the board, he continues to serve as director emeritus. This spirited and energetic man assures that as long as
his health permits and the credit union is in need of his
services, he will continue to serve in whatever capacity is
required of him. Of course, he says he would more than
welcome the opportunity to pass the “wand” to a more
junior member who shares his passion and belief in the
credit union system.
The Independent Sector, a leadership forum for charities, foundations and corporate giving programs committed to advancing the common good throughout the
world, determined that the value of volunteer time in
2005 was worth about $18.04 an hour. Based on that calculation, the volunteer workforce, which represents nearly
3.4 billion volunteer hours per year, brings an estimated
$60.5 billion in value. That’s the equivalent of more than
1.7 million full-time employees.
Turner says he has no idea how many volunteer hours
he’s given over the years, and he’s not too concerned about
it. He says he doesn’t volunteer for the recognition or
praise. He certainly doesn’t expect compensation. He volunteers because he feels compelled to do so.
Turner was first introduced to credit unions in 1956.
This young, but mature U.S. Air Force major had traveled
abroad, experienced war and returned home with a mission – to help others.
“When I went off to fight in World War II, I made a
promise to God that if I survived, I would devote my life
to helping others,” Turner says. “Well, I made it home and
I’ve spent the last 50 years fulfilling my promise.”
Turner says he was motivated to volunteer for Security
Service FCU, whose roots are serving members of the military, because he saw the value in credit unions. He truly
believed credit unions could protect military enlistees
from falling prey to expensive check cashers and empower
them to make better financial choices.
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T C U L ★ FA L L 2 0 0 6
A Good Sam's Chapter, assists
others in cleaning up a section
of highway near Allen, Texas
“Over the course of my military career, I’ve seen too
many young members of our military taken advantage of
by unscrupulous fringe financial service providers,” notes
Turner. “Many of these young people, who had visions of
a successful military career, found themselves stripped of
security clearances because of their financial difficulties.”
Turner, who retired from the military at age 57, sees
credit unions as part of the solution. In fact, he has witnessed first hand on numerous occasions how Security
Service FCU, which now has a much more diverse field of
membership, has bailed young people out of sticky financial situations.
His hope is that some of the young people helped by
their credit unions will one day step up and want to give
back. “When I was first voted onto the board at Security
Service, we were a much younger board. Most of us were
in our 30s or 40s,” recalls Turner. “Today, we’re a much
older board —in fact, most are in their 60s and 70s. At 86,
I’m by far the oldest.”
Turner does not believe the absence of young people on
the board necessarily reflects a lack of desire or motivation
to get involved in community service, but rather a lack of
time. “Young people today have a lot of pressures. They
have demanding careers and family obligations,” Turner
observes. “Many simply do not have the time to devote to
the awesome responsibilities expected of board members
today.”
Indeed, the experience and skill sets required to fulfill
the Board’s governance responsibilities post-Sarbanes
DARNELL JEAN
T
O PUT AN ECONOMIC VALUE ON THE TIME CLIFF
There is no question: volunteers are perhaps an
organization’s most valuable asset—
and credit unions are no exception.
Oxley are much more complex than 10 or 20 years ago,
notes Karen Houston, vice
president of OnBalance.
“Just as the qualifications
and core competencies for
staff are changing to meet the
challenges of credit union operations today, so must the
boards,” says Houston.
In a speech given over the
summer, National Credit
Union Administration
(NCUA) Vice Chairman Rodney Hood acknowledged the critical role volunteers play in the credit union movement and how
the safety and soundness of credit unions greatly depends upon
maintaining healthy continuity of leadership on their volunteer
boards. He further emphasized the importance of succession
planning in credit union board leadership and the development
of core competencies essential to developing trends in the credit
union industry.
There is no question: volunteers are perhaps an organization’s
most valuable asset—and credit unions are no exception.
Unfortunately, recruitment of volunteers is a challenge faced by
many organizations, including credit unions.
“More people are interested in short, episodic opportunities,”
says Mei Cobb, senior vice president for infrastructure development and delivery systems for the Points of Light Foundation.
This creates a challenge for organizations that depend heavily on
long-term volunteer commitment.
“Nonprofits need to explore ways to create more flexible workdays for potential volunteers with regular jobs,” Cobb suggests.
“Many volunteers want to give time in relatively small, complete
units, with a definite end point measured in hours or days instead of ongoing, in-depth commitment. Time has become more
precious than money.”
Houston says it is critical for credit unions to develop a succession plan that addresses core competences, as well as roles and expectations for their board members, including a code of ethics,
management and control and educational requirements. She also
notes that credit unions should employ strategies to engage peo-
ple of all generations, races, faiths and professional backgrounds
to reflect changing demographics of their membership.
“If credit unions do not take proactive steps to recruit
younger, more diverse board members, they potentially may
wake up one day with no board members,” warns Houston.
“Effectively recruiting board members is an incredibly important responsibility of the board and the CEO. Not only is it important to identify qualified, enthusiastic candidates, but also to
ensure candidates fully understand the commitment that board
service requires.”
While board members like Turner understand that the make
up of the board should be reflective of the membership, he’s not
quite sure how to address the apathy towards long-term volunteerism that seems to exist.
The Points of Light Foundation and Volunteer Center
National Network have developed a set of characteristics that
exist among highly effective volunteer organizations. The four
key action principles are:
Lay the foundation through mission and vision. Volunteers
and their contributions should be a core organizational value
that is communicated with and shared by both staff and volunteers.
Combine inspiring leadership with effective management.
The organization should have administrative structures and
clear direction that enable it to encourage and facilitate highimpact volunteer involvement.
Build understanding and collaboration. Staff and volunteers
should be viewed as valued contributors working together
as partners in a team effort to accomplish the work of the
organization.
Learn, grow, and change. The organization should
dynamically and continuously examine and improve its operations and broaden its volunteer base to include all segments of
the community.
By approaching volunteers proactively and strategically, credit
unions can reap many benefits. Not only will they benefit from
the energy, knowledge and wisdom offered by their volunteers,
but they also can ensure those volunteers will remain loyal, lifelong members of the credit union. Now that’s value. ★
FA L L 2 0 0 6 ★ T C U L
13
Philosophy in Action
Sharing the
PHOTO BY KEYSTONE/GETTY IMAGES
Passion
Turner says he’s simply
fulfilling his life’s mission
C
LIFF TURNER NORMALLY IS NOT A MAN OF FEW
words, but when told he had been selected as
the Texas Credit Union League’s (TCUL) 2006
Volunteer of the Year, this vibrant, larger-thanlife credit union promoter was utterly speechless.
“This is certainly not something I had expected,”
Turner said upon learning his peers had selected him
for this distinguished award. “I am so grateful and
appreciative to know that the credit union community holds me in such high regard.”
At 86, Turner has been a credit union volunteer
for much of his adult life. The membership of Security Service FCU officially elected him to its board of directors in 1959. In the 1960s and 70s,
Turner traveled extensively—often
times at his own expense—visiting
more than 37 military command
units, including overseas locations,
promoting credit union membership.
His tireless efforts helped bring lowcost financial services to thousands of
military personnel stationed around
the world, many in remote and isolated locations that did not have access to a financial institution. In fact,
Turner is solely responsible for the establishment of the first Security
Service FCU military branches in Korea, Japan,
England, Germany and Greece.
Of course, Turner’s involvement with credit
unions goes beyond his service to Security Service
FCU. He has served as a devoted mentor to small
credit unions over the years, providing them guidance and encouragement. In fact, he was a strong advocate for Security Service’s support to Bexar County
Teachers FCU, which included providing them with
equipment and furniture, data processing support,
financial investment and human resources assistance. That support, which continues today, helped
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T C U L ★ FA L L 2 0 0 6
Circa 1948: An American transport plane, volunteering in the Berlin
Airlift, at Gatow Airport having just landed with 23 tons of flour for
the Berlin population, during the Berlin blockade of the city.
the credit union through some tough times and
helped it remain viable in an increasingly competitive marketplace.
Turner has dedicated his life to the promotion of
credit unions. For years, he served on various committees of the National Association of Federal Credit
Unions (NAFCU), and in recognition of his efforts,
he was named NAFCU Volunteer of
the Year in 1979. Turner has also actively participated in the programs of
the Alamo Chapter of Credit Unions
and has spent countless hours on the
road traveling to national credit union
conferences and participating in credit
union advocacy activities to help promote the credit union movement.
As a member of the Security Service
FCU legislative affairs committee, he
has personally met with elected officials
and their staffs in Austin and
Washington, D.C., articulating credit
union issues and urging support of
Turner credit union legislation.
“We’re delighted that Cliff has been
selected as TCUL’s Volunteer of the Year,” said David
Reynolds, Security Service FCU president and CEO.
“Through his more than 50 years of dedication to
Security Service and the credit union movement, he
has established a benchmark of service for others to
strive for. We’re very proud of him.”
Humbled by the recognition, Turner says he is
simply fulfilling his life’s mission. He says it is his
strong faith in God that has shaped him into the
man he is today. And it is his hope that people in the
industry will remember him for his willingness to
put others’ welfare above his own. ★
TexasLeaguer/Ser Technomogy TCUL
10/12/06
3:48 PM
Page 15
The modern cooperative era dates to 1844
There are seven internationally recognized cooperative principles
which guide all co-ops in doing business
Power of a co-op: Approximately 35 cooperatives have
annual revenues in excess of $1Billion
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T C U L ★ FA L L 2 0 0 6
ILLUSTRATIONS BY KEN ORVIDAS
MAIN POINTS
By Paul Hazen
C
hances are if you’re reading this, you’re a
member of at least one cooperative—
your credit union. Cooperatives in
America are as old as the nation itself.
The first successful U.S. cooperative was
organized in 1752 when Benjamin Franklin
formed the Philadelphia Contributionship for the
Insurance of Houses from Loss by Fire—the nation’s oldest continuing cooperative. >>>
FA L L 2 0 0 6 ★ T C U L
17
“There are an estimated 750 million
co-op members worldwide. Both in this country
and around the globe, cooperatives thrive
because the concept is so universally
appealing—people or businesses banding
together to serve the needs of the group.”
The modern cooperative era dates to 1844, when the
Rochdale Equitable Pioneers Society was established in
Rochdale, England. These pioneers wrote down a set of principles to operate their food cooperative. These principles contributed to their success and spread to other cooperatives around
the world and became the foundations of today’s global cooperative system.
Co-ops typically are formed when the marketplace fails to
provide needed goods or services at affordable prices or of acceptable quality. Among other things, cooperatives provide
childcare, financial services, food and grocery services, health
care, housing, insurance, agricultural marketing services and
electric, telephone, Internet, satellite and cable TV services.
The seven internationally recognized cooperative principles
guide all co-ops in doing business. They are:
voluntary and open membership;
democratic member control;
member economic participation;
autonomy and independence;
education, training and information-sharing;
cooperation among cooperatives, and
concern for community.
In part because the cooperative community is so diverse, there
is no firm estimate of how many co-ops we have in the United
States. Past estimates have ranged as high as 40,000. A report prepared last year by the National Co-op Month Committee found
21,367 co-ops in just six co-op sectors. Those co-ops alone serve
130 million members—or six in 10 of all adult Americans.
Many people are surprised at those numbers. They think of
the United States as such a bastion of capitalism. That’s certainly
true. But it also has a very strong and vibrant co-op sector.
U.S. cooperatives range in size from small storefronts to
Fortune 500 companies. Approximately 35 cooperatives have annual revenues in excess of $1 billion. The top 100 co-ops have a
combined $130 billion in revenues. They serve Americans of all
economic levels and walks of life. They are bustling hubs of commerce that include some very familiar names, like Land O’Lakes,
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T C U L ★ FA L L 2 0 0 6
Ace Hardware, and Nationwide Insurance. Many of our bestknown franchises are purchasing co-ops, including Carpet One,
Dunkin’ Donuts, and Burger King. If your hometown newspaper
carries stories from the Associated Press, it’s a member of a co-op.
The C-SPAN, cable channel that carries Congress, is a co-op.
Even the Green Bay Packers operate as a co-op.
The economic impact of co-ops is considerable, reflecting the
large number of Americans who are their owners or customers
and the role co-ops play in generating business activity. For example, the 21,367 cooperatives identified by the National Coop Month Committee employ more than 500,000 Americans,
with aggregate payrolls of more than $15 billion annually. They
generate total annual revenues in excess of $211.9 billion.
There are also some very positive trends within the individual
co-op sectors:
Credit union membership is growing steadily, to more than 86
million. While the number of credit unions has declined in recent years, that is primarily from mergers. Today’s approximately 9,000 credit unions have $668 billion in assets and
$443.5 billion in loans outstanding.
Membership in rural electric cooperatives has been growing
steadily as well. It now totals 37-million in 47 states, while the
number of utilities is holding steady at approximately 900.
Electric utility co-op lines cover more than three-quarters of
the U.S. land mass.
Agriculture co-ops have a gross business volume of more than
$111 billion per year and 2.8 million members.
Some 270 rural telecommunications cooperatives in 47 states
have grown considerably, and have added new services like
Internet and wireless.
More than 300 food co-ops have approximately 350,000
members and pay back an estimated $4 million a year in patronage refunds. Their sales grew a healthy 13 percent in 2005.
At least 300 business purchasing co-ops represent
approximately 50,000 independent businesses that might
otherwise succumb to the likes of Wal-Mart and Home Depot.
Some 7,500 housing co-ops provide homes for more than
3 million families.
Despite these favorable trends, cooperatives face some challenges today. There is less appreciation for co-ops than in years
past—and a clear shift away from co-op values. Many in
Congress, the media and the public now consider the mutual
form of business less worthy than investor-ownership. This has
contributed to a less-than-friendly legislative and regulatory environment and has encouraged outright attacks on co-ops from
their investor-owned competitors.
But co-ops are fighting back, scoring victories in Congress and
offering innovative solutions to some of the nation’s—and the
world’s—most serious problems.
There are an estimated 750 million co-op members worldwide. Both in this country and around the globe, cooperatives
thrive because the concept is so universally appealing—people or
businesses banding together to serve the needs of the group. But
as old as the business form is, cooperatives have never been more
modern in the way they operate. Like some other businesses, cooperatives are continually evolving to meet their members’
needs, with new cooperatives starting all the time. ★
The National Cooperative Business Association is the national
voice for cooperatives of all types. Since 1916, it has been helping coops compete in a changing economic and political environment.
NCBA also gives co-ops a strong, unified voice on Capitol Hill.
FA L L 2 0 0 6 ★ T C U L
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&
Tireless
Outstanding
By Linda Webb-Mañon, TCUL Communications Director
O
ONE RUNS A SUCCESSFUL $230 BILLION IN ASSETS CREDIT
union in Houston with 75 employees, while the other leads a
small, but thriving credit union with seven full time employees
in neighboring Bay City. They each face their own unique challenges and opportunities, but because they’re part of an international movement, both of these award winning credit union
leaders know they aren’t swimming alone in the vast sea we know
as the financial services industry.
“Credit unions are like no other financial institution. We are
like family – offering support through turbulent times and guidance when faced with uncertainty,” says Linda Mann, CEO of
Matagorda County Teachers Credit Union and this year’s recipient of the Small Credit Union Achiever’s Award. “I truly believe
that among credit unions of all asset sizes there is a great appreciation for what the credit union movement stands for and a deep
understanding of the fact that we are all in this together.”
who truly wanted to meet the financial service needs of all of their
members in a difficult position. By working together at the grassroots level, Mann recalls how they were able to effect change.
The credit union movement was also able – through grassroots
tactics - to effect sweeping changes with HR 1151. Both leaders
agree that creating a legislative and regulatory environment conducive to growth has not come without sacrifices and dedication
from credit union professionals and volunteers alike. And both
agree that this movement is not driven by selfish motive or profit,
but rather a sincere desire to ensure all consumers have access to
affordable financial services and the opportunity to build wealth
in a country known as the “land of opportunity.”
“It is my hope that one day every household will have a credit
union member, and the general public will understand our not-forprofit, cooperative nature,” says Sheffield. “And wouldn’t it be icing
on the cake if the banks would just ‘knock it off’!” she chuckles.
“The Awards & Recognition Committee unanimously selected
Mann and Sheffield for their tireless dedication and outstanding accomplishments that have benefited the movement as a whole.”
With the banking industry putting increased pressures on our
lawmakers to tax credit unions, Members Choice Credit Union
CEO Barbara Sheffield and this year’s recipient of the prestigious Professional of the Year Award, says it will be more critical
than ever for credit unions to band together to protect our future
and maintain the integrity of the movement.
“It really is unfortunate that we have to allocate resources to
fight a battle launched by a banking industry that seems unusually threatened by ‘friendly’ competition, but that is our reality.
The threats we face have been launched in the courts, the legislature and through very skillful public relations personnel hired by
the banking industry,” says Sheffield. “This is not a battle credit
unions can afford to fight individually. We will most certainly
have greater success against the bankers and be a far more viable
industry, if we continue to work together.”
Both Mann and Sheffield have experienced first hand how
grassroots efforts have helped shape the future of the credit union
industry. Mann, who began her credit union career in the early
‘70s, recalls an important grassroots meeting that took place in
Austin in the 80s. At that time, credit unions were unable to
charge more than 12 percent on a loan. This put credit unions
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T C U L ★ FA L L 2 0 0 6
Mann and Sheffield, both of which have longevity in the
movement, were honored during a special awards ceremony at
the Texas Credit Union League’s Leadership Conference &
Solutions Expo in San Antonio last month. Both expressed their
surprise, gratitude and honor for having been chosen for these
distinguished awards.
“It’s very humbling to know that my peers nominated me for this
award, especially when there are so many wonderful people in this
industry equally deserving,” says Mann. “To receive this degree of
respect and recognition from my peers is just a wonderful feeling.”
Sheffield, who was nominated by her staff, couldn’t agree more.
“When my senior leadership team said they had nominated
me for the award, I already felt like a winner! It is an honor and
privilege to have received this recognition, and it is truly the pinnacle of my career,” says Sheffield. “It pleases me to know others
value my leadership, passion for serving members, and dedication to the credit union industry.”
The Awards & Recognition Committee unanimously selected
Mann and Sheffield for their tireless dedication and outstanding
accomplishments that have benefited the movement as a whole.
Following are profiles on both award recipients. ★
Barbara
Sheffield
Professional of the Year Award
Accomplishments:
Under Sheffield’s leadership, the credit union has:
Tripled in size, from $75 million in assets to $230 million;
Experienced at least 21 percent loan growth in
last two years;
Implemented new programs for members such as
24/7 loan application service nationwide, surcharge free
ATM network;
Developed sales incentive and career path programs
for employees;
Honored as one of Houston Business Journal’s
“Best Places to Work” in 2001 and 2003;
Received the “Best Customer Service” award by
Katy residents;
Earned the “Educational Partnership Award” from
West Houston Chamber;
Won TCUL’s 2005 Award for Advocacy Excellence
Involvement:
Appointed by Governor Rick Perry to a six-year term on
Texas Credit Union Commission;
Served four years on the TCUL Legislative and Regulatory
Advisory Committee; Served as Trustee for the Texas
Credit Union Foundation (TCUF);
Served on TCUF’s Grants Committee and Investment
Fund Taskforce;
Served on TCUL Communications Advisory Board &
Public Relations and Communications Taskforce;
Served on Texas Credit Union Shared Services Committee;
Served on Board of Directors of Houston Chapter of
Credit Unions for two years, and
Served as Chairperson for the Community Service
Committee of Houston Chapter
CEO, Members Choice Credit Union
from 1996 to present
Community Contributions:
Taught the National Endowment for Financial Education’s
High School Financial Planning classes at two local high
schools;
Taught adult financial education for the economically
disadvantaged;
Appeared on Channel 13’s “Morning News” representing
the Houston Chapter Food Drive, and
Appeared as featured guest on “Dick Alford’s Financial
Show” on 650 AM radio
>>>
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Linda
Mann
Small Credit Union Achiever’s Award
Accomplishments:
Graduated from CUNA Management School in 1982
Received the Certified Credit Union Executive
Designation in 1998
Involvement:
Active in the Texas Crossroads Chapter of Credit Unions
since 1980, serving in a variety of capacities, including
Secretary from 1980-1983 and President from 1984-1987;
Served as Advisory Director to TCUL Board of Directors
from 1981-1987;
Elected to TCUL Board of Directors from 1987-1995;
Served at TCUL’s leisure on various committees throughout
the 1990s, including Legislative Committee, Finance
Committee and Field of Membership Task Force;
Served as CUNA National Director from 1992-1995;
Elected to the Board of Directors for Southwest Educators
Association, where she served first as Treasurer and then
Vice President, serving a total of five years, and
Appointed to the Credit Union Commission, from 19941999, serving on the Legislative Advisory Committee from
1996-1999, and as Chair of the Commission during the
Sunset process.
Community Contributions:
Served on the Board of Directors for the Bay City Chamber
of Commerce & Agriculture from 1996 to 2000, holding the
positions of Treasurer, Chairman-elect, Chairman and past
Chair;
Appointed to the Convention & Tourist Bureau for Bay City
from 2000-2004, and
Past member of the Bay City United Steering Committee,
which is a long-range planning committee to encourage the
growth of Bay City.
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T C U L ★ FA L L 2 0 0 6
President, Matagorda County Teachers CU since 1978.
Mann has been with the credit union since 1973.
“Credit unions are like no other
financial institution. We are like
family – offering support through
turbulent times and guidance
when faced with uncertainty,”
SAYS LINDA MANN
Professional Development
By Kylie Giancotti,
Southwest Marketing Division Manager,
CUNA Mutual Group
Going Round
and Round
Sales is Service,
and Service is Sales
R
ANDOLPH-BROOKS FEDERAL CREDIT UNION (SAN
the same story again and again from members who say, ‘No
Antonio) sees its strong sales and service culture as a
one ever took the time to ask before,’” adds McDonald.
natural way to deliver on its mission—to improve
the economic well-being and quality of life of its
Credit union shares in success
members. Every employee of the San Antonio credit
The mission brings growth and prosperity to the credit
union—membership includes two military
union, as well as members. In the year endbases, 1,000 select employee groups, and
ing in August 2005, Randolph-Brooks has
eight underserved community chartered
“It’s all about seen a 6 percent increase in check card peneareas—considers that mission statement to
uncovering tration, an 11 percent boost in online bankuse, and an 18 percent increase in the
be part of their job description.
member needs ing
number of households with vehicle loans.
“Our mission is our core. Everything emand finding Much of the increase relates to the conanates from that,” explains Sonya
solutions
to cept—reinforced by training—that sales is
McDonald, vice president of Sales
meet those service and service is sales.
Operation and Business Development at
needs”
To support its mission, Randolph-Brooks
the $2.4 billion credit union. “We want to
focused on turning single-service “savings acgive our members a fair deal.” If the credit
count only” households into multiple-service
union can provide a service without a fee
users. In the past year, it reduced the number of “savingsfor its 232,000 members, it darn-sure will. CEO Randy
Smith wouldn’t have it any other way.
only” households by 6.45 percent.
“It’s all about uncovering member needs and finding
Members gain from probing questions
solutions to meet those needs,” McDonald says. “But you
A “sales and service” culture—as opposed to a “product” or can’t improve members’ lives if they don’t know what you
“promotion” culture—is all about helping members, says
offer. And members won’t know what you offer unless
McDonald. Therefore, Randolph-Brooks trains its staff to
you ask.” ★
listen for member needs (ask probing questions) and then
find the appropriate products and services.
ASK PROBING
How good is that for members? By listening and asking
QUESTIONS:
questions, one credit union employee replaced a 14 percent
loan from another lender with a 4 percent loan from
Here are three examples of effective,
Randolph-Brooks for a Purple Heart veteran who had
high-impact questions:
fallen on hard times. In another case, a credit union employee turned a 22 percent auto loan obtained elsewhere
What do you like/dislike about doing business with
into a 7 percent credit union loan.
financial institutions you’ve had in the past?
How firmly does Randolph-Brooks believe in this approach? It launched a credit union-wide training program
What do you look for in a __________________?
for all 640 employees in February 2005, beginning with
(any product or service the credit union provides)
the executive team and continuing throughout the organization. “We always talked about meeting member needs,
What other financial needs do you have that we
but we never showed employees how to do it in front of a
should spend some time talking about today?
member,” McDonald says. Now the employees know that
the approach translates into gains for members. “We hear
1
2
3
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T C U L ★ FA L L 2 0 0 6
By Andrea G. Chewning,
Asst. Vice President,
Risk Management & Compliance
Red River EFCU (Texarkana)
You Are
Our Hero
Red River EFCU helps ‘take a bite out of
crime’ with Hero of the Day program
E
VERYONE APPRECIATES A PAT ON THE BACK WHEN
they have done a good job and Red River Employees
Federal Credit Union (Texarkana) has taken it one
giant step further.
In the past several years, just like every other financial
institution, Red River EFCU had been experiencing an
increasing amount of check fraud—counterfeit and altered checks, money orders, and cashiers checks—along
with stolen checks and plastic cards.
Early this year, our new risk management/compliance
department was formed to deal with this growing problem. Management had already implemented stricter
guidelines, but we needed a way to educate our employees,
as well as keep them aware of fraud prevention and safety
concerns each time they helped a member.
That’s when Red River EFCU employee Christian Pool
thought of sending Hero of the Day emails to all employees. Each time one of our employees discovers a fraud, we
publicize it by sending an internal email containing:
check in the mail for her “lottery winnings,” he immediately knew it was a scam and told her to bring the check to
us so we could investigate it for her.
Hero of the Day is not just for tellers or member service
employees. One of our loan officers sent a friend to see us
about a suspicious check she received and we ended up
saving her over $2,600. Even the local police department
has sent a “lottery winner” to us so that we could verify if
the check he received was legitimate or fraudulent.
Unfortunately, we had to break the bad news to him.
Hero of the Day has saved both our members and the
credit union from substantial monetary loss, but it has
done so much more. Our employees are more alert to possible problems at their counter and throughout the building. They have a greater awareness and understanding of
the rapidly changing tactics of fraudsters. ★
an explanation of what happened;
the amount of money he/she saved the
member and the credit union;
a scanned copy of the fraudulent check;
information about what to look for in both
good & bad checks;
a picture of the employee, and
an appointment of that employee as Hero of the Day!
Reading and listening to the employee comments after
we sent the very first Hero of the Day email, we knew we
had a winning idea. The employees love the recognition
and friendly competition for the honor has grown credit
union-wide. The employees at each of our offices have
started working as a team to discover all types of fraud and
to help save our members from the inconvenience and expense of becoming victims of fraud.
After several months of reading Hero of the Day emails,
employees are spreading the word about fraud to more
that just our members, but family and friends, too. In fact,
when the mother of one of our student tellers received a
FA L L 2 0 0 6 ★ T C U L
25
Professional Development
by Michael York
The Michael York Company, Inc.
Personal Development is Personal,
and Commitment is the
Key
Commitment is Cool.
And what’s even cooler is how it can lead you to remarkable results. One of the great myths of top performance and big success is that it’s all about motivation. It’s motivational speakers and motivating sales
people and paying the price and blah, blah, blah.
News flash: Motivation is temporary. Success in anything demands the constant of commitment - yours.
Commitment is stronger than motivation. But before you can commit, to anyone or anything, you must
believe. Walt Disney once said of making dreams come
true, “When you believe in a thing, believe in it all the
way, implicitly and unquestionably.”
Commitments are a big part of personal development - and life and work and relationships and getting
the most from each. It’s just another reason why personal development is so, well, personal. Because some of
the things I’ve committed to might not hold the same personal value to you. And visa versa.
Commitment means you resolve to do what it takes on
a consistent basis, even when you don’t feel motivated.
Like today. Or maybe tomorrow. What have you committed to that means no matter how you feel you’re keeping
on? Your marriage? Parenting? Your work? Selling?
Reading? Listening? Writing? Teaching? What have you
committed to?
The clues of success are yesterday’s wisdom and today’s
revelation all rolled into one. They are historic clues and
visionary thinking. But the reason you absolutely must be
something or see something or become something is personal. And it requires a commitment on your part to arrive
at your desired destination.
Become a History Major
History can give you the model to high achievement: the
clues, the stories, the successes, the way others did it. The
only thing you shouldn’t accept from history is why it’s never
been done before. That’s the limitations of the past. And this
is the Future. The impossible is done everyday, somewhere.
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T C U L ★ FA L L 2 0 0 6
PHOTO COURTESY OF MICHAEL YORK
[EDITOR’S NOTE: Recently Michael York delivered the closing keynote
address at the Texas Credit Union League Annual Meeting in Galveston. It
was certainly an UNCOMMON experience for all in attendance including
York, who expressed his congratulations to our leaders, volunteers, and
members on their “commitment to doing what you do better than anyone
else in the marketplace.” When we asked York to provide a column on
COMMITMENT, here was his reply…]
You could be next in line for breakthrough success.
The Greek philosopher Epictetus was onto something in
the second century. “First say to yourself what you would
be; and then do what you have to do.”
How can you become better at commitment? Make it
Personal. Here’s my short list:
Commit to Beginning.
Beginning to do what you’ve never done to become what
you’ve never been. Beginning is exciting. It’s an adventure
to start something. At least try looking at it from that uncommon perspective. The clichés of the masters aren’t all
clichés. It is true that you don’t have to be great to start
something, but you do have to start something to become
great. Perhaps it’s attending the next annual meeting.
Commit to Thinking.
What if Napoleon Hill was right? Think, and grow rich.
What if there really was something to Sir Isaac Newton’s answer to the question on how he discovered the law of gravity? “I thought about it all the time.” How about Ralph
Waldo Emerson’s clue, “We become what we think about all
day long?” Hmmm. The evidence begins to pile up when
“The clues of success are yesterday’s wisdom and today’s
revelation all rolled into one. They are historic clues and visionary
thinking. But the reason you absolutely must be something or
see something or become something is personal.”
MICHAEL YORK
you become a good student. Think. Deeply. And then capture
your thoughts on paper. Before you know it, you’ve got a vision
and written goals on how to get there. And to help you, go to your
league’s next education program.
Commit to Giving.
Giving makes you bigger than you are. The more you give, the
more you pour out, the more life will be able to pour into you.
For what are you thankful? What have you been given in life?
And how do you measure what you have?
Try measuring your worth not in dollars or possessions, but the
things in your life for which you would not take money. Priceless
things not for sale at any price. Things like leading a chapter event.
Commit to Life.
Don’t trade living for existing. Life is bigger than work, not
everyone got the memo on that one.
It was my great pleasure to be a part of your UNCOMMON
CONFERENCE. I enjoyed meeting many of you and look forward to being a part of future league events.
Until then commit to getting involved and to continuing the
process of BECOMING.
Become known as a person of ACTION! ★
If you’d like the rest of Michael’s list on COMMITMENT email
him at leader@michaelyork.com or for more info visit his website at
www.MichaelYork.com
FA L L 2 0 0 6 ★ T C U L
27
small Credit Unions
Focused on the
Future
League Committee helps
Small CUs Suceed
R
ECOGNIZING THE UNIQUE CHALlenges smaller asset-size credit
unions face in the ever-increasing
competitive financial services industry, the Texas Credit Union League
(TCUL) continues to look for opportunities to serve as a valuable resource and partner for success. One example of this is the creation of the small credit union task force in 1999.
The focus of the task force was to bring small credit union
leaders together to address the challenges and needs of
small credit unions in the Lone Star state. In 2002, the
group was changed from a task force to a committee, reporting to TCUL’s board of directors. Lynda Milton, CEO
of Houston Teamsters FCU, has been involved with the
group since its inception.
“The Small Credit Union Committee is a valuable
resource for small credit unions. We are a cohesive and
energetic group who are continually challenging ourselves
to think big, look outside the box. We focus not on problems, but on solutions,” says Milton. “We most definitely
are not a token committee. We are making an impact.”
The Small Credit Union Committee meets quarterly
and the key areas they focus on are:
Education – ensuring training is available to small credit
unions
Communication – increasing involvement
through networking
Advocacy – are small credit unions involved;
are we providing a unified voice
Brand – what image are we portraying of ourselves
Resources – do small credit unions have access to the
resources that will allow them to compete in the market
space
The committee’s mission is simple, to empower small
credit unions to remain vital and healthy, and also to foster communications between the League, chapters and
all Texas credit unions.
“Being the leader of a small credit union, I know what
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T C U L ★ FA L L 2 0 0 6
By Linda Webb-Mañon,
TCUL Communications Director
1st Row
1. Rita Dexter, NRCS FCU
2. Sherry Roman, T&P FCU (Secretary)
3. Lynda Milton, Houston Teamsters FCU, Chair
4. Suzanne Chism, Texas Health Resources CU, Vice-Chair, (Asset Category
"B" Director)
5. Carol Murray, Southeast Community CU (Asset Category "A" Director)
2nd Row
1. Fran Theiss, LCRA CU (Austin Area)
2. LaWanda Drennan, Sweetex CU (East Texas Area)
3. Teri Portillo, Women's Southwest FCU (Dallas Area)
4. Gary Parker, 1st University CU (Central Texas Area)
5. Sherri Schaible, Pamcel FCU (Amarillo/Top O' Texas Areas)
6. Linda Tudyk, Express-News FCU (Alamo Area)
7. Betty Shelton, Gudalupe Valley FCU (TexasCrossroads Area)
“The Small Credit Union Committee is a valuable resource for small
credit unions. We are a cohesive and energetic group who are continually challenging ourselves to think big, look outside the box. We
focus not on problems, but on solutions,”
LYNDA MILTON, CEO OF HOUSTON TEAMSTERS FCU
it’s like to have to wear so many hats. I’ve been a teller, a loan
officer, compliance officer—you name it, I’ve done it all.
Sometimes I feel I’m stretched like a rubber band,” chuckles
Milton. “But I wouldn’t change it for the world. Being at a
small credit union, you learn so much—you’re challenged
every single day. And it’s nice to know that you have a network—a support system. That is what the small credit union
committee is.”
In addition to attending quarterly meetings, each member of
the Small Credit Union Committee, facilitates small credit
union training sessions in their respective areas of the state.
Milton says these local training sessions offer a forum for the
exchange and discussion of ideas and best practices.
Committee members tap into available resources through the
League and NCUA to provide quality speakers who are experts
in their fields, whether it’s compliance issues, developing policies and procedures, or creating comprehensive
marketing strategies.
“These local meetings are a tremendous resource for small credit unions. At these meetings, we are able to talk with other credit union
leaders who are experiencing some of the same
challenges as we are and together, we are able
to find solutions to these challenges and also
identify opportunities,” adds Milton.
In addition to the Small Credit Union
Committee, the League also has a small
credit union development department. This
department provides assistance and serves as a
communication link between small credit
unions and the league. Specifically, the small credit union department, among other things:
Assists small credit unions with compliance,
operational and other needs;
Provides a link with small credit unions through
“broadcast fax” and other forms of communications;
Encourages and assists small credit unions in
applying for grants through the Texas Credit
Union Foundation (TCUF);
Organizes training sessions for small credit unions
on compliance and operational topics;
Promotes political involvement, and
Facilitates the distribution of donated equipment and
furniture for small credit unions.
The small credit union development department is in the
process of developing a web page that is expected to go live later
this year. The webpage is yet another resource for small credit
unions and will be devoted to offering information about group
training schedules, list of committee members, special stories, articles about small credit unions, etc.
Val Atkins serves as the director for the small credit union development department, as well as the liaison for the committee.
Lorri Gaither is also a member of the small credit union development team and is available to assist small credit unions by phone
at (469) 385-6423 or (800) 442-5762, Ext 6423. Credit unions
may also reach Gaither via e-mail: lgaither@tcul.coop. Atkins
may me reached at extension 6824, or via e-mail:
vatkins@tcul.coop. ★
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29
By Paul Montoya,
President of Human Resource and
Management Services
Regulatory
Affirmative Action
Update
R
ECENTLY, A LOT OF PRESS HAS BEEN DEVOTED TO THE
development of Affirmative Action Plans, those government-required documents that state certain credit
unions do not discriminate on the basis of any protected category, but also take affirmative steps to attract
and promote minorities and females.
These Plans have been required for ‘contractors’ since
1965 and in essence, have stated that a credit union must
develop and maintain a written Affirmative Action
Program (AAP) for minorities, women, individuals with
disabilities, special disabled veterans, Vietnam era veterans, and other eligible veterans for each of its establishments if it has 50 or more employees and:
has a contract of $50,000 or more; or
have Government bills of lading totaling or expect to
total $50,000 or more in any 12-month period
serve as a depository of Government funds in
any amount; or
are a financial institution which is an issuing and paying
agency for U.S. savings bonds and savings notes in any
amount; or
is covered by share/deposit insurance*
Although CUNA and NCUA disagree with this decision, the OFCCP is currently unmoved by their opinion
and continues to follow and enforce the regulations as set
forth by The Department of Labor.
Recent events that have taken place concerning
Affirmative Action Plans include:
The New OFCCP Internet Applicant
Recordkeeping Rule was enacted
Effective February 2006
The recordkeeping rule defined four criteria that should
be used to determine if individuals who express an interest
in working for your credit union need to be counted as an
“applicant” for affirmative action purposes. The established criteria are:
The individual submits an expression of interest.
The contractor considers the individual for employment.
The individual’s expression of interest indicates the
basic qualifications for the position.
The individual continues to maintain interest.
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Go to http://www.dol.gov/esa/ofccp/index.htm for
more information.
Policy Notices on
Systemic Compensation Discrimination
Published June 2006
These policy changes revised regulations requiring contractors “to conduct an in-depth analysis of compensation
system(s) to determine whether there is any gender, race,
or ethnicity-based disparities”. Until now, the OFCCP
provided no regulation guidelines on what this analysis
should consist of or whether this analysis needed to be
contained in the Affirmative Action Plan.
The “Voluntary Guidelines” contains guidelines for federal contractors’ self-evaluation of compensation practices.
The second notice entitled “Interpretative Standards” contains standards regarding systemic compensation discrimination that the OFCCP will be using to enforce E.O. 11246.
Go to http://www.dol.gov/esa/ofccp/index.htm for
more information.
EEO-1 Survey Report Revisions
Effective September 30, 2007
Revisions include the new Race and Ethnicity classifications put into effective January 1, 2003 as well as new Job
Categories. Both of these changes were reflected in the
2000 census and have since been phased into federal
agency recordkeeping and reporting requirements.
Go to http://www.eeoc.gov/eeo1/index.html for
more information.
Bottom line, besides having all credit unions with at
least 50 employees apparently required to develop an AAP,
AAPs are deemed valuable and extremely important to the
success of most credit unions because they can streamline
several common HR functions such as
establish compliant employee records according to
applicable employment laws,
define solid career paths to promote employee retention,
track employee growth and development history for
turnover containment, succession planning, and
identify sound practices and procedures that fit the
corporate culture of creating a non-discriminatory, fair,
honest, and equitable work environment.
*THE DEBATE CONTINUES FROM THE LATE ‘70S AS TO WHETHER OR NOT NCUA INSURANCE COVERAGE CONSTITUTES A FEDERAL CONTRACT AND THEREBY SUBJECTING CREDIT UNIONS TO DEVELOPING A WRITTEN AAP. A MAY 12, 2006 FAQ POSTING ON THE CUNA WEBSITE ESSENTIALLY
STATES THAT BOTH CUNA AND NCUA CONTINUE TO MAINTAIN THAT FEDERAL SHARE INSURANCE DOES NOT CONSTITUTE A GOVERNMENT CONTRACT. HOWEVER, THROUGH SEVERAL
SOURCES AND THROUGH THE TEXAS REGIONAL OFCCP OFFICE, “FINANCIAL INSTITUTIONS WITH
FEDERAL SHARE AND DEPOSIT INSURANCE ARE CONSIDERED TO BE GOVERNMENT CONTRACTORS WITHIN THE MEANING OF THE REGULATIONS…”
FA L L 2 0 0 6 ★ T C U L
31
RegulatoryQ&A
By Barri Hamilton
with TCUL Information Central
The
Multi-factor
Adopt the “KISS” Principle When
Implementing Multi-factor
Authentication
R
EMEMBER THE GOOD ‘OL DAYS WHEN A USER NAME and
password were all you needed to log into your credit
union account, online? Oh! You still do? Well, not for
long because credit unions and other financial institutions have until Dec. 31, 2006 to comply with “multi-factor
authentication.” If this sounds intimidating, it’s really not. It
just means that there are multiple authentication methods
required to access an online account. Many credit unions
currently employ what is commonly referred to as “singlefactor authentication,” which means your members access
their accounts with only a user name and PIN or password.
By the end of 2006, all financial institutions must implement multi-factor authentication systems if current methods
to authenticate members in an online environment are inadequate to guard against potential risks. With identity theft at
epidemic levels, our technology must keep up with the fraudsters. To reach that goal, credit unions must conduct a risk assessment to identify the types and levels of risk associated
with their various online systems - from internet banking to
automated telephone voice response.
Credit unions offering online products and services
should have reliable and secure methods to authenticate
their members. The level of authentication should be measured against the risks associated with the products and services available.
Multi-factor authentication, layered security, or other
controls to reduce potential exposure is far more secure than
older, single-factor methods. If single-factor authentication
is the only control mechanism in place, regulators find it to
be inadequate in the case of high-risk transactions involving
access to member information or the movement of funds to
other parties. Credit unions need to be gearing up for multifactor authentication.
In the FFIEC’s guidance,”Authentication in an Electronic
Banking Environment” (http://www.ffiec.gov/pdf/authentication_guidance.pdf), the regulatory authorities offer various authentication tools and methodologies financial institutions can use to authenticate customers:
Passwords and personal identification numbers (PINs).
Digital certificates–Used to verify that users sending a
message are who they claim to be.
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Public key infrastructure–A system of digital certificates,
certificate authorities, and other registration processes
used to verify and authenticate the validity of each party
involved in an electronic transaction.
Tokens–Small physical devices that are used in conjunction
with a password to gain entry to a computer system.
Biometrics–Authentication methods that rely on measurable
physical characteristics that can be automatically
checked. Examples include computer analysis of fingerprints or speech.
Regulators suggest an authentication system with audit
features that can assist you in detecting:
1. Fraud
2. Unusual activities, such as money laundering
3. Compromised passwords; or
4. Other unauthorized activities
Authentication methods generally fall into three categories: Something you know, have or are.
The “something you know” category has been passwords and PINs, but other options are becoming more
common including pre-arranged security questions or
questions that relate to the member’s account history or
their personal credit history.
The “something you have” includes USB tokens that
physically attach to a user’s computer or key tokens,
which display new codes every sixty seconds that must be
entered as part of the log in process. It also includes
smart cards that require special reader devices, and
scratch-off cards — a low-tech option that allows the
user to obtain necessary log in information quickly and
easily with no special hardware required. The “something you are” is biometrics and is the most expensive
and the least used of the three.
Joy Lee, NCUA Director of Supervision, suggests that
whatever method credit unions use – it is most important to keep it user-friendly so your members will embrace the change. Do yourself and your members a favor
– Keep It Simple. ★