WASHINGTON-Eighteen months after new rules required volunteer directors to better understand what makes a federal credit union tick, board members are generally better prepared to do their jobs, according to industry analysts.
In many cases in recent years board members found themselves surprised and unprepared when their credit unions failed or got into trouble following the financial crisis and the real estate downturn. That led NCUA on July 27, 2011, to enact Rule 701.4, which required board members at federal credit unions to have a "working familiarity with basic finance and accounting practices."
Since that date, directors at state charters as well as federal charters have taken classes and obtained certificates in large numbers.
Progress Hard To Quantify
Kevin Smith, director of volunteer education for CUNA, said it is difficult to quantify exactly how much directors have learned over the past two years, as there was no baseline measurement before implementation of the rule. But his overall assessment is positive.
"In response to 701.4 there was a huge renewed interest in training," Smith recalled. "CUNA has presented training on these topics for years in various formats. The classes were already in place, we just needed to get them in front of the directors."
According to Smith, CUNA saw the numbers of those taking training "jump dramatically" in the months following the announcement of the new rule.
"We know for sure directors were paying attention and were active in getting training," he said.
Aaron Steinberg, editor of the Safety & Soundness Report and chairman of the Directors' Convention, also observed directors moving quickly to comply. In an August 2011 interview with Credit Union Journal during the then 34th annual Directors' Convention (and first since implementation of the rule), Steinberg reported "a huge spike in interest" for the convention's financial literacy "boot camp."
"It was probably two times to three times what we normally get for the boot camp, and we are expecting hundreds of people for the new session," he said in 2011.
Since that time Steinberg said director interest has remained strong, but it has also evolved.
"Since then we continue to address it, and it is a part of our regular sessions," he said. "But we are not seeing the same demand now, which makes sense because the rules do not require a test for directors."
Instead of a test, Steinberg continued, credit unions have to show their directors have met a certain standard for financial education.
"The requirement is not as hard as credit unions thought it would be when it first came out," he said. "But it is a very important part of running a credit union and we do have content."
Do More Than Show Up
CUNA's Smith noted the trade group has created a certificate program that involves a testing component that has been successful in getting directors to absorb important information.
"Directors had to do more than just show up," he said. "In 2011 we issued 844 certificates. We also know we trained a lot more people than that. Our online and print course numbers were dramatic."
Although rule 701.4 was directed specifically at federal credit unions and their directors, Smith said anecdotally he has spoken with credit union directors across the country at state-chartered credit unions that agreed it was a best practice and something they should be doing.
"I am sure there are directors out there who are not taking dramatic steps," Smith acknowledged. "The gap I see is awareness this is not a one-and-done training opportunity. This is a call to directors to make sure they have ongoing education going forward and they need to keep up."
To meet this need, Smith said CUNA has refined its director education program to become a multi-day e-school.
Getting A Certificate
Steinberg said his understanding, based on talking to the subject matter experts who help plan content for the Directors' Convention, is credit unions need to show they have gotten education for their directors.
"This could be a certificate from one of our educational sessions or other documentation," he said. "The financial literacy session is tucked into a larger session on financial management, including balance sheets and key ratios."
The original directive from NCUA was for directors to be able to read a balance sheet. Steinberg said the Directors' Convention no longer dedicates a session "just" to the certificate, noting, "We teach increasingly complex financial issues all directors need to know."
"The rule has been in place and the directors have gotten the education, so what we are seeing now is mostly new directors," Steinberg said. "The financial literacy class we set up a couple years ago devoted time to issues facing the credit union industry. What directors are primarily interested in is getting the certificate they can show the examiner."
Shortly after NCUA issued rule 701.4, CUNA's Smith said he heard from a large number of directors who were worried about what it meant.
Rule Renews Interest
"But once I explained it to them they were fine with it," he recalled. "A number of directors might have been busy and were not keeping up as much as they should have been, but the rule renewed their interest. Thousands more directors are up to speed as a result of the requirement and we need to keep the message in front of directors this is something they have to maintain in an ongoing way."
Smith said regulations often create "blowback," but he said when dealing with this particular issue CUNA has seen directors willing to "step up and engage" with the issue, "which was great to hear."
"It certainly was not a negative reaction," he said. "It is a good step. It is not the end step. Director training needs to be expanded as things become more complex. Balance sheet training is not the end, but directors are enthusiastically stepping up."