NCUA Board Member Gigi Hyland on: The State of Credit Unions

As banking unions struggle with the global crisis in confidence, U.S. credit unions are beneficiaries of consumers looking for safe new homes for their deposits.

At least that's the popular theory. But what's the real state of affairs now at federally-chartered credit unions?

In an exclusive interview, Gigi Hyland, board member of the National Credit Union Administration, discusses:

  • The state of the nation's credit unions;
  • What credit unions must do to succeed at winning new members and deposits;
  • How prepared credit unions are for ID Theft Red Flags Rule compliance;
  • The top three challenges for credit unions in 2009.

Gigi Hyland took office on November 18, 2005, as a member of the NCUA Board for a six-year term. Prior to joining the NCUA Board, Ms. Hyland's career spanned 14 years serving the credit union community.

From 2003-2005, she served as Senior Vice President, General Counsel for Empire Corporate Federal Credit Union in Albany, New York. While at Empire, she represented the corporate by serving as a board member of the National Cooperative Business Association. From 1997-2002, she served concurrently as Vice President, Corporate Credit Union Relations of the Credit Union National Association, Inc. and Executive Director for the Association of Corporate Credit Unions. Ms. Hyland began her career as an attorney serving credit unions at the family firm of Hyland & Hyland.

Currently, Ms. Hyland is Chair of NCUA's Outreach Task Force. The Task Force was created to provide a better understanding of and evaluation of the NCUA's outreach efforts and is in further response to the findings in the agency's 2006 Member Service Assessment Pilot Program: A Study of Federal Credit Union Service. Ms. Hyland serves as NCUA Board representative on the NeighborWorks® America Board of Directors. She also serves as the Board's liaison to the Department of Defense, the Department of Housing and Urban Development and the National Association of State Credit Union Supervisors (NASCUS). Ms. Hyland's term expires August 2, 2011.

Originally from Alexandria, VA, Ms. Hyland holds a bachelor's degree from the College of William and Mary, a JD from George Mason University and an Advanced Diploma in International Law from McGeorge School of Law. Ms. Hyland is a Credit Union Development Educator and received the DE Volunteer of the Year Award for Advocacy in March 2006.

TOM FIELD: The topic today is the state of the Nation's Credit Unions. And we are privileged to be speaking with Gigi Hyland, Board Member of the National Credit Union Administration. Gigi thanks so much for joining me today.

GIGI HYLAND: So happy to join you Tom. Thanks for the invitation.

FIELD: Gigi, as I was looking over your biography this morning it occurred to me that you took office just about three years ago. So I want to say happy three-year anniversary. You've got three to go.

HYLAND: Thank you.

FIELD: How would you say that the job has met or exceeded your expectations so far?

HYLAND: Well, it certainly has exceeded my expectations. It is a true honor and privilege to serve credit unions in my current capacity as a Board Member of the National Credit Union Administration. It certainly has been a time of significant events and changes, and there are many highlights of my tenure that I think have been indicative of the times that we have lived in. Certainly most recently, working with my fellow board members to protect the safety and soundness of credit unions and the shares of their members during this financial crisis has been a preeminent consideration. I think that is evident by the very large effort that the agency has done to promote federal share insurance, not only through the webinar that I hosted, but also through the share insurance tool kit which is available on our website at

Spearheading the use of actually webinar technology via agency to communicate with credit unions and the public on the regulatory issues has been a personal pleasure, and also I think that we found it to be very useful so that credit unions, credit unions and their staff can multi-task, can participate and learn about what's going on at the agency, but can also stay in their offices and do their day job. Sharing the outreach task force effort and working with that group within NCUA to produce a report, and working with the board to implement some of the recommendations have also been a highlight of my tenure so far.

And then I guess last but not least, you know meeting with NCUA Regional Office Staff including examiners every year to identify key examination concerns and internal issues facing the agency has really gone a long way to help me understand the dynamics of all of the issues and how they impact the agency and how they impact credit unions.

FIELD: Well, Gigi, it occurs to me that we are watching history be made daily, sometimes by the hour. Given the global economic conditions and everything that is happening, and the banking industry, what is the state of the nation's credit unions?

HYLAND: You know, Tom, overall credit unions have fared very well during this economic crisis. They are not immune to the ripple effect of the crisis, but if you look at some of the numbers you'll see that the majority are very well positioned to handle the issues that are facing our nation's financial services system. They go in with about 11 percent capital, and they built that capital in good times and it's helping them out to have those strong capital levels, as they see certainly some increases in delinquency, not only in auto loan delinquency but also in real estate loan delinquency that they haven't seen for a long time. Having said that, I think credit unions in a lot of communities are being turned to by consumers as lenders who are still lending, who are still providing credit and borrowing needs to members for loans like small business loans, auto loans, and home loans, where a lot of other lenders have been challenged to continue to provide that lending because of the credit crisis.

FIELD: Well, it is interesting because of course, credit unions come up in the conversation all the time as potentially benefiting and growing from the economic crisis, and I spoke to a credit union conference out in Las Vegas last month and encountered one union that had received 500 new members in the previous three weeks, as the bad news about banks sort of took its toll. What do these credit unions have to do to succeed at winning these new members and deposits that might be fleeing the banks or the markets?

HYLAND: I think credit unions need to stick to the basics that they have always done. You know credit unions in large part have not suffered the ramification of the sub-prime mortgage crisis because they lent according to time-tested principles. They knew the consumer. They understood the collateral the value of that collateral, and they understand the member's capacity to repay. Those three hallmarks of good lending have been practiced by credit unions throughout this time. And I think we are seeing the benefits of that today where again, consumers and most credit unions are in position with loans that are upside down. Now I don't want to leave the impression that everything is rosy because certainly in markets like Florida, Nevada, California, where the real estate values have turned upside down, credit unions in those areas certainly are experiencing much more difficulty in terms of delinquencies ... And if a credit union in a home equity position of second position, you know credit unions have to work through with their members what that means for the member in terms of helping them not lose their home and helping those members not to go into foreclosure.

FIELD: Now, you've had a number of institutions that have failed this year. I'm assuming the real estate has sort of been the common threat among them?

HYLAND: You know, actually that is not a correct assumption. Interestingly enough, I think you would have seen on our website that there has been a great deal of guidance that we've issued on due diligence. And for the credit unions that we found that have been concerned recently or have run into difficulties, we really found that it's been a lack of due diligence that has caused the sort of systemic issues at those credit unions. And what I mean by due diligence is a failure to take into account all of the risks associated with implementation of new programs, and to put it in a very sort of layman's analogy, sort of flying before you crawl -- and those credit unions that we seen have difficulties really have not taken new programs slowly. They haven't looked at the program, measured the risk, monitored the risk, and sort of gone into these programs slowly. They've gone into full-bore and when everything that could go wrong in fact did go wrong, and it was the credit union regrettably that got left holding the bag so to speak. And so what the agency has done is it has made a very big push not only at the policy level, but also at the examination level to really talk with credit unions about common sense approaches to due diligence when credit unions are dealing with an outside third-party vendor they are considering implementing the new product or service.

You know, credit unions absolutely need to partner with outside entities in order to be responsive to member needs, but in doing so they need to exercise that level of common sense and go into things methodically and be able to understand the risk and to measure the risk, and accommodate their business plan accordingly so that the risks don't overtake in fact the value of the product or service they're trying to implement,.

FIELD: Now, of course consumer confidence has been on everybody's minds, and I know that all the institutions are getting questions as fundamental as "is my money safe?" What are the questions that your member unions are hearing most frequently and what are the answers that the institutions are offering to help to bolster this consumer confidence?

HYLAND: They are mostly share insurance related questions. Let me give you an example. Prior to the IndyMac failure, NCUA would receive about 200 calls per month on our consumer help line. And after IndyMac was taken over, we had 3000 calls in one week. We actually averaged about 1900 calls per week in September, and those calls are coming in not only to NCUA here at the central office but into our regional offices and certainly at credit unions as well. And that is why the agency felt it was so important to put together a very clear, easy to understand, share insurance tool kit on our website that is really useful not only at credit unions, but more importantly I think to consumers. You may have seen the ad campaign that we've run in a variety of key media outlets that tells consumers that their funds are insured up to the new $250,000 limit. As I indicated, we held a webinar on October the 7th that provided the very basics of share insurance coverage and provided a power point presentation that credit unions can use to really make sure they understand the coverage and can explain it to their members. And on top of that, we have a series of frequently asked questions that we're posed during that webinar that we've put in a word documents, we've given the answers, and again that is going to be available to members. And just to let you know, we actually should be posting that archived webinar with all of the supplemental information within the next day or two. So that resource will also be available to credit unions. And you know, the push within the last eight weeks, Tom, has really been to make consumers understand that their accounts at federally-insured credit unions are insured equally to accounts that they might have at institutions which are insured by the FDIC. So that folks really understand that they can have some confidence that their money is safe and secure.

FIELD: Very good. Now budgets are tight, certainly resources are scare, what do you see as being the economic impact on risk management and regulatory compliance of things that institutions really can't afford not to pay attention to?

HYLAND: Well, I think again due diligence is probably a key now and also going forward. I think the allowance for loan loss funding is going to be critical in the coming months because, as I indicated, while delinquencies are not enormously high, they are going up. We've seen them go up throughout 2008, and I think credit unions need to mindful of that. I think credit unions need to mindful of managing appropriately and humanely the collections functions within their organization. And then, last but not least, I think you're right: The economy is not in a good situation. There certainly aren't any predictions that it will get better any time soon, so credit unions are going to have to understand how to work within fairly small margins and still be responsive to member needs, which is no easy feat.

FIELD: In terms of regulatory compliance Gigi, do examiners bear the economy in mind when they are out examining institutions? Is there any sort of a break, I guess -- does anyone get a break in these times?

HYLAND: You know, very much so, and if there is anything that I've heard within the three years -- and I certainly used to complain about it when I was an attorney in private practice representing credit unions is that -- the regulatory burden on all institutions including credit unions continues to increase, and the agency tries to be very mindful of putting in place regulations or mending regulations to respond to safety and soundness consideration, but also to be mindful of the flexibility that credit unions need in order to do business. As you probably know, we review one-third of our regulations every year, and we do that primarily with the mind to keeping those regulations as flexible as possible, and as responsive to the circumstances that we are seeing within the market place within the economy.

FIELD: So we've got a big one coming up, Saturday November 1st. That is the deadline for compliance with the identify theft red flags rule. How prepared are the federally chartered credit unions for compliance with this rule?

HYLAND: I think they are very prepared. I mean, they've had quite a while to get into compliance -- you know a year, a little bit more than a year. And we just issued guidance to our examiners on what to look for as it relates to compliance, and frankly the examiners are going to be having a dialog with credit unions to come into compliance and to put adequate plans and controls in place. Like any new regulation, you know examiners and credit unions have to have a dialog on what is actually happening within the credit union, what the compliance requirements are, and how credit unions can best meet the spirit of those requirements.

FIELD: Now when will those examination guidelines be shared with the credit unions? I haven't seen those publicly issued yet?

HYLAND: They should be issued probably within the next week or two if I understand it. Normally we issued to our examiners and then repackage it in a letter to credit unions, and I can certainly get back to you on that. But normally, we repackage it within about a week a two.

FIELD: Now every since the Federal Trade Commission came out last week and said that it wasn't going to be enforcing it's deadline for compliance for another six months for State-Chartered credit unions, my phone has been ringing off the hook. I can't imagine what you are hearing from credit unions.

HYLAND: Well, we certainly have had various letters and emails urging the agency to also delay its compliance dates. The agency does not feel that is appropriate - that, again, given the amount of time that credit unions were given to comply with this. And frankly the importance of this particular rule -- we believe it was appropriate to continue with the original compliance date.

FIELD: Now earlier this year, Gigi, you came out in one of your webinars and you talked about the NCUA's call for improved vendor management. How have the credit unions responded to that call out?

HYLAND: Credit unions have responded fairly positively. The webinar that we held was I think the end of January or early February of this year. And again we tried to lay out, because this was a fairly new topic, tried to lay out some of the basic common sense issues that examiners would be looking for. And the speeches that I've given for most of 2008 I focused a lot on vendor due diligence and vendor management, and the dialog has been very robust with credit unions. I think one thing that is very helpful is that we issued the actual questionnaire that examiners utilized when they go into a credit union to look at those issues. So it really lists all of the considered reasons that an examiner is going to be thinking about, and that means the credit unions have an inside look into the examiner's head when the examiner comes and asks about due diligence. And again, I think that lays a ground work for very robust dialog, and frankly I've encouraged our credit unions to really engage in that dialog. To look at who they are using as outside vendors, to review the relationships from a risk perspective, to document their efforts, and if they feel that what they are doing is appropriate for the level of risk that the vendor may pose to the institution then you know, to either agree or disagree with the examiners. So it is really meant to be a dialog because it is the credit union that is in the best position to know what is the credit union's strategic plan, who does it need help from to implement that plan in terms of third party vendors, and how does it go forward best to manage those third party vendors so that strategic plan comes to live.

FIELD: Now just a quick follow-up to that. Given what you've seen come back from examiners, do you have a sense of what credit unions are doing particularly well and where they need additional help in vendor management?

HYLAND: I think credit unions are doing particularly well in that they've embraced this issue. I think they understand the issue that we're not saying 'Don't partner.. We're saying partner, but go slowly -- take it a step at a time and really understand what you are getting into. There is not the holy grail of a one percent return on assets anymore, and I think from the agency's perspective that is a real breakthrough for credit unions and for the agency. It is about making sure that you are strategic plan going forward is responsive to members and it manages risks appropriately.

And I think in terms of what credit unions to do better on risk management, I think it is the slowing down that we would like to see. I think that we would really like to see credit unions take it a step at a time. If you are launching a new product or service, you know try it out a little bit first. Don't go full bore, I know I've used that expression a couple times, don't go full bore into just to get the income from it ... So that is the best advice, if you will, or a view of vendor due diligence that I can give you.

FIELD: So you are probably about two months ahead from doing your next big webinar talking about the issues of the year. What do you see as being the top two or three challenges for credit unions as they go into 2009?

HYLAND: I think we actually touched on them a little bit. Tom, again because of the increase in delinquencies that we're seeing, credit unions need to be very mindful of the allowance to loan losses and how they reserve appropriately for that. Knowing that margins are going to be squeezed because of the economy, credit unions need to be mindful that they need to manage and be responsive to members' needs in a very, very tight economic situation. You know, obviously vendor due diligence is out there, and then I think managing appropriately the collection functions that we talked about so that you're doing the best service that you can to the members while appropriately protecting the credit union's interest and trying to balance those two challenges.

FIELD: So in terms of your role, I'm guessing that 2011 is going to get here even faster than 2008 did. What do you want to accomplish in your remaining three years in that role?

HYLAND: You know interestingly enough, let me just look at 2009 coming up. As you know, 2009 is the 75th anniversary of the Federal Credit Union Act and I'm going to be hosting in June of next year a symposium talking about the Federal Credit Union Act and really what the next 75 years might be for credit unions. And I think that will provide a good forum for dialog on issues that credit unions have been wrestling with for a long time, perhaps secondary capital, and feel of membership certainly, and then modernization of the Federal Credit Union Act in terms of what credit unions would like to see the Federal Credit Union Act look like.

And on top of that, you know I think for 2009 the challenge will be to manage through this economy appropriately and to issue and to regulate just as much as is needed without being overbearing and enhance credit unions in their ability to serve all of their members.

I think from there, the challenges going forward particularly in light of dialog on regulatory consolidation and issuance of new regulations to perhaps address some of the faults that people see in the system that may have caused the economic crisis, I think that will be a challenge going forward for NCUA in the coming years -- to have a robust conversation about why the credit union charter exists, its place in today's economy and its value in today's economy, and how that charter should go forward into the future. And I think certainly -- I'm speaking for Gigi Hyland now -- not being homogenized into just another type of federal charter. I think that dialog has to go forth and I think the agency will play a key role in that.

FIELD: Safe to say it's going to be an adventure?

HYLAND: Very much so. I'm looking forward to it.

FIELD: Gigi, thank you so much for your time and your insight today.

HYLAND: You are so welcome, Tom, thanks again for the help.

FIELD: We've been talking with Gigi Hyland, Board Member NCUA. For Information Security Media Group, I'm Tom Field. Thank you very much.

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