Mark Treichel welcomes Dan Berger, the CEO of the National Association of Federal Credit Unions (NAFCU), to discuss NAFCU's 2023 advocacy priorities. Tune in to this episode and look forward to NAFCU’s vision and mission for 2023.
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Dan Berger & NAFCU's 2023 Priorities
I'm excited to have a very special guest here. It's Dan Berger, the President and CEO of NAFCU or the National Association of Federal Credit Unions. Dan, how are you doing?
Mark, I am doing fantastic. Not as good as you down in Florida, but I'm doing extremely well here in Arlington, Virginia.
Arlington is a great place, but right now, weather-wise, I think I got you beat here in Hollywood, Florida. Dan, when I was at NCUA, I would see you at a lot of board meetings representing credit unions. I would also see you on occasion on the seventh floor. I'd be walking down to a meeting and you'd be walking over to one of the board offices.
Every time I'd see you, I would think, "I'm going to get a visit from a board member real quick because Dan is over there chatting with the board and he's got some ideas. Those ideas are going to become ideas of the board and/or after you said we could do X, I want to check that out.” I want to toot your horn a little bit as the consummate credit union advocate.
Those readers who know Dan already know that, but you're always there trying to get good things done for credit unions and therefore credit union members. Kudos to you on that. For those who might not know your background before you got to NAFCU, maybe you could go into a little bit of that, and then how you landed at NAFCU and credit unions.
Thanks again for the opportunity to be on your terrific show. I grew up in Gainesville, Florida, been in the political realm running campaigns in high school and college. My first job out of Florida State University was lobbying for the Farm Bureau down in Florida. It snowballed from there. It lobbied for realtors and various insurance companies. I came up here and was chief of staff for a congresswoman. America's community bankers picked me up, and I was there for 6 or 7 years.
Korn Ferry came and recruited me to be the head lobbyist for NAFCU. It was a great opportunity to have a larger portfolio, issues, and responsibilities. That's how I got to NAFCU, and then the board appointed me CEO in 2013, and I've been CEO ever since. It's been a great ride. There's no better job in Washington DC than being the CEO of NAFCU. To sit there and work on behalf of credit unions across the country as well as in Puerto Rico and Guam is a blessing. It's been a wonderful ride. I can't wait to get to work every single day.
Credit unions are amazing and what they do for their members. You and I are fortunate to have credit unions as part of our careers and continue on now. At the beginning of 2023, we talked about you being in politics. I know that you work with that a lot in the role that you have. You recently developed NAFCU'S priorities, and then are communicating them to the powers that be in Washington DC. I thought maybe we could walk through NAFCU's priorities as we head into this new year.
I'd be glad to. We operate a little differently than some trade associations. My board of directors sets the tone in the direction and the vision of what they want us to cover. They want us to focus primarily on operational issues. They create the direction and then we do the tactics and the strategy behind it. We have a multi-tier approach to it.
They want us to talk about growth, technology and innovation, regulatory relief, fair market, and of course data protection. I'll just start with growth, and then we can go down to some of the others. We do everything through the filter of trying to create a regulatory and legislative environment where credit unions can continue to grow, thrive, and serve their 134 million American consumers.
Also, to provide opportunities for them to continue to serve the underserved, low-income areas, and the unbanked. It's crucial to have that ability and that flexibility, but to grow. If you go back to why credit unions were formed, nobody wants four big banks controlling everything. The robber barons that are out there. The importance of credit unions is to serve 134 million Americans. The ability to grow is our first focus.
Relative to that, for that to happen, there are things that NCUA could do regulatory. There are things that require a change to the Federal Credit Union Act. For example, when NCUA was required to do the budget briefings or hearings. I know that forever you are an advocate of there being an open forum relative to that and played a role in that change in the Federal Credit Union Act. Are there specific things relative to the act or the regulations as it relates to growth? You mentioned the Field of Membership and low income. Are there things there that you have on the horizon or that you're going to be asking NCUA in particular?
We come up with a list every year of changes that we would like in the Federal Credit Union Act. Field of Membership is always at the top. As you're well aware because you were there. The more that we try to serve the unbanked and those financial deserts that are out there. The banks don't want some of these rural areas and some of these inner city areas, but credit unions do. We want to serve that. Of course, if credit unions get sued, the NCUA gets sued for trying to serve those people. That's a major focus. There's some flexibility and things that the NCUA can do, but there are going to have to be some changes with the actual Federal Credit Union Act to be successful.
In a lot of situations where I've seen some credit unions buying banks the other banks don't want to serve those areas. The credit unions come in and make the best offer or perhaps sometimes the only offer. Sometimes it's only credit unions that offer so that in those challenging areas, the community continues to be served. You mentioned technology and innovation as well. Let's speak a little bit about that side of things.
For technology and innovation, everybody talks about FinTech. Credit unions have to invest and have some partnerships in FinTech. They're not inherently bad. It's a commoditized term, as you know. Everybody has a different definition somewhat of FinTech, but you have a partner. Wells Fargo, Chase, Bank of America have hundreds of software developers and technologists, whereas credit unions, for the most part, do not.
To have those partnerships are important. It's extremely important that we also have that parity in order to invest and partner with FinTechs. That's our focus. To make sure that they have the ability, whether it's regulatorily or legislatively, but to continue to have those relationships with FinTechs across the board.
Right now, the current makeup of the three NCUA board members, from what I've seen, is generally pretty open to that. Vice Chairman Kyle Hauptman has been big on that side of things as has former Chairman Rodney Hood. I think Chairman Todd Harper is open to it as long as there are safety and soundness structures around it. The other thing is that there are some FinTechs out there that have the ability to steal members from credit unions. It's almost as if credit unions don't get involved in some of those things they're going to miss opportunities.. That links back to the growth side of things as well.
Members and consumers want access to their money. They want to be able to operate, have access to the money, and transfer money in a frictionless process. You have to have that component. My fear is I don't want small financial institutions always chasing that shiny squirrel and the next big thing. Focus on the member engagement and experience, and make sure it's positive the best it can be.
members and consumers want access to their money. They want to be able to operate and transfer money in a frictionless process. This is an extremely important component.
Everything is done on your smartphone, that's your mobile branch. If that experience isn't relatively easy and intuitive, you have an opportunity to lose numbers. If it works well and it functions well and efficiently, you can gain market share with that. It's important to have that technology and those partnerships with FinTech.
You mentioned your phone, I know that at times, I believe NCUA is looking at the Field of Membership. They've hinted that there might be some nibbling around the edges on the Field of Membership side of things. I also know that there are some people on the seventh floor at NCUA who would like, ultimately, for this to be able to be a branch.
The reality is, when was the last time you were actually in a branch? What is the branch? It is your phone, iPad, or laptop. There is some language in the Federal Credit Union Act that is not necessarily consistent with that. Perhaps the general counsel at NCUA thinks it's a little bit of a bridge too far to get there yet.
I actually think at some juncture, probably with the help of NAFCU and CUNA, that there's going to be a fork in the road. The phone is going to be allowed to be a branch relative to adding someone to your Field of Membership. I know you're strong advocates of guarding the tax-exempt status. Any thoughts that might be where we're heading and how those two worlds might collide, or anything on that?
I'm less concerned about a collision between increasing access to technology for credit union members, and our tax exemption, but you're exactly right. We have to find a way to make the smartphone, iPad, laptop, or whatever device you utilize to be a branch because that's the way it is. Of course, my primary financial institution is a credit union. I haven't been into a branch of this credit union in seven years.
I do everything I want like direct deposit and bill pay. They basically control my entire financial life. It's done on my iPhone and I do it on a regular basis, so that makes sense. Almost everybody has a cell phone. What a terrific way to take care of some of the unbanked and lower-income folks that need access to financial services that credit unions offer and it's through technology. Have the NCUA continue to take a look at it, but I agree with you that it'll probably take a minor change in the Federal Credit Union Act to solidify that. That is something that we've been looking at and talking about for years. There just hasn't been an appetite with all the other noise that’s going on.
As you're explaining, it's clear to me that if that ever gets done your organization is going to have to play a big role in it. It reminds me of my time at NCUA where I might have discussions with my other executives on things we'd want to do, and a certain board member might not have an appetite for that. Timing is everything. John Kutchey was my Deputy Executive Director. We would have packages all ready to go for items we wanted th board to approve.
A newly appointed board members would come in. We'd want to talk about a concept so that if there was an opportunity to strike, we could strike. We wouldn't have to go from 0 to 60 the next day. You're always out there talking about these things. You're always running that marathon, but you're ready to sprint if that opportunity comes up. It's how, I guess, things work there.
You're exactly right, Mark. What we do is we will have a list of things that we want from a regulatory standpoint, whether it's for the CFB, the NCUA, or any of the other prudential regulators that are out there. We also have a legislative wish list that we go through as well. For the most part, almost everything's already pre-drafted. We're ready to go with language and things like that. When something comes up or a big train is moving and try to attach things to something that's moving, we're ready to go. We do have a lot of pre-drafted stuff ready to go.
I thought that might be the case. I know you have thoughts on it, but could you go into the third-party vendor authority topic, which is something that NCUA always brings up and NAFCU has some opinions that differ a bit from what NCUA has thoughts on?
From the standpoint of we just don't believe the NCUA has the expertise to deal with it. Quite frankly, looking back into some of the examinations and talking to the CEOs that are going through the exams. You're already looking at some of these things. You're already talking about the vendors and some of the things that operations and the platforms they utilize. It's there. We don't want any additional expenses. We can get into that if you want to in terms of budget because that's a burr in my saddle, too. In terms of third-party vendor authority, we don't think it's necessary at this time.
I tend to agree with you that if they take it on the walls of NCUA, there are some people that believe that if they do get it, they may not need to add a lot of resources to do it. My position is if they do get it to do it right and to serve it right, they'd have to add a lot of people and staff. It would have to increase the cost to credit unions.
The other thing, putting my old regulator hat on, is - it's smart for NCUA to ask for it as long as they don't get it. When they get it, it's going to be like, the dog chased an ice cream truck, and then the ice cream truck stops and goes, "Now what am I going to do?" Down the road, if there's some big disaster that happens when they're looking to blame how this all happened, NCUA can then say, "We asked for it, but we didn't get it." At that juncture, there's a time that they should get it. If they don't ask for it and it was a hole and they didn't point it out, there's always that side. I had heard some conversations related to that, and I can see why that's a position where they might want to ask for it. I think NCUA truly does want it. I'm not saying they don't.
They want it.
In this arena where the Great Resignation, we're staying fully staffed is a challenge. I want to say struggling, but getting fully staffed was always a challenge at NCUA. Right now, it's a particular challenge, so focus on the majors. Where I would be at right now is, "Let me get my exam team built out." They have new specialists. They added regional electronic payment specialists. They're adding Bank Secrecy Act and Consumer Compliance Specialists. Round those things and maybe ask for this again, but I support you fighting their need for that. There are different ways they get to it. They require due diligence of third parties. They force the credit unions to understand it, which you could make an argument that that's a better way to do it as well.
We agree. They have access to a lot of that information already to expand it, hire dozens of people, and deal with this. All the regulators, not just NCUA, were struggling with personnel issues and how to retain. It's not just NCUA, it's everybody. It's all of them across the board here in Washington DC to add a whole other division. To your point, focusing on safety and soundness is the regulator's responsibility. Those are the areas that they need to tie down and make sure that they have experienced personnel in those roles. This is something they need to pass on and look at maybe later.
I'd agree with that. You mentioned the budget and expenses. I know that I mentioned that they're required to have that budget briefing, and I'm guessing you supported that being added to the act. I know you're there every year. Representatives from NAFCU were there to say problems you might have with their proposed budget. Let's speak about the budget and the expenses.
When I started at the NAFCU years ago, there were 15,000 to 16,000 credit unions. Now, we're down to 4,800. To continue to have a budget that goes up in almost double digits every year is extraordinary. I know it's 7.5% this 2023. It seems to us the resources are there and some of those resources can be reallocated to different areas. You saw it for a while there.
I understand the slope and the degree of increases have been lessened. We appreciate the board members doing that, but there's still a major concern for the CEOs. The credit unions and their members are paying for it. The number one issue the NCUA keeps going up in their budget is there are less credit unions to examine. Those issues get extraordinarily difficult to talk about.
You got the merit program and everything, and the funding required for that. It seems to be a big black hole and it keeps getting more expensive. That's top of mind. As you know, credit unions are running on such thin margins as it is, especially in this interest rate environment they're operating in. Mortgages and auto loans flow down in a lot of areas. It's a major concern that any increase in the NCUA's budget is less than credit unions can utilize to serve their members.
Any increase in the NCUA’s budget less than what credit unions can utilize to serve their members is always a major concern. They are running on such thin margins as it is.
While there are less numbers, credit unions are getting more complex and there are the slides. Some of which I helped develop back in the day to compare the cost of the FDIC to NCUA and the like. It's good to have that natural tension of opposites. This is at the heart of advocacy. If you let somebody take an inch, they'll take a foot.
The constant conversations that you have around that are they do make a difference because you ask the questions and you educate the board from the credit union perspective that senior staff at NCUA doesn't always have, which leads to a better dialogue and ultimately leads to a better budget. It might not be one that NAFCU would approve or that the credit unions would approve. I assure you that the board and staff pay attention to what is asked of them in those briefings.
The fact is we have tremendous respect for the staff of the NCUA and tremendous respect for the NCUA board members. There is tension there and as long as it's done in a professional manner. I'm an economist by education, so I believe strongly in the data and the metrics. I don't want any esoteric ideas out there getting funded or whatever. Those things matter.
You can prove from a data standpoint something is needed. We'll absolutely take a close look at it, beat it up and get back to the regulators about it. We look at everything very closely. Quite frankly, as you know, when you're in that role there, we pride ourselves in being the financial watchdog of the NCUA. Some of that stuff doesn't. There is attention, but we try to do it professionally and friendly. We'll agree to disagree. There are things we agree on and we don't agree on. That's my role. I get it. I'm paid, and my colleagues here at NAFCU are paid to advocate on behalf of credit unions. That tension is inherent in the process.
I didn't mean tension in a bad way. I meant that there are two sides to a story. Your side is to advocate for that. Theirs is to understand from the other side and fulfill their mission. Reminds me, there's a book I refer to oftentimes called The Wisdom of Crowds. If you don't tap into the wisdom of crowds and learn from every angle and every stakeholder what it is you can do so you can make the best decision, you're not optimizing those decisions. That leads to that process perfectly. Regulatory relief and I've talked a little bit about Field of Membership and different things.
From a regulatory standpoint, a lot of us, quite frankly, are focused on CFPB. A lot of our members are approaching that $10 billion market pretty rapidly. As you know from your prior experience, once you're at $5 billion or that number, you start hitting that $10 billion mark quickly. We've been working hard with the large credit unions, helping and working closely with the NCUA as well as the CFPB.
Here's a checklist list of things that you have to deal with when you approach and hit that number. We've been focused on a lot of the CFPB things, like Reg E and some of the things that they're trying to do with the third-party payment system and everything else. We're taking a close look at some of those things on an extremely regular basis, if not every day.
I would think, along those lines, that $10 billion NCUA, the Office of National Exam and Supervision side of things, they calibrated that up to $15 billion. It would be great if the CFPB could get an inflation indicator added to it or, or something similar. Is that something that is on your wish list or it's not possible? What are your thoughts on that?
I think that would be great. I just don't think there's an appetite. It's something that we've all talked about for years. Back in the beginning, NAFCU was one of the only trade associates who went against the CFPB overseeing credit unions. We didn't think it was a necessary step and still don't, quite frankly. At a minimum, it should be a commission or a board just like the NCUA or the FDIC. That's an important change that needs to occur there.
The CFPB is looking at a lot of the non-interest income of financial institutions. They, unfortunately, came out with a terrible phrase junk fees. That includes a whole list of things. That drives me absolutely crazy when they do that, especially for something that you opt-in to and that credit union members want. We can debate NSF and things like that on a different show, but overdraft or courtesy pay is a utilized service. It's something that the CFPB I don't think truly understands that the surveys and even consumer groups have done that service is wanted and needed, quite frankly.
If it goes away, it's worse for those people in need, not better.
It sounds good that we're going to eliminate this, but then you got folks that are going to run into some serious difficulties, embarrassment, and any other things if it goes away. I don't think it'll go away, but to go out there and continue to pound the phrase "junk fees" over and over again. It's inherently bad and not fair to the industry and the service.
You mentioned in a perfect world, it'd be great to have a board or a commission at CFPB. The NAFCU board has 11 members and the NCUA board has 3. NASCUS will oftentimes want an increase in the NCUA board members. As NCUA Executive Director, I liked having 3 board members, because that was 3 plus 3 of their assistants. There were only 6 mouths to feed and you've got 11, which is good because it's that wisdom of the crowd, but it's a lot of work the bigger the board gets. Do you think the NCUA is the right size now with the board?
It's a perfect size, Mark. Thanks for asking that. I was on the phone with Brian Knight of NASCUS. We're talking on a regular basis, as you can imagine. He's doing a terrific job. That's one of his things is making it dedicated to a state regulator or increasing the board size. There were a lot of talks. We probably to make it look like the FDIC board and all this other stuff.
I don't want the CFPB on the NCUA board. I'll just say it. State regulators have served on the NCUA board in the past, as you're well aware. Someone appointed with that experience is still there. Again, it comes down, three is the right number. You can control those expenses and watch them. I just don't want to add additional resources for another body or two. I don't think it's necessary.