Board Member Rodney Hood shares his perspective on all things credit unions
NAFCU Senior Vice President of Government Affairs Greg Mesack sat down with NCUA Board Member Rodney Hood earlier this summer for a wide-ranging discussion on the state of the credit union industry, Hood’s outlook for the future and some of his notable accomplishments as his term is set to end this fall.
Hood served two terms as an NCUA Board member, first nominated by President George W. Bush in 2005 and appointed to serve as vice chairman. Again in 2019, he was nominated by President Donald Trump and was confirmed to serve as chairman. Hood served as chairman until January 2021. During his years on the board, he has prioritized regulatory flexibility to support credit unions’ growth and is particularly interested in fintech, financial equity and inclusion efforts, capital issues and more.
Here are some key excerpts from Mesack’s conversation with Hood. The entre conversation can be viewed on NAFCU’s YouTube channel.
*Some questions and responses have been condensed and edited for publication and clarity.
Mesack: It’s clear that the entire financial services industry is consolidating, and the economy is still recovering from the pandemic—things are still working out, we have inflation and a few other pressing issues. What is your advice to credit unions, big and small, as they navigate these uncertain economic times?
Hood: Well, my main advice to credit unions is to do what they do best, and that is continuing to display the people helping people ethos.
In spite of all of the pressures that we’re facing today, I’m very proud of the fact that America’s credit union system is positioned and poised for great and ongoing success as evidenced by our most recent Call Report data. Credit unions now serve [more than] 137 million members throughout the United States.
Those 4,800 credit unions that we oversee and insure at NCUA now have assets of $2.2 trillion. And while I’m proud of the growth that we’ve seen in number of members and number of assets, I’m even prouder of the fact that credit unions today have over $1.7 trillion in loans outstanding. What does that mean? It means that our credit unions are doing what they do best and that is being there for their members when their members need them.
In the midst of today’s inflationary pressures, credit unions are providing loans, as evidenced by high outstanding loan volume. This includes loans that the individuals need to purchase cars to go to and from work; loans for sustainable home ownership; and most importantly, business loans so that we can stimulate the American economy. Yes, there are a lot of what we would call “headwinds” out there, but credit unions have had no diminution in asset quality.
Greg, credit unions have had very little charge offs and delinquencies. In fact, they’re historically very low. And one thing that’s historically high is our net worth. Credit unions now have a collective net worth of over 10.7%. That’s almost some 400 basis points beyond the statutory requirement of 7%.
So, credit unions have solid capital adequacy, they have great risk management in place, and yes, it may look daunting. And yes, we see a lot of financial services providers out there that are experiencing a lot of hiccups, but I’m very proud that we as the regulator at NCUA have the tools, technology and experienced agency professionals that we need to keep credit unions viable.
Mesack: There’s been a lot of focus on fraud in the payment system. One of the NCUA’s supervisory priorities establishes a questionnaire to help credit unions identify fraud red flags. Fraud is such a shifting target. There are always new red flags. What is your perception of credit union performance in identifying and mitigating these evolving fraud risks?
Hood: That is an emerging issue … The best line of defense around fraud protection and prevention is having credit unions and their staff members fully engaged. Having them fully trained.
I think they need to make sure that they’re looking at how they are battening down their defense mechanisms. How are they also looking at their systems issues? What are their internal processes around fraud detection? Also, what are the board members doing? How active is your supervisory committee, how are you looking at your governance policies and procedures? Those are all the things that we are helping credit unions identify and address in today’s dynamic environment.
I think another issue that’s worth noting is that we have a lot of smaller credit unions, as small as $300,000 to $400,000 [in assets]. So, when I talk about internal controls and fraud mitigants, many of them may not have the staffing in place to really embrace a lot of these types of activities.
So, what we’ve done at NCUA is we have a fraud protection website that people can use. If you go to NCUA.gov, you can look at some of the tools and some of the things that you and your credit union can do to really have a strong and effective fraud protection and identification program mechanism.
We believe that credit unions of all asset sizes should have the tools in place, commensurate with their asset size and complexity. But the main frontline of defense is a strong supervisory committee and an internal fraud control function. …We must continually educate our people and we must always strive to stay a few steps ahead of the bad actors.
…But also, Greg, I think another piece that I know that you all at NAFCU have talked about a lot is the payments space. And again, with payments, we are continuing to monitor what’s happening with issues surrounding Regulation E. Reg E is certainly designed to help our credit unions if they’ve had members in other activities that have had fraudulent activity. But with some of the fintech issues and breeches that we’re seeing, we are going to pay close attention to what happens with CFPB and the courts as it relates to Zelle and some of the others engaged in this space.
And as you and I know, fintech can really help us. I certainly am fully supportive of financial technology, but this is one area where we do need to be even more mindful around things such as the payment system piece and again, with things such as Zelle.
Mesack: NCUA is always so innovative and adaptive, and they recently created the provisional charter. That provisional charter aims to make the formation of new credit unions easier, but ongoing industry consolidation remains a challenge and that will likely require additional strategies to address the consolidation. It’s driving the industry. How is the NCUA thinking about the field of membership in a broader sense? Is there any desire to revisit the concept of online facilities or other tools we can use to help credit unions grow and so that consolidation is less of a pressure?
Hood: One of the things that I really was delighted to work with my board members on in 2021 when I was still chair, was around how do we expand the service facility, especially with our multiple common bond credit unions. As you know, one of the things we were able to do was to allow those credit unions the opportunity to adopt underserved areas without having to build a costly new branch facility.
One of the things that I think really will continue to pay dividends from that policymaking decision from the board is that credit unions can now be a part of the shared branching network. And you no longer have to have an ownership stake in that shared branch. You can still have access to that and count that as one of your service facilities.
I really did want [mobile phone] technology to be considered as a service facility. So, while we were not able to do that, I think again, the fact that we can have the automatic teller machines, the ATMs, the video teller machines those can all be considered as a part of the service facility.
And one of the other things that we’ve recently done, Greg, is that we have tried to simplify the process for creating new credit unions. As you’ve mentioned, the provisional charter rule that we just discussed at the last board meeting is always trying to address the chicken or the egg issue.
…We are trying our best to simplify the process for creating a new credit union. We’re trying to make it possible, again, to streamline the application process, trying to get a lot of that information on our website, such that when you are wanting to create a new institution, you can have a cafeteria style approach of charter types and Field of Membership options, through our Office of CURE, that stands for Credit Union Resources & Expansion, they are looking at these issues. They’re marshaling a lot of resources to the credit unions.
I just hope that we have new credit unions coming into existence. And Greg, if I can, we’re talking about provisional charters and things of that nature, but you also asked me earlier about small credit unions. I want you to know that we have dedicated resources to our small credit unions. We are investing in them through grants. We typically have provided grants to our community development financial institutions and our low-income designated credit unions. But now we’re making those grant funds available to the [minority depository institutions (MDIs)] and those are funds that can be used for technical assistance, cybersecurity, fraud protection and identification, maybe they can invest in some software and tools along those lines.
We also are going to be looking at a different examination style approach for our smaller credit unions. A tailored approach to looking at the risks by asset size of the credit unions so that you’re looking at them not as a one-size-fits-all approach. Not that we’ve ever done that, but I sometimes think the smaller credit unions need to know that we are approaching them with a laser-light focus in how we examine them through a more tailored principles-based approach.
We’re really excited that our examiners are going to be using that framework. So, we’re looking at again, how do we invest in these small credit unions? How do we keep them viable? Yes, there is a lot of consolidation in the industry, and I want to make sure that if the consolidation makes sense, then yes, if that’s a board decision. But I don’t want there to be consolidation because maybe we have burdensome rules and regulations with which they’re having to comply. I certainly hope it’s not because of our policies.
Now, if it makes sense for them to merge because they’re looking for scale and things of that nature, well then we don’t want to stand in the way of that. But if we can reduce regulatory burden, if we can empower them such as through [credit union service organizations (CUSOs)] and broadening their abilities to work with CUSOs and through financial technology—I think one of the things that can really help small credit unions, in fact even larger ones, is how do we use technology as that force multiplier to help those 137 million members have access to 21st century financial products?
Mesack: So, let’s take a little walk down memory lane. You’ve served two terms on the NCUA board. One could say, you know, you’re probably one of the more consequential figures in the NCUA governance in the recent years. And you’ve seen a lot. You were here during the financial crisis. You were here during COVID, you’ve been here during the Signature Bank and Silicon Valley Bank scares, you’ve seen and done a lot. And what do you feel are some of your biggest accomplishments in your time there?
And what do you think some of the challenges are going forward for your successor?
Hood: Oh my goodness, what a good question. I cannot take full credit for any of the things that I’ve accomplished. I’ve been blessed to lead a team of people who would work with me to bring a lot of my ideas to fruition. And with some of the people that have worked with me, I would say the things that through working in partnership that I really am proud of is, we’ve talked a little bit about this today, and that is the Office of Financial Technology and Access. To go from the ideation stage to bringing it to fruition. So now, like many of the other federal financial regulators in D.C., credit unions now have a prudential regulator with an Office of Technology.
…I was able to work with my team and colleagues at the agency and we created the ACCESS initiative that stands for Advancing Communities through Credit Education, Stability, and Support. That is a group within NCUA that is working with our MDIs to empower them to succeed, working with different colleges and nonprofits around financial education and financial coaching and financial health. It’s helping us recruit. How do we build a mentality around bringing diversity into the agency? And I’m not just talking about racial and ethnic diversity, I’m talking about low- to moderate-income communities. I’m talking about rural, tribal, differently abled, second chance and justice involved.
…I’m excited about the technology, the access piece, and Greg, it’s intentional that I put the Office of Financial Technology and Access together so those two are partnering together. If we are deploying financial technology strategically, it should bolster greater financial access. So again, that is the intentionality between those two departments working hand in hand.
The other thing that I’ve been really proud of from being able to work with my board members and others is to really provide CUSOs with the support that they need. Just like I believe in technology, credit union service organizations are also integral to the ongoing success of credit unions. I was very delighted to champion the rule making where our CUSOs could originate loans that credit unions need so that they can then buy them and sell them and participate them out if they need to get additional yield.
I think in a nutshell, I’m just proud of the things that I was able to do that would leave a legacy for the next generation of credit unions. We’re going to always pursue technological change. We’re going to always pursue serving vulnerable communities. And I think through the new offices that we’ve created, the CUSO piece that we have, I think those are the things that I’m most proud of. And I look forward to seeing the next generation of board members continue to perfect upon that.