Compliance Highlights & 2024 CU Forecast

Risk areas; expulsion of membership changes; cybersecurity & incident reporting; succession planning; small business lending; and much more. 

by Sabrina Ducksworth-Brown and Tiffany Mallare, ViClarity Compliance Officers

With 2023 wrapped up, it’s important to reflect on compliance regulations that impacted the credit union space. There were a variety of new regulations and risk areas needing attention – including many that may continue to be of concern for credit unions in 2024. The credit union landscape is ever-changing, and it can be difficult to keep up with all the new issues as they emerge, but here are a few things to look out for in the coming year.

2023 Compliance Highlights
Risk Area Highlight
The connection between areas like interest rate risk, credit risk and liquidity risk were notable last year. Interest rates have been rising since early 2022, but a sharp uptick in inflation and rates in 2023 most likely impacted the bottom line for some organizations. The high interest rates have impacted cash flow and loan participation in many organizations as members struggle with the changing economy.

Although economists may project lower rates in 2024, it’s unclear what the Federal Reserve may do. This means organizations can expect that rates will remain high at least through Q1 of 2024. Since credit unions have already been dealing with these high rates, it really becomes about finding your footing in this risk environment.
Credit unions can focus on growth and member retention to combat the influence of these risk areas in 2024. Many are already making strides by taking part in initiatives to remain competitive in the market, such as:

• Digitalization
• ITIN Lending
• Loan Participation
• Membership Drives
• Educating your Membership
• Community Participation

Expulsion of Membership Changes
A big change to the Federal Credit Union Bylaws came in the form of amendments concerning member expulsion. A federally insured credit union can now expel a member by two-thirds agreement from their board of directors. This gives federally chartered credit unions a little more authority over their membership.
 
This process coincides with revisions to several other articles that define the qualification of a member in good standing and the reasons for member expulsion.

With these new regulations concerning member expulsion, federal credit unions should make sure to have policies surrounding the stages of member expulsion based on nonparticipation, limitation of services, and for members who are not in good standing.

Cybersecurity & Incident Reporting
The Amendment to Part 478 from the National Credit Union Administration (NCUA) recently was issued to better define reportable cyber incidents and how to conduct reporting. NCUA has indicated significant emphasis on reporting these incidents for the prevention and protection of credit unions and their members.

This hot topic from 2023 will continue to be pertinent in 2024. Credit unions should bolster cybersecurity plans and ensure preparedness to handle a cybersecurity event. These guidelines from the NCUA can help build strong cybersecurity programs:

• Update response plans to reflect NCUA reporting guidelines
• Review vendor contracts
• Train employees
• Monitor and review cybersecurity plan
• Document all incidents

Succession Planning
Succession planning became a hot topic in 2023 among several groups as more credit unions experience high turnover and retirements. This can look different for all organizations, but certain guidelines should be followed, including identification of key positions and the necessary skillsets for those positions, as well as implementing strategies to fill vacancies. 

Credit unions will want to get started on their succession plans in 2024, and here are a few questions that can function as a starting point:

• Does your credit union have a step-by-step procedure on what, how, when and by whom each task is completed?
• Does your credit union have key personnel readily trained to step in for another employee on short notice due to absence, temporary or permanent loss?
• Are your board members prepared and trained to act as interim managers, if needed?
• Does your credit union have a detailed plan of action for both your short- and long-term success plan?
• Does your credit union offer on-going staff training to educate employees and volunteers on internal and external market changes?
• Is your succession plan being reviewed, updated and approved annually?

 
Looking to 2024
Junk Fees & Fair Lending
From a lending perspective, the Consumer Financial Protection Bureau (CFPB) will be cracking down on junk fees in 2024, looking for issues like:

• Failure to provide refunds on optional add-on products (Guaranteed Auto Protection)
• Miscalculation of refund amounts
• Overcharging for add-on products after early loan termination

While this process was in progress in 2023, the supervision of these unfair practices will continue. Many of the specific laws apply at the federal and the state level, so it is important that credit unions understand what’s required of them at both levels. Reviewing current policies and procedures will be critical to ensure adherence with fair lending practices.

Corporate Transparency Act
The Corporate Transparency Act was introduced in 2021, but the effective date of compliance on this rule began on January 1, 2024. This will create some new requirements for organizations, but also provide some regulatory relief on identification and verification requirements for customers. This consists of 3 different rules and regulations.

• Beneficial Ownership Information (BOI) reporting requirements
• BOI access and safeguards, use of FinCEN identifiers for entities
• Revisions to customer due diligence requirements

Small Business Lending
Amending Reg B, this new rule from the CFPB requires financial institutions to collect and report data on applications on credit for small businesses, including those owned by women and other minorities. This final rule became effective on August 29, 2023, and covered that financial institutions must comply with this rule beginning October 1, 2024, April 1, 2025, or January 1, 2026. This topic is one credit unions need to monitor for specific guidelines and requirements coming in 2024.

2023 was a busy year for compliance professionals with lots of changes and new regulations emerging from regulatory bodies. It can be hard to keep track of it all. If you’re interested in gaining more support in these areas or other parts of your compliance programs, consider connecting with ViClarity’s expert consulting team in 2024.

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